Amicus Curiae Brief — K Mart Corp. v. Cartier, Inc. (No. 86-495)

, US,

J FIL gy

Nos. 86-495, 86-624, and 86-625

— i aay

IN THE

° JOSEPH F. SPan;

Supreme Court of the United Mates cone"! -*

OCTOBER TERM 1986 ie

K MART CORPORATION,

Petitioner,

V.

CARTIER, INC., ef al.

47TH STREET Puoro, INc.

Petitioner,

Vv.

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, ef al.

UNITED STATES OF AMERICA

Petitioners,

V.

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, et al.

On Writs of Certiorari to the United States Court of Appeals

for the District of Columbia Circuit

BRIEF FOR AMICI CURIAE

YAMAHA INTERNATIONAL CORPORATION and

YAMAHA ELECTRONICS CORPORATION, USA

DaAvip Lu ROBERT E. WAGNER*

Corporate Legal Counsel LINDA A. KuczMa

YAMAHA INTERNATIONAL ALAN L. BARRY

CORPORATION ROBERT E. BROWNE

6600 Orangethorpe Avenue Amy L.H. RockWELL

Buena Park, California 90622 WALLENSTEIN, WAGNER, Harris,

(714) 522-9214 STRAMPEL & AUBEL, Lip.

- 100 South Wacker Drive

Chicago, Illinois 60606

(312) 641-1570

May 7, 1987 Attorneys for Amici Curiae

"Counsel of Record

CHAS. P. YOUNG COMPANY

fi

;

|

:

;

|

:

-_

Bs

‘

:

¥

o*

.

x

\

{

. ;

4

|

}

| ry

TABLE OF CONTENTS

TABLE OF AUTHORITIES.................

INTEREST OF AMICI CURIAE................

SUMMARY OF ARGUMENT.................

TD

I.

Il.

THE CUSTOMS SERVICE REGULATION

DIMINISHES THE SUBSTANTIVE

RIGHTS OF U.S. TRADEMARK REGIS-

EGS rk hohe babe ora dos ees 042-0

A. The Customs Service Regulation Un-

dermines Common Law Trademark Func-

a a og bee

B. The Customs Service Regulation

Profoundly Diminishes the Exclusive

Right of Use Accorded Domestic Trade-

mark Registrants Under the Lanham Act

C. Enforcement of the Customs Service Reg-

ulation Deprives Many U.S. Registrants

of Substantive Due Process Rights .....

D. The Customs Service Regulation Imposes

Compulsory and Uncontrolled Trademark

Licensing on a Substantial Class of Do-

mestic Trademark Registrants .........

SECTION 526 OF THE TARIFF ACT IS

CONSISTENT WITH AND NECESSARY

TO PROTECT THE RIGHTS GRANTED TO

U.S. REGISTRANTS UNDER THE

SE rr ree See

A. Absent the Custom Service Regulation,

Section 526 Provides an Efficient and

Crucial Means for Protection of a USS.

Registrant’s Trademark Rights ........

B. The Statutory Preference to Domestic

Registrants Under § 526 Serves a Legiti-

|S Ee re ee

i A |

10

13

16

1s

19

il

Page

C. The Antitrust Enforcement Rationale for

the Customs Service Regulation Has No

Justification In Section 526 ........... 22

Ill. THE CUSTOMS SERVICE REGULATION 1

ADVERSELY {MPACTS ON BOTH

YAMAHA AND CONSUMERS AND IS

AGAINST PUBLIC POLICY............. 26

CURCTAIBOON 2... ccccccccucceseuen eal 30

- ill

TABLE OF AUTHORITIES

CASES Page

A. Bourjois & Co., Inc. v. Katzel, 275 F. 539 (2d Cir.

1921), rev'd, 260 U.S. 689 (1923)...........- 5, 15

Appolinaris Co., Ltd. v. Scherer, 27 F. 15 (S.D.N.Y.

Nee keds ee dcckveseeccensccces 5

Avedis Zildjian Co. v. Fred Gretsch Mfg. Co., 251

F.2d 530 (2d Cir. 1958) .........----- eee: 17

Bell & Howell: Mamiya Co. v. Masel Supply Co., 548

F.Supp. 1063 (E.D.N.Y. 1982), vacated and re-

manded, 719 F.2d 42 (2d Cir. 1983) ...... 20, 22, 22

Carl Ziess Stiftung v. V.E.B. Carl Zeiss, Jena, 298

F.Supp. 1309 (S.D.N.Y. 1969), aff'd as modified

433 F.2d 686 (2d Cir. 1970), cert. denied, 403

MME Coc cece wc cc rcseressccces 25

Certain Airtight Cast-Iron Stoves, No. 337-TA-69,

215 U.S.P.Q. 963 (U.S. ITC 1980) ........-. 20

Continental T.V., Inc. v. GTE Sylvania Inc., 433

ee eee 7, 22, 23, 24

Dallas Cowboy Cheerleaders, Inc. v. Pussycat

Cinema, Ltd., 604 F.2d 200 (2d Cir. 1979).... 15

Federal Trade Commission v. Borden Co., 383 U.S.

aU Gus sevescccccvsccccsevcoers 7

Georg Jensen & Wendel, A/S v. Georg Jensen

Handmade Silver, Inc., 111 F.2a 169 (C.C.P.A.

