Ninth Circuit Addresses Genuine Goods Analysis for Gray Market Trademark Infringement Claims Under the Lanham Act

Practical Law Legal Update 6-553-4867 (Approx. 4 pages)

Ninth Circuit Addresses Genuine Goods Analysis for Gray Market Trademark Infringement Claims Under the Lanham Act

by Practical Law Intellectual Property & Technology

Background

The plaintiffs were two mushroom producers, Hokuto Japan, a Japanese mushroom producer, and its US subsidiary, Hokto USA. Hokto USA produces and markets its mushrooms as Certified Organic Mushrooms in the US. Hokto USA's production facility in California is entirely computer-controlled with strict temperature controls and other quality control standards. Hokto USA sells the mushrooms in the US with packaging including Hokto's trademarked logo, the "Certified Organic" certification and nutritional information in English. Hokuto Japan's mushrooms are produced in nonorganic conditions and sold in Japanese-language packaging in Japan.

Concord Farms, a distributor, has been buying and importing Hokuto mushrooms from Japan and selling them in the US since 2003. In July 2009, a Hokto USA representative saw Hokuto Japan's Japanese-packaged, nonorganic mushrooms bearing Hokto's trademarks sold next to Hokto USA's mushrooms in a US grocery store under signs that said "organic" and "made in USA."

Hokto USA and Hokuto Japan sued Concord Farms for trademark infringement for importing the legitimately produced goods and selling them under the same marks. The district court entered summary judgment in favor of Hokto USA and Hokuto Japan and permanently enjoined Concord Farms from selling the Hokuto Japan mushrooms in the US. Concord Farms appealed.

Outcome

On appeal, the Ninth Circuit affirmed the district court's order granting summary judgment to Hokto USA and Hokuto Japan and the permanent injunction against Concord Farms because:

The Hokuto mushrooms imported by Concord Farms from Japan were materially different from Hokto's US mushroom products such that the genuine goods exception did not shield Concord Farms from liability.
The majority of the likelihood of confusion factors weighed in Hokto USA and Hokuto Japan's favor.

In deciding this gray market goods case, the court turned to the US Supreme Court's guidance in K-Mart Corp. v. Cartier, Inc., which defined a gray market good as a foreign-manufactured good bearing a valid US mark that is imported without the US trademark holder's consent (486 U.S. 281 (1988)). The court noted that a defendant in a gray-market good case can escape liability under the so-called genuine goods exception. Under trademark law, an imported good is genuine if it does not materially differ from the US trademark owner's product so that it does not create a likelihood of confusion among consumers.

Concord Farms argued it was not liable because the mushrooms it imported from Japan should be considered genuine Hokto USA goods. The court agreed with the district court's conclusion that these mushrooms were not genuine, noting that there is a low threshold for determining a material difference. The key question for whether goods are materially different is whether a consumer is likely to consider a difference relevant when buying the product. The court determined that consumers would likely consider the following differences relevant:

Organic certification: Hokto USA's mushrooms were certified organic according to US standards while the imported Hokuto Japan mushrooms were not.
Quality control: Hokto USA used a special growing medium and more extensive quality control standards than the imported Hokuto Japan mushrooms.
Packaging and language differences: The imported Hokuto Japan mushrooms had Japanese-only labeling on the packaging designed for domestic Japanese consumers instead of the dual-language packaging that described nutritional information in English, like recommended serving size and calorie count. In addition, Concord Farms affixed a label to some of the imported mushrooms setting out the English name for the mushrooms, listing the packages' weight in ounces rather than grams, identified the mushrooms' origins and provided a US address for customer service inquiries. The court found that consumers would likely view these clarifying English-language labels as relevant to their purchasing decisions.

After determining that Concord Farms could not use the genuine goods exception, the court analyzed whether there was a likelihood of confusion under the Sleekcraft likelihood of confusion factors. The court found the following factors supported a likelihood of confusion:

The similarity of the marks.
The strength of the mark that has allegedly been infringed.
The relatedness or proximity of the goods.
The normal marketing channels used by both parties.
The type of goods and the degree of care likely to be exercised by the purchaser.
The alleged infringer’s intent in selecting the mark.
Evidence that either party may expand his business to compete with the other.

Since the majority of the factors weighed heavily in Hokto USA's favor, the court upheld the permanent injunction against Concord Farms from importing any more Hokuto Japan mushrooms. The court also affirmed the district court's finding on Concord Farms' counterclaim that Hokuto Japan did not engage in naked licensing and that Hokto USA did not obtain its registration through fraud on the USPTO.

Practical Implications

The Hokto Kinoko decision shows that, at least in the Ninth Circuit, the threshold for showing a material difference in gray market cases is low, with the key question being whether a consumer is likely to consider a difference relevant when purchasing a product. These differences may include differences in language, quality control and packaging.

Ninth Circuit Addresses Genuine Goods Analysis for Gray Market Trademark Infringement Claims Under the Lanham Act | Practical Law