UNITED STATES COURT OF APPEALS FOR THE FEDERAL ClRCUlT
`
`NOTICE OF ENTRY OF
`JUDGMENT ACCOMPANIED BY OPINION
`
`OPINION FILED AND JUDGMENT ENTERED: 12/27/99
`
`The attached opinion announcing the judgment of the court in your case was filed and judgment
`was entered on the date indicated above. The mandate will be issued in due course.
`
`Information is also provided about petitions for rehearing and suggestions for rehearing in bani:
`The questions and answers are those frequently asked and answered by the Clerk’s Office.
`
`Costs are taxed against the Appellant(s) in favor of the Appellee@) under Rule 39. The party
`entitled to costs is provided a bill of costs form and an instruction sheet with this notice.
`
`The parties are encouraged to stipulate to the costs. A bill of costs will be presumed correct in the
`absence of a timely filed objection.
`
`Costs are payable to the party awarded costs. If costs are awarded to the government, they should
`be paid to the Treasurer of the United States. Where costs are awarded against the government,
`payment should be made to the person@) designated under the governing statutes, the court’s orders,
`and the parties’ written settlement agreements. In cases between private parties, payment should be
`made to counsel for the party awarded costs or, if the party is not represented by counsel, to the party
`pro se. Payment of costs should not be sent to the court. Costs should be paid promptly.
`
`If the court also imposed monetary sanctions, they are payable to the opposing party unless the
`court’s opinion provides otherwise. Sanctions should be paid in the same way as costs.
`
`Exhibits and visual aids shall be retrieved by fhe party that lodged them with this court once the
`mandate has issued.
`
`JAN HORBALY
`Clerk
`
`cc: LLOYD J. WALKER
`SHARA L. ARANOFF, RORY J. RADDIMG
`
`GAMUT TRADING CO V USITC, 97-1414
`ITC - 337-TA-380
`
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`NOTICE OF ENTRY OF
`JUDGMENT ACCOMPANIED BY OPINION
`
`OPINION FILED AND JUDGMENT ENTERED: 12/27/99
`
`The attached opinion announcing the judgment of the court in your case was filed and judgment
`was entered on the date indicated above. The mandate will be issued in due course.
`
`Information is also provided about petitions for rehearing and suggestions for rehearing in bani:
`The questions and answers are those frequently asked and answered by the Clerk’s Office.
`
`Costs are taxed against the Appellant(s) in favor of the Appellee@) under Rule 39. The party
`entitled to costs is provided a bill of costs form and an instruction sheet with this notice.
`
`The parties are encouraged to stipulate to the costs. A bill of costs will be presumed correct in the
`absence of a timely filed objection.
`
`Costs are payable to the party awarded costs. If costs are awarded to the government, they should
`be paid to the Treasurer of the United States. Where costs are awarded against the government,
`payment should be made to the person@) designated under the governing statutes, the court’s orders,
`and the parties’ written settlement agreements. In cases between private parties, payment should be
`made to counsel for the party awarded costs or, if the party is not represented by counsel, to the party
`pro se. Payment of costs should not be sent to the court. Costs should be paid promptly.
`
`If the court also imposed monetary sanctions, they are payable to the opposing party unless the
`court’s opinion provides otherwise. Sanctions should be paid in the same way as costs.
`
`Exhibits and visual aids shall be retrieved by fhe party that lodged them with this court once the
`mandate has issued.
`
`JAN HORBALY
`Clerk
`
`cc: LLOYD J. WALKER
`SHARA L. ARANOFF, RORY J. RADDIMG
`
`GAMUT TRADING CO V USITC, 97-1414
`ITC - 337-TA-380
`
`-- - -
`6 L - 5
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`CLERK'S OFFICE CI ,Y
`United States Court of Appeals for the Federal Circuit
`
`97-1 4 14
`
`GAMUT TRADING COMPANY, GAMUT IMPORTS, BAY IMPLEMENT COMPANY,
`CASTEEL FARM IMPLEMENT COMPANY (MONTICELLO, ARKANSAS),
`CASTEEL FARM IMPLEMENT COMPANY (PINE BLUFF, ARKANSAS),
`CASTEEL WORLD GROUP, INC., and TRACTOR SHOP,
`
`%*
`
`Appellants,
`
`V.