ESSE Tee eee 17

Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240

PMID ccc cere v ccc secs ccssecees 12

In re Borden, Docket No. 8978, 891 ATRR, E-1

(0. een 14

International Boxing Club of New York v. United

States, 358 U.S. 242 (1959)............-55-- 23

iv

TABLE OF AUTHORITIES—Continued

Page

Johnson & Johnson, Inc. v. Wallace A. Erickson &

Co., 627 F.2d 57 (7th Cir. 1980)............ 13

McLean v. Fleming, 96 U.S. 245 (1878) ........ 5, 12

Midwest Fur Producers Assn. v. Mutation Mink

Breeders Assn., 127 F.Supp. 217 (W.D.Wis.

Aer ee |, ES RY Rhy 14

Mishawaka Rubber & Woolen Mfg. Co. v. SS. Kresge

oe fe eS lt | ere meee 8

Old Dearborn Distributing Co. v. Seagram- Distillers

Ce, TP Ws CD ov ccc cccccneees cs 12

Osawa & Co. v. B & H Photo, 589 F.Supp. 1163

GREG c WUD 6 6 ose eo ae ereeace 15, 17, 20, 23, 24, 25

Park’N Fly, Inc. v. Dollar Park and Fly, Inc., 469

ECS EE a Ore Pa 7, 6, 11, 16

Pennsylvania Coal Co. v. Manon, 260 U.S. 393

dae os heh wa saa oe ane tae 13

Quabaug Rubber Co. v. Fabiano Shoe Co., Inc., 567

fp B fi os Hh. y eee nee 17

Syntex Laboratories, Inc. v. The Norwich Pharmacal

Company, 427 F.2d 566 (2d Cir. 1971)....... 6

St. Charles Mjy. Co. v. St. Charles Furniture Corp., ‘

482 F.Supp. 397 (N.D. Ill. 1979) ........... 11

Timken Roller Bearing Co. v. United States, 341 U.S.

Pg i dcin vhs ds ce aenwerenveeuuie 25

United Drug Co. v. Theodore Rectanus Co., 248 U.S.

Pass awtee veda catnaeneedatssvawkeds s 12

United States v. E. I. du Pont de Nemours & Co., 351

Se Ae Eb kh sie ~ ee aed Oneal 22

United States v. Guerlain, Inc., 155 F.Supp. 77

I, ES o0'o'k hws ccbn aw kouieee cel 22

oe

Vv

TABLE OF AUTHORITIES—Continued

Page

Warner Bros., Inc. v. Gay Toys, Inc., 65> F.2d 76

(2d Cir. 1981). ......-- 0. eee cece cece eceees 6

Watson v. E. Leitz, Inc., 254 F.2d 777 (D.C. Cir.

ere Prey ere ees ek ee ey. 17

STATUTES

15 U.S.C. §§ 1051-1127 (1982), Lanham Trade-

ee A og dc ch bebe ents Cane se eee ewnes4 passim

15 U.S.C. § 1057(b) (1952), Lanham Trademark

Act § 7(b) .. 0... eee cece e eet eeeee 9, 10, 11, 12

15 U.S.C. § 1064(c) (1982), Lanham Trademark

8 2.) eee 10

15 U.S.C. § 1065 (1982), Lanham Trademark Act

OWE ios cas ee yas cedar rntnapnses evades 1]

15 U.S.C. § 1115(b) (1982), Lanham Trademark

Act § 32(b) . 0.0... cc eee ee reece eens 10, 11, 12, 25

15 U.S.C. § 1116 (1982), Lanham Trademark Act

OOD rick ccna nese sViews ates gietouswe se’) 1]

