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Section 1337 Forbids Importation of Certain Gray Market Goods Even If Manufactured in the United States

March 30, 2006

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Last Month at the Federal Circuit - April 2006

Judges: Schall, Clevenger (author), Dyk

In Bourdeau Bros., Inc. v. International Trade Commission, No. 04-1588 (Fed. Cir. Mar. 30, 2006), the Federal Circuit vacated the decision of the ITC that the importation and sale in the United States of certain Deere & Company (“Deere”) European version forage harvesters infringed one or more of Deere’s federally registered trademarks. The Court remanded to determine whether Deere can establish that all or substantially all of the sales in the United States were materially different from the imported European forage harvesters. Deere manufactures and sells forage harvesters in both the United States and Europe through a network of authorized dealers and distributors. Deere’s forage harvesters fit generally into two categories: the North American version harvesters, which are manufactured for sale in the United States and North America, and the European version harvesters, which are manufactured for sale in Europe. The North American and European versions, although sold under the same name, are different in a number of ways, including labeling and safety features. Some of Deere’s authorized dealers import and sell European model harvesters in the United States.

Deere filed a complaint with the ITC alleging violations of 19 U.S.C. § 1337 by the importation and sale in the United States of used European model Deere harvesters that infringed Deer’s federally registered trademarks. Following an investigation, the ALJ found that the appellants’ importation of used Deere version forage harvesters violated section 1337. Following the ALJ’s recommendation, the ITC then issued a general exclusion order and cease and desist orders against the importers.

On appeal, the Federal Circuit began its analysis by explaining that 19 U.S.C. § 1337 grants the ITC the power to prevent theimportation of goods that, if sold in the United States, would violate one of the provisions of the Lanham Act. A type of such goods is “gray market goods,” or goods that were produced by the owner of a United States trademark or with its consent, but not authorized for sale in the United States. If gray market goods bearing a trademark have characteristics that render the gray market goods materially different from those trademarked goods authorized for sale in the United States, the public may become confused or even deceived with regard to the characteristics associated with the trademark.

The importers argued on appeal that, because the European model forage harvesters were manufactured in the United States, they are not “gray market goods” and, thus, the importation and sales of those harvesters cannot violate section 1337. The importers pointed to the decision in K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1987), in which the Supreme Court noted that a gray market good is “a foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder.” The Federal Circuit disagreed with the importers’ arguments because K Mart did not address violations of either section 1337 or of the Lanham Act. Rather, K Mart addressed certain Customs regulations and the Tariff Act of 1930, both of which specifically referred to foreign-made articles. Thus, the Federal Circuit concluded that “K Mart should not be read to limit gray market theory, as it is applied in the context of section 1337, to goods of foreign manufacture.” Slip op. at 7.

Moreover, the Court noted that the relevant section of the statute in this case, 1337(a)(1)(c), makes no reference to the term “gray market” and does not distinguish between goods of domestic manufacture and goods of foreign manufacture. Thus, the Court concluded that “gray market law is not concerned with where the good was manufactured” but instead “is concerned with whether the trademark owner has authorized use of the trademark on that particular product in the United States.” Id. at 9.

Next, the Court explained that, in order to find a violation of section 1337, the imported goods must be materially different from all or substantially all of those trademarked goods authorized for sale in the United States. The Court found that substantial evidence supported the ALJ’s determination that there are material differences between the American and European models of Deere’s harvesters, including differences in safety features, the hitch mechanism, and the services provided along with the machine.

The importers, however, argued that Deere authorized the sales of European forage harvesters in the United States, including promoting the sale of European forage harvesters in the United States through its Web site. The Court concluded that “[i]f appellants are correct that Deere authorized such United States sales of European forage harvesters, and if such sales were sufficient in number to show that not all or substantially all of Deere’s United States sales were not materially different, Deere would not be entitled to section 1337 relief.” Id. at 13-14. The Court thus remanded for a determination on this issue.