`
`I ,
`
`UNITED STATES INTERNATIONAL TRADE COMMISSION,
`
`Appellee,
`
`and
`
`KUBOTA TRACTOR CORPORATION, KUBOTA MANUFACTURING OF AMERICA,
`and KUBOTA CORPORATION,
`
`Intervenors.
`
`a
`
`Llovd W. Walker, II, Bischoff & White, P.C., of Fayetteville, Georgia, argued for
`appellants. With him on the brief was Llovd W. Walker, of Twin Falls, Indiana.
`
`Shara L. Aranoff, Attorney-Advisor, U.S. International Trade Commission, of Washington,
`DC, argued for appellee. With her on the brief were Lynn M. Schlitt, General Counsel, and
`James A. TouDin, Deputy General Counsel.
`
`Rorv J. Raddinq, Pennie & Edmonds, LLP, of New York, New York, argued for
`intervenors. Of counsel on the brief were Darren W. Saunders, and Katherine E. Smith. Also
`on the brief was Marcia H. Sundeen, Pennie & Edmonds, LLP, of Washington, DC.
`
`Appealed from:
`
`United States International Trade Commission
`
`
`
`United States Court of Appeals for the Federal Circuit
`
`97-1 41 4
`
`GAMUT TWDING COMPANY, GAMUT IMPORTS, BAY IMPLEMENT COMPANY,
`--CASTEEL FARM IMPLEMENT COMPANY (MONTICELLO, ARKANSAS),
`CASTEEL FARM IMPLEMENT COMPANY (PINE BLUFF, ARKANSAS),
`CASTEEL WORLD GROUP, INC., and TRACTOR SHOP,
`Appellants,
`
`( ,
`
`V.
`
`UNITED STATES INTERNATIONAL TRADE COMMISSION,
`Appellee,
`
`and
`
`KUBOTA TRACTOR CORPORATION, KUBOTA MANUFACTURING OF AMERICA,
`and KUBOTA CORPORATION,
`
`Intervenors.
`
`DECIDED: December 27, 1999
`
`Before RICH,* Circuit Judqe, SMITH, Senior Circuit Judae, and NEWMAN, Circuit Judqe.
`
`NEWMAN, Circuit Judqe.
`
`This action for violation of §337 of the Tariff Act of 1930, 19 U.S.C. $1337, was
`
`initiated at the United States International Trade Commission ("ITC") on the complaint
`
`of the Kubota Corporation, a Japanese company ("Kubota-Japan"), owner of the
`
`* Circuit Judge Rich heard argument of the appeal; upon his death, the appeal
`has been decided by the remainder of the panel. Fed. Cir. Rule 47.1 1.
`
`
`
`registered United States trademark "Kubota," and its United States affiliated companies
`
`Kubota Tractor Corporation ("Kubota-US") and Kubota Manufacturing of America
`
`("KMA). Kubota-US is the exclusive licensee of the "Kubota" trademark in the United
`
`States, by agreement with Kubota-Japan which provides that the United States trademark
`
`and aiiociated goodwill remain the exclusive property of Kubota-Japan.
`
`The respondents are Gamut Trading Company and other entities (collective[y
`
`"Gamut") that import from Japan and resell in the United States various models of used
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`tractors of under 50 horsepower, all manufactured in Japan by the Kubota Corporation,
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`used in Japan, and bearing the mark "Kubota" that had been properly affixed in Japan.
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`Gamut was charged with violation of §337 of the Tariff Act of 1930, 19 U.S.C. s1337,
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`which provides for exclusion of product bearing infringing marks and other remedies,
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`based on asserted infringement of the United States trademark "Kubota":
`
`19 U.S.C. $1337 Unfair practices in import trade
`
`(a)(l)(C) The importation into the United States, the sale for importation,
`or the sale within the United States after importation by the owner, importer,
`or consignee, of articles that infringe a valid and enforceable United States
`trademark registered under the Trademark Act of 1946.