15 U.S.C. § 1124 (1982), Lanham Trademark Act

COE oo ik ea cere a kees i env sens mee reer sree 25

15 U.S.C. § 112%) (1982), Lanham Trademark

vay | ||) ee 19

15 U.S.C. § 1127 (1982), Lanham Trademark Act

¢ | See ee _...6, 7, 9, 10, 15

17 U.S.C. §§ 601-603 (1982), Copyright , Pere 19

18 U.S.C. § 1001 (1982) .......--- eee rere 21

19 U.S.C. §§ 1202-1700 (1982), Tariff Act of 1930 3

19 U.S.C. § 1337 (1982), Tariff Act of 1930, § 337 19

19 U.S.C. § 1526 (1982), Tariff Act of 1930,

COE i cc encevccnceevessnee new iccces ese passim

vi

TABLE OF AUTHORITIES—Continued

Page

TREATIES

Paris Convention for the Protection of Intellec-

tual Property, March 20, 1883, as revised, 2]

iF me BA Be = ee eee 19, 28

General Inter-American Convention for Trade-

Mark and Commercial Protection, Feb. 20,

SORE Sy ee CPP Cree Pe ay Pere ee 28

LEGISLATIVE MATERIALS

S. Rep. No. 1333, 79th Cong., 2d Sess. 3, 5 (1946),

reprinted in U.S. Code Cong. Ad. News

MEN GAELS SE CACETANE Ue cons naan 8, 9, 11, 15

ADMINISTRATIVE REGULATIONS AND RULES

Supreme Court Bule 96.2 ...............000. 2

19 C.P.R. § 193.21 (3966) .evss .. 2... 220s eee passim

ee ee eI on op wa cewewetee« 26

eG OD nos cow cwceeeuasesces 26

er I 6 ok ccd ccbeubncde sess 21

SECONDARY MATERIALS

1A Callmane, Unfair Competition, Trademarks

and Monopuly, § 4.53 (4th ed. 1981) ........ 14

1 McCarthy, Trademarks and Unfair Competi-

hom, Baw Gee OG. FOE)... ec eesccvess 5)

1 McCarthy, Trademarks and Unfair Competi-

tion, § 3:4 (Gad ed. 1964)... ... 2... . ccc acee 6

1 McCarthy, Trademarks and Unfair Competi-

thom, See Come oc. 1986)... iw iw cc ccc cccs §

vil

TABLE OF AUTHORITIES—Continued

1 McCarthy, Trademarks and Unfair Competi-

tion, § 18:14 (2nd ed. 1984) .........------:

Atwood, Import Restrictions on Trademarked Mer-

chandise—The Role of the United States Bureau of

Customs, 59 Trade-Mark Rep. 301 (1969) ....

Derenberg, Territorial Scope and Situs of

Trademarks and Good Will, 47 Va. L. Rev. 733

I ov cack kage we eens ntsedednes er

Handler, Trademarks—Assets or Liabilities, 45

Trade-Mark Rep. 661 (1958) .......-.--+++-

Sullivan, Antitrust 51 (1977) ......------+++55

Note, Abuse of Trademarks: A Proposal for Compul-

sory Licensing, 7 U. Mich. J.L. Ref. 644 (1974)

Underwriters Laboratories, Inc. Regulation 469

Page

14

IN THE

Supreme Court of the United States

OCTOBER TERM 1986

Nos. 86-495, 86-624, and 86-625

K MART CORPORATION,

Petitioner,

V.

CARTIER, INC., et al.

477TH STREET PHOTO, INC.,

Petitioner,

Vv.

COALITION TO PRESERVE THE INTEGRITY -

OF AMERICAN TRADEMARKS, ef al.

UNITED STATES OF AMERICA, ef al.,

Petitioners,

Ve

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, ef al.

On Writs of Certiorari to the United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF AMICI CURIAE

IN SUPPORT UF THE POSITION OF RESPONDENTS

YAMAHA INTERNATIONAL CORPORATiON

YAMAHA ELECTRONICS CORPORATION, USA

INTEREST OF AMICI CURIAE

YAMAHA INTERNATIONAL CORPORATION and its

wholly-owned subsidiary, YAMAHA ELECTRONICS COR-

PORATION, USA, are California corporations located and

doing business in Buena Park, California. (Referred to

2

jointly hereafter as “Yamaha”). Yamaha is the exclusive

U.S. distributor of musical instruments and sound equip-

ment manufactured by Nippon Gakki Seizo Kabushiki

Kaisha a/k/a Nippon Gakki Co., Ltd. of Japan. Yamaha is

the owner by assignment of several U.S. trademark registra-

tions.’ Pursuant to Supreme Court Rule 36.2, the written

consent of the parties accompanies this brief.

Since 1960, Yamaha has been engaged in the business of

advertising, promoting and selling musical instruments and

sound equipment across the country under the “Yamaha”

trademarks. Such equipment includes stereo system com-

ponents, digital sound field processors, compact disc players,

speakers, mixing consoles, sound and tone generators,

recorders, digital rhythm programmers, sound synthesizers,

electric pianos and keyboards, and music computer systems.

This equipment is well-known for its high quality perform-

ance and is used by consumers and professionals. Over the

years, Yamaha has organized and my?’ itained an extensive

dealer network across the United States through well devel-

oped dealer licensing and training programs, for the distribu-

tion and sale of “Yamaha” musical instruments and sound

equipment.

