June 2010 Issue
Civil Cases
Deere & Co. v. Int’l Trade Comm’n,
2010 WL 2104659 (Fed. Cir. May 26, 2010)
ABSTRACT
Reviewing an ITC decision, the Federal Circuit held that in determining whether sales of a trademark owner’s foreign−version products are “authorized” for sale in the United States for purposes of granting an exclusion order under Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, apparent authority
(as opposed to actual authority) is sufficient. Further, in determining whether “substantially all” of the trademark owner’s products sold in the United States are the domestic U.S. version, the Federal Circuit reversed the calculation applied by the ITC and clarified that the calculation must be made in terms of total authorized sales.
CASE SUMMARY
FACTS
Deere & Company (“Deere”) sold different versions of its self−propelled forage harvesters for the North American and European markets. Intervenors Bourdeau Brothers, Inc., OK Enterprises, and Sunova Implement Co. (collectively “Bourdeau”) were independent dealers of Deere products who imported Deere’s European−version harvesters for sale in the United States. Deere applied to the U.S. International Trade Commission (“ITC”) for an exclusion order pursuant to Section 337 of the Tariff Act of 1930, contending that Bourdeau had infringed Deere’s trademarks by unlawfully importing and selling Deere’s European−version harvesters in the United States. The ITC determined that Deere was not entitled to an exclusion order under Section 337 because not “all or substantially all” of Deere’s authorized sales of harvesters in the United States were the North American version. Deere appealed the denial of its request for an exclusion order to the U.S. Court of Appeals for the Federal Circuit.
ANALYSIS
Among other things, Section 337 of the Tariff Act forbids the importation of products that are “produced by the owner of the United States trademark or with its consent, but not authorized for sale in the United States,” also commonly referred to as gray−market goods. As a threshold issue, the Federal Circuit determined whether the sales of European−version harvesters in the United States had been “authorized” by Deere. The appeals court found there was substantial evidence to support the ITC’s finding that Deere implicitly condoned the sale of European−version harvesters in the United States. For instance, Deere’s U.S. subsidiary financed the purchases of European−version harvesters in the United States, and Deere promoted a website which allowed dealers to advertise the sale of European−version harvesters in the United States. Although Deere argued that it had no control over its financing subsidiary, the appeals court found that the ITC properly relied on the public’s perception of Deere’s actions in allowing such financing to take place rather than the direct control Deere exercised. The ITC’s focus on public perception was appropriate because the test for determining whether Deere had “authorized” sales of European−version harvesters in the United States was whether Deere exercised “apparent,” rather than actual, authority. Apparent authority arises from the public’s reasonable belief, based on Deere’s acts and omissions, that sales were authorized. The appeals court noted this test was consistent with the underlying policy goal of trademark law to avoid third−party confusion in the marketplace.
After determining that Deere had authorized the sale of a certain number of European−version harvesters in the United States (the ITC found this number to be 141), the appeals court next evaluated what percentage of Deere’s sales of harvesters in the United States were of the North American version. To be entitled to an exclusion order under Section 337, Deere was required to show that “all or substantially all” of the harvesters it authorized for sale in the United States were of the North American version. The rationale for this requirement is that, if a trademark owner has itself authorized the sale of a significant number of foreign−version products in the United States, it would essentially be contributing to the same consumer confusion that it accuses the gray−market importer of creating. Here, to determine the percentage of sales of authorized European−version harvesters over total sales, the ITC divided 141 by 347, with 347 representing the total number of European−version harvesters in the United States, regardless of source. The ITC had concluded that since Deere had authorized the sale of 40% of the total number of European−version harvesters on the market, Deere’s sales in the United States were not “substantially all” of the North American version.
The Federal Circuit found that the ITC misapplied the “all or substantially all” test. Rather than dividing 141 by 347, the appeals court found that the appropriate denominator was 4541, which represented the total number of Deere’s authorized sales in the United States (4400 authorized sales of North American−version harvesters plus 141 authorized sales of European−version harvesters). Using the proper denominator, the appeals court found that only 3.1% (141/4541) of Deere’s sales of harvesters in the United States were of the European version, and that 96.9% of its sales of harvesters in the United States were of the North American version. While the Federal Circuit noted that 96.9% “might well be considered to be ‘substantially all,’” it remanded the case to the ITC to make this factual determination.
CONCLUSION
To be entitled to an exclusion order under Section 337 against gray−market imports, a trademark owner must show that “all or substantially all” of its domestic sales are of the authorized U.S. version. This decision clarifies that, in calculating the percentage of “authorized” sales, the ITC should divide the number of authorized sales of the gray−market product by the total number of authorized sales of both the gray−market and domestic products.