`
`Describing this case as one of "gray-market goods," the ITC issued a General Exclusion
`
`Order against importation of used Japanese tractors bearing the "Kubota" trademark,
`
`and Cease and Desist Orders against sale of such tractors that had already been
`
`imported into the United States. The principle of gray market law is that the importation
`
`of a product that was produced by the owner of the United States trademark or with its
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`97- 1 4 I 4
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`2
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`consent, but not authorized for sale in the United States, may, in appropriate cases,
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`infringe the United States trademark.
`
`On Gamut's appeal, we now affirm the decision of the ITC.'
`
`BACKGROUND
`
`T.
`
`Kubota-Japan manufactures in Japan a large number of models of agricultural
`
`tractors, for use in Japan and other countries. Various tractor models are custom-
`
`designed for a particular use in a particular country. For example, tractor models that
`
`are designed for rice paddy farming are constructed for traction and maneuverability
`
`under wet, muddy conditions; these tractors have smaller tire separation in order to
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`make tight turns in rice paddies, and are designed to function with rice paddy tillers,
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`which contain narrow, light-weight blades. No corresponding model is designed for
`
`export to the United States.
`
`In contrast, some tractor models that are intended to be used in the United States
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`are specially constructed for lifting and transporting earth and rocks, and to function with
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`rear cutters that contain heavy blades capable of cutting rough undergrowth; these
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`models do not have a direct Japanese counterpart. The tractor models intended for sale
`
`and use in the United States bear English-language controls and warnings, and have
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`English-language dealers and users manuals. They are imported by Kubota-US and
`
`sold through a nationwide dealership network which provides full maintenance and repair
`
`service and maintains an inventory of parts for these specific tractor models. Kubota-
`
`-
`
`I Certain Aaricultural Tractors Under 50 Power Take-Off Horsepower, Inv. No.
`337-TA-380, USITC Pub. 3026 (March 1997).
`
`97-1 41 4
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`3
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`
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`US conducts training classes for its dealership employees, instructing them on service
`
`and maintenance procedures.
`
`Gamut purchases used Kubota tractors in Japan and imports them into the United
`
`States. The majority of the imported tractors are described as between 13 and 25 years
`-.=
`old. All bear the mark "Kubota." The Kubota companies state that the importation and
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`its extent came to their attention when United States purchasers sought service ah'd
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`repair or maintenance from Kubota-US dealerships.
`
`The Gray Market
`
`The term "gray market goods" refers to genuine goods that in this case are of
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`foreign manufacture, bearing a legally affixed foreign trademark that is the same mark
`
`as is registered in the United States; gray goods are legally acquired abroad and then
`imported without the consent of the United States trademark holder. See K Mart Corp.
`
`U
`
`v. Cartier, Inc., 486 U.S. 281, 286-87, 6 USPQ2d 1897, 1899-00 (1987) (discussing
`
`various gray-market conditions); 4 McCarthv on Trademark and Unfair Competition
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`929.46 (4th ed. 1997). The conditions under which gray-market goods have been
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`excluded implement the territorial nature of trademark registration, and reflect a legal
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`recognition of the role of domestic business in establishing and maintaining the
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`reputation and goodwill of a domestic trademark.
`
`Until the Supreme Court's decision in A. Bouriois & Co. v. Katzel, 260 U.S. 689
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`(1923), the prevailing rule in the United States was that the authorized sale of a validly
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`trademarked product, anywhere in the world, exhausted the trademark's exclusionary
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`97-1414
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`4
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`right; thus the holder of the corresponding registered United States trademark was
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`believed to have no right to bar the importation and sale of authentically marked foreign
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`goods. However, in the Bouriois case the Court recognized the territorial boundaries of
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`trademarks, stressing that the reputation and goodwill of the holder of the corresponding
`..-.
`United States mark warrants protection against unauthorized importation of goods
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`bearing the same mark, although the mark was validly affixed in the foreign country, ‘Ih
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`Bouriois the foreign-origin goods were produced by an unrelated commercial entity and
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`imported by a third person, although the goods themselves were related in that the
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`United States trademark owner bought its materials from the foreign producer. See Id.
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`at 692.
`
`Since the Bouriois decision, the regional circuits and the Federal Circuit have
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`drawn a variety of distinctions in applying gray market jurisprudence, primarily in
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`consideration of whether the foreign source of the trademarked goods and the United
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`States trademark holder are related commercial entities and whether the imported goods
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`bearing the foreign mark are the same as (or not materially different from) the goods that
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`are sold under the United States trademark, applying a standard of materiality suitable
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`to considerations of consumer protection and support for the integrity of the trademarks
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`of domestic purveyors, all with due consideration to the territorial nature of registered
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`trademarks in the context of international trade.
`
`Gamut directs our attention to cases in which the courts have refused to exclude
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`gray market goods. For example, in NEC Electronics v. CAL Circuit Abco, 810 F.2d
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`97-1 41 4
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`5
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`
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`1506,l USPQ2d 2056 (9th Cir. 1987) the court held that the importation of genuine NEC
`computer chips by the defendant, an entity unrelated to any NEC company, did not
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`constitute infringement of the United States "NEC" trademark when there was no
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`material difference between the NEC product imported by the defendant and the NEC
`
`%..
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`product imported by the NEC United States subsidiary; the court distinguished Bouriois
`
`on the ground that in Bouriois the United States trademark owner could not control th8
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`quality of the unaffiliated foreign producer's goods, whereas when the companies are
`commonly controlled there is a reasonable assurance of similar quality. Id. at 1510, 1
`
`USPQ2d at 2059.
`
`A similar refusal to exclude was reached in Weil Ceramics & Glass, Inc. v. Dash,
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`878 F.2d 659, I 1 USPQ2d 1001 (3d Cir. 1989), wherein the court held that the United
`
`States trademark "Lladro" was not infringed by importation and sale of authentic "Lladro"
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`figurines by one other than the trademark holder. The court reasoned that there is no
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`need to protect the consumer against confusion when the goods imported by the
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`defendant are identical to the goods imported by the United States trademark holder.
`- Id. at 672, 11 USPQ2d at 1012. The court also reasoned that when the foreign
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`manufacturer and the United States trademark holder are related companies, there is no
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`need to protect the domestic company's investment in goodwill based on the quality of
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`the trademarked goods, for the foreign manufacturer has control over their quality and
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`the goods (porcelain figurines) are unchanged from their original quality.
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`97-1 41 4
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`6
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`
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`However, when there are material differences between the domestic product and
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`the foreign product bearing the same mark, most of the courts that have considered the
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`issue have excluded the gray goods, even when the holders of the domestic and foreign
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`trademarks are related companies, on grounds of both safeguarding the goodwill of the
`--..
`domestic enterprise, and protecting consumers from confusion or deception as to the
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`quality and nature of the product bearing the mark. Thus in Societe des Produits Nestle
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`v. Casa Helvetia, Inc., 982 F.2d 633,25 USPQ2d 1256 (1st Cir. 1992) the court held that
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`the foreign owner of the United States trademark "Perugina" and its Puerto Rican
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`subsidiary that imported Italian-made "PeriJgina" chocolate could prevent the importation
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`of "Perugina" chocolate made under license in Venezuela, because the product is
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`materially different in taste; the court referred to the likelihood of consumer confusion
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`and loss of goodwill and integrity of the mark.
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`Similarly in Oriqinal Appalachian Artworks v. Granada Electronics, 816 F.2d 68,
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`73, 2 USPQ2d 1343, 1346 (2d Cir. 1987) ,the court held that the United States owner of
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`the "Cabbage Patch" mark can prevent importation of "Cabbage Patch" dolls that were
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`made and sold abroad under license from the United States owner, on the ground that
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`the foreign dolls were materially different from the dolls authorized for sale in the United
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`States because their instructions and adoption papers were in the Spanish language.
`-- See also Martin's Herend Imports, Inc. v. Diamond & Gem Tradina USA, Co., 112 F.3d
`1296, 42 USPQ2d 1801 (5th Cir. 1997) (foreign owner of United States trademark and
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`domestic distributor can prevent the importation of authentic "Herend" porcelain that is
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`97-1414
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`materially different in color, pattern, or shape from the "Herend" porcelain made for sale
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`in the United States); Lever Brothers Co. v. United States, 981 F.2d 1330, 25 USPQ2d
`1579 (D.C. Cir. 1993) (in action against Customs Service, "Sunlight" brand dishwashing
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`liquid sold in Great Britain by Lever-UK was required to be excluded because materially
`-.
`different from the "Sunlight" dishwashing liquid sold in the United States by Lever-US;
`
`.I.
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`third party importation was an act of trademark infringement).
`
`I
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`t
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`
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`These decisions implement the reasoning that the consuming public, associating
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`a trademark with goods having certain characteristics, would be likely to be confused or
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`deceived by goods bearing the same mark but having materially different characteristics;
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`this confusion or deception would also erode the goodwill achieved by the United States
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`trademark holder's business. Thus the basic question in gray market cases concerning
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`goods of foreign origin is not whether the mark was validly affixed, but whether there are
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`differences between the foreign and domestic product and if so whether the differences
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`are material.
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`The courts have applied a low threshold of materiality, requiring no more than
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`showing that consumers would be likely to consider the differences between the foreign
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`and domestic products to be significant when purchasing the product, for such
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`differences would suffice to erode the goodwill of the domestic source. As explained in
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`Nestle, "[alny higher threshold would endanger a manufacturer's investment in product
`goodwill and unduly subject consumers to potential confusion by severing the tie
`..
`between a manufacturer's protected mark and its associated bundle of traits." 982 F.2d
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`97-1414
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`at 641, 25 USPQ2d at 1263. This criterion readily reconciles cases that have permitted
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`parallel importation of identical goods, such as the LIadro figurines in Weil Ceramics
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`(consumers not deceived, and no erosion of goodwill) and those that have barred
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`importation based on material differences, such as the "Perugina" chocolate in Nestle.
`---.
`This criterion was applied by the Commission in reviewing the used "Kubota" tractor
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`importations.
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`The "Kubota" Imporfations
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`8 %
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`The ALJ found that twenty-four models of the "Kubota" Japanese tractors imported
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`by Gamut were materially different from any corresponding tractor imported by Kubota-
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`US, and that one model was substantially the same. The ALJ found that the twenty-
`
`four tractor models differed in at least one of the following characteristics: structural
`
`strength, maximum speed, power take-off speed, wheel-base and tread-width
`
`.u.
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`dimensions, existence of a power take-off shield, and existence of a hydraulic block
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`outlet. The ALJ found that certain parts for these models were not available in the
`
`United States, that the service necessary for these tractors differed from the service
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`available for the'united States models, that the used Japanese tractors lacked English
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`warning labels and instructions, and that the Kubota-US dealers did not have English-
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`language operator or service manuals for the Japanese models. Finding these
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`differences to be material, the ALJ found that these used tractors bearing the trademark
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`"Kubota" infringed the United States "Kubota" trademark.
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`97-1414
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`The ALJ found that one used tractor model, the Kubota L200, was not materially
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`different from a corresponding model imported and sold by Kubota-US, and that although
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`the labels and instructions on the tractor were in Japanese, the English language
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`instruction and service manuals, warning labels, and parts available for the
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`-.%
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`corresponding United States model were applicable to the Japanese Kubota L200. The
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`ALJ concluded that the imported used Kubota L200 tractor did not infringe the "Kubota"
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`United States trademark.
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`The Commission adopted the ALJ's Initial Decision as to the twenty-four models
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`found to be infringing, and reversed the determination of no infringement by the Kubota
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`L200. The Commission also found infringement by twenty additional tractor models not
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`reviewed by the ALJ. For the Kubota L200 and the twenty additional models, the
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`Commission found that the absence of English-language warning and instructional labels
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`constituted a material difference from the "Kubota" brand tractors sold in the United
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`States by Kubota-US, giving rise to trademark infringement by these unauthorized
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`imports and violation of Section 337.
`
`The Question of Material Differences
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`Gamut argues that the ITC erred in finding that there are material differences
`
`between their imported tractors and those imported by Kubota-US. Gamut points out
`
`that materiality of product differences is determined by the likelihood of confusion of
`those whose purchasing choice would be affected by knowledge of the differences, see
`Nestle, 982 F.2d at 643,25 USPQ2d at 1264, and that its purchasers know that they are
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`97-1 41 4
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`10
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`purchasing a used Japanese tractor. Gamut states that a purchaser of a used tractor
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`bearing Japanese labels would not be deceived into thinking that he/she is buying a new
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`tractor designed for the United States market. Gamut states that any differences
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`between the imported models and the United States models are readily apparent, and
`=..
`thus can not be a material difference.
`
`The ITC rejected this argument, finding that it is not reasonable to expect that
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`purchasers of used Kubota tractors will be aware of structural differences from the United
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`States models and of the consequences of these differences for purposes of
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`maintenance, service, and parts. This finding was supported by substantial evidence.
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`Indeed, the marking of these tractors with the "Kubota" mark weighs against an inference
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`that purchasers would be expected to be aware of or expect structural differences.
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`As precedent illustrates, differences that may be readily apparent to consumers
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`may nevertheless be material.
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`In Nestle the court found differences in quality,
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`composition, and packaging to be material.
`
`In Martin's Herend the court found
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`differences in the color, pattern or shape of porcelain figures to be material, although
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`they would be apparent to an observer of the products side-by-side. Differences in
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`labeling and other written materials have been deemed material, on the criteria of
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`likelihood of consumer confusion and concerns for the effect of failed consumer
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`expectations on the trademark holder's reputation and goodwill. See Oriqinal
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`Appalachian Artworks (Spanish-origin "Cabbage Patch Kids" dolls were materially
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`different because they had Spanish-language instructions and "adoption papers");
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`97-1414
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`PepsiCo v. Nostalaia Products C o n , 18 lJSPQ2d 1404, 1405 (N.D. Ill. 1990) (materiality
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`based on Mexican "Pepsi" labels that were in Spanish and did not contain a list of
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`ingredients, along with quality control and marketing differences): Fender Musical
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`Instruments CorD. v. Unlimited Music Center Inc., 35 USPQ2d 1053, 1056 (D. Conn.
`
`--I
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`1995) (material difference for guitars with Japanese language owner's manuals); Osawa
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`& Co. v. B&H Photo, 589 F. Supp. 1163, 1169, 223 USPQ 124, 127 (S.D.N.Y. 1984)
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`(material difference for camera equipment with foreign language instruction manuals);
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`Ferrero U.S.A, Inc. v. Ozak Tradina Inc., 753 F. Supp. 1240, 1243-44, 18 USPQ2d 1052,
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`1055 (D.N.J. 1991) (material differences in the print and content of labels on "Tic-Tac"
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`mints).
`
`The Commission found that the imported used "Kubota" tractors lacked English
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`instructional and warning labels, operator manuals, and service manuals. Labels are
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`attached at various places on the tractor to instruct the user on the proper operation of
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`the tractor and to warn of potential hazards, and include instructions on the direction of
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`the engine speed hand throttle, the function of the transmission, the four-wheel drive, the
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`power take-off speed, hydraulic power lift, and other controls on the tractor. The
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`Commission found that such labels are necessary to safe and effective operation. The
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`authorized "Kubota" tractors bear these labels in English: the permanent labels on the
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`used imported tractors are in Japanese.
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`While it would be obvious to the purchaser that the warning and instructional
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`labels are in Japanese, there was evidence before the ITC of consumer belief that the
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`97-1 41 4
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`12
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`7
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`used tractors were sponsored by or otherwise associated with the Kubota-US
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`distributorshiplservice system. The ALJ heard evidence that a purchaser of such a used
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`tractor knew the tractor bore Japanese labels, but did not realize that he was not buying
`
`an authorized tractor or that service and parts were not available from the Kubota-US
`z -.
`dealerships. Gamut contends that Kubota-Japan and Kubota-US form a single
`
`enterprise and thus that Kubota-US can and should provide any parts, service;
`
`maintenance, and repairs required by these used tractors. The ALJ found that in order
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`to service the Gamut-imported tractors in the same manner as Kubota-US provides for
`
`its authorized tractors, the dealerships and service agencies would require an additional
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`inventory of parts for the various Japan-only models, English-language operator manuals
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`and service manuals that do not now exist, and additional service training as to the
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`different models. There was testimony from a Kubota-US dealer that he had tried to
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`service several of the imported used tractors in order to preserve the reputation and
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`goodwill of the mark, but that he was unable to do so satisfactorily since he had neither
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`technical information nor replacement parts. He testified to customer dissatisfaction and
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`anger with his dealership. The ALJ heard testimony that it would cost millions of dollars
`
`to provide equivalent support in the United States for the tractors that are made for use
`
`only in Japan. Gamut disputes these assertions and argues that most of the used
`
`tractors could be readily serviced without extraordinary effort. However, the record
`
`contains substantial evidence in support of the ALJ’s findings. Further, materiality does
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`not turn on whether extraordinary effort would be required for Kubota to service the
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`97-1414
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`
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`Gamut-imported tractors: the threshold is not so high or the burden of establishing
`
`materiality so heavy.
`
`The Kubota companies are not required to arrange to provide service to Gamut's
`.--
`imports in order to ratify these importations by mitigating their injury to the goodwill
`associated with the "Kubota" trademark. Whether or not the Kubota companies could
`
`arrange to service these tractors does not convert an otherwise infringing activity into an
`authorized importation. See Osawa, 589 F. Supp. at 11 67-68, 223 USPQ2d at 126-27
`
`(trademark holder incurred damage from the unauthorized importation of gray market
`
`cameras because it voluntarily bore the warranty expenses for servicing them).
`
`In addition to the differences in labeling, service, and parts, the ALJ found that
`
`many of the tractors designed by Kubota for use in the United States are stronger
`
`structurally than the corresponding tractors made for use in Japan. For example, the
`
`..
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`ALJ found that some of the intended United States tractors were made with stronger
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`front and rear axles, front axle brackets, chassis, power trail, and parts contained in the
`
`transmission, such as gears. The ALJ found that the stronger gears increase load-
`
`bearing capacity and bending strength, thereby reducing wear and tear. The ALJ found
`
`that some of the tractor models designed for the United States market have a stronger
`
`power take-off shaft, installed to accommodate the heavy load placed on the shaft by
`
`implements often used in the United States such as a rear cutter. The ALJ heard
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`evidence that these structural differences significantly increase the likelihood of
`
`breakdowns of the less strong Japanese models. Although Gamut points to the absence
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`97-1414
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`14
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`
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`of evidence of actual breakdown, the conceded or established differences in structural
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`strength are relevant to the finding of material differences, and were properly considered
`
`by the Commission, along with the evidence concerning labelling, warnings, service, and
`
`parts.
`
`%..
`
`Gamut raises the additional argument that in all events the Commission erred in
`
`law by applying the material differences test with the low threshold of precedent,
`
`because the imported tractors are not new but used. Gamut states that the Commission
`
`should have applied a more stringent test, namely, that differences which are easily
`
`ascertained by the consumer can not be material. Gamut also argues that the
`
`Commission erred in ruling that differences that are easily apparent to the consumer,
`
`such as differences in structural strength and availability of parts and service, are
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`material. We conclude that the Commission applied the correct standard, for this
`
`standard implements the two fundamental policies of trademark law: to protect the
`
`consumer and to safeguard the goodwill of the producer. The Commission did not err
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`in finding no factual basis for assuming, as Gamut proposes, that the purchaser of a
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`used tractor should be charged with the knowledge or awareness that replacement parts
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`may not be available.
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`Substantial evidence supports the Commission’s finding that consumers would
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`consider the differences between the used imported tractors and the authorized Kubota-
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`US tractors to be important to their purchasing decision, and thus material.
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`Effect of the Fact that the Goods are Used
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`97-1 41 4
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`15
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`
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`Gamut argues that this is not a "gray market" case because the imported tractors
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`are simply durable used goods, rendering it irrelevant whether the trademark owner
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`authorized their sale in the United States. Gamut also argues that imported goods must
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`be sold in competition with the goods of the owner of the United States trademark in
`..-.
`order for authentic foreign-marked goods to infringe any trademark rights, citing K Mart
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`v. Cartier, 483 U.S. at 286,6 USPQ2d at 1899-00. Gamut asserts that because Kubota-
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`US sells new tractors in the United States and the respondents sell only used tractors,
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`the goods are not in direct competition and the imported used tractors can not be held
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`to be infringing gray market goods.
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`Direct competition between substantially identical goods is a factor to be
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`considered, but it is not a prerequisite to trademark infringement. In Safetv-Kleen CorD.
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`v. Dresser Indus., 518 F.2d 1399, 1404, 186 USPQ 476, 480 (CCPA 1975) the court
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`explained that "While the similarity or dissimilarity of the goods or service should, in
`appropriate cases, be considered in determining likelihood of confusion . . . the law has
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`long protected the legitimate interests of trademark owners from confusion among
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`noncompetitive, but related, products bearing confusingly similar marks."
`
`Similar
`
`reasoning applies to products of the gray market.
`
`As we have discussed, trademark law as applied to gray market goods embodies
`
`a composite of likelihood of consumer confusion as to the source of the goods, likelihood
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`of consumer confusion arising from differences between the foreign and the domestic
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`goods, impositions on the goodwill and burdens on the integrity of the United States
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`97-1414
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`
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`trademark owner due to consumer response to any differences, and recognition of the
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`territorial scope of national trademarks. Various of these factors acquire more or less
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`weight depending on the particular situation. Although it is relevant to consider whether
`
`the imported product is new or used, other factors that may affect the reputation and the
`
`x-.
`
`goodwill enuring to the holder of a trademark are not overridden by the fact that the
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`product is known to be second-hand.
`
`I ,
`
`Courts that have considered the question and concluded that used goods can be
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`gray market goods include Red Baron-Franklin Park. Inc. v. Taito Corp., 883 F.2d 275,
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`11 USPQ2d 1548 (4th Cir. 1989) (used circuit boards purchased abroad and imported
`
`into the United States without the copyright holder's consent were gray market goods);
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`Sims v. Florida Dep't of Hiqhwav Safetv and Motor Vehicles, 862 F.2d 1449, 1451 (1 1 th
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`Cir. 1989) (used Mercedes Ben2 automobiles were gray market goods under definition
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`of Clean Air and Safety Act); Sturqes v. Clarke D. Pease. Inc., 48 F.2d 1035, 1038 (2d
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`Cir. 1931) (barring importation of used HISPANO SUlZA automobile because it bore
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`United States registered trademark).
`
`The ALJ found that Kubota-US has established a reputation for safety, reliability,
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`and service that consumers associate with the "Kubota" mark, and that the used tractors
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`bearing the "Kubota" mark undermine the investment that Kubota-US made in consumer
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`goodwill for "Kubota" products. These findings are supported by substantial evidence.
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`The fact that the imported tractors are used does not prevent a finding of infringement
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`of the United States "Kubota" trademark.
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`97-1414
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`'1 7
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`
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`Goodwill of the United States trademark
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`Gamut points out that according to the trademark license agreement, Kubota-
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`Japan owns the "Kubota" trademark in the United States and associated goodwill.
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`Gamut-argues that there can be no infringement of the United States trademark unless
`
`Kubota-Japan, as the trademark owner, demonstrates that it "has developed domestic
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`goodwill, that is, independent of the goodwill associated with the mark world wide." The
`
`I
`
`C
`
`
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`goodwill of a trademark is developed by use of the mark. The ALJ found that Kubota-
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`US, through its large network of authorized dealers in "Kubota"-brand products, had
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`established a reputation for product quality and service throughout the United States,
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`establishing use of the mark accompanied by goodwill. This goodwill enures to the
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`benefit of the trademark owner. Gamut's ch
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