Yamaha has extensively advertised its products, including

at trade shows, seminars, and training sessions, spending at

least $50 million over the last few years, including over $15

million in 1986 alone. Utilizing its trademarks in advertis-

ing and in identifying its products, Yamaha has a vital

interest in excluding imported goods bearing trademarks

identical to its registered marks. Hence, Yamaha’s interest

in the issue before the Court results from its desire and

obligation to protect consumers and the good will associated

with its famous trademarks, as well as to preserve the integ-

rity of its dealer network and distribution system.

‘For example, “Yamaha”, Registration No. 893,186 regis-

tered on June 23, 1970 and “Yamaha Tuning Fork Design”,

Registration No. 1,013,806 issued on June 17, 1975.

3

In a single step, certain U.S. registrants can record their

trademarks with Customs, receiving protection at ports of

entry throughout this country. Once recorded, goods bearing

the registered trademark, whether “genuine”, a copy, or

counterfeit, cannot be imported into the country without the

trademark owner’s consent. Instead of detecting and pursu-

ing infringers in separate civil actions, an owner of a

recorded registration can rely on Customs to stop such goods

at the border. Thus, a multiplicity of lawsuits by the ade-

mark owner to enforce its rights and stop any infringements,

is avoided, significantly reducing the cost of enforcement

and eliminating duplicative civil actions.

However, under the current regulation as authored by

Customs, Yamaha is deprived of the benefits of a genuine

goods exclusion order when recording its registered

trademarks. Yamaha is thus precluded from receiving the

full benefit of protection under the Tariff Act of 1930, 19

U.S.C. §§ 1202-1700 (1982) from “grey market” imports. Asa

result, Yamaha has instituted civil actions against importers

and distributors of grey market goods to protect its trade-

mark rights. Absent the demise of the Customs regulation,

Yamaha’s statutory trademark rights will continue to be

violated, resulting in harm to consumers and to Yamaha's

good will and reputation.

SUMMARY OF ARGUMENT

The Customs regulation, 19 C.F.R. § 133.21 (1986), only

exists to implement the Tariff Act of 1930, § 526, 19 U.S.C.

§ 1526 (1982) which is derived from the Lanham Trademark

Act, 15 U.S.C. §§ 1051-1127 (1982). Yet, in this appeal the

arguments on the validity issue of the regulation have

focused primarily on the interpretation and legislative his-

tory of §526 and the regulation. These arguments have

inexplicably failed to consider the trademark genesis of § 526

and consequently, the impact of the Customs regulation on

the substantive rights of domestic trademark registrants pro-

vided under the Lanham Act. However, when analyzed as

4

such, it is clear that this administrative regulation arbitrar-

ily diminishes the substantive rights of many U-S. trade-

mark registrants by (1) undermining the common law

functions of trademarks, (2) permitting-an invasion of regis-

trants’ statutory exclusive right of trademark use, (3) depriv-

ing registrants of substantive due process rights, and, (4)

imposing compulsory and uncontrolled trademark licensing

on registrants. In short, an administrative agency, Customs

Service, has setup a regulation which is contrary to the

trademark laws created by Congress and interpreted and

enforced by the courts of the United States.

By contrast, the language of § 526 is in accordance with

the Lanham Act and decades of precedent recognizing the

right of American exclusive distributors to enforce

trademarks. As a procedural trade statute, § 526 provides an

efficient mechanism for protection of trademarks of domestic

registrants against infringing imported goods. It does not

impart substantive trademark rights nor conflict with the

Lanham Act or other international reciprocity treaties. Fur-

ther, the language of § 526 does not mandate a regulation to

protect against anticompetitive situations. As the current

regulation is out of step with trademark law, so is it out of

step with this Court’s antitrust precedent.

Viewing the Customs regulation from the perspective of

the underlying trademark law, these Amici believe this

Court will conclude that the regulation irreconcilably con-

flicts with modern trademark and antitrust law as well as

the express language of § 526.

ARGUMENT

I. THE CUSTOMS SERVICE REGULATION DIMIN-

ISHES THE SUBSTANTIVE RIGHTS OF USS.

TRADEMARK REGISTRANTS

In defending the validity of the Customs regulation, Peti-

tioners have ignored the substantive rights granted U:S.

trademark registrants under modern Statutory trademark

5

law. This appeal has become mired in a swamp of

ambiguous legislative history and conflicting precedent con-

cerning the interpretation of § 526 and the Customs regula-

tion. However, when the emasculating affect of the Customs

regulation on the rights of U.S. trademark registrants is

considered, the invalidity of the regulation is apparent.

A. The Customs Service Regulation Undermines Common

Law Trademark Functions

Considering the evolution of American trademark law, the

Customs regulation is hopelessly irreconcilable with modern

principles of such law. The foundation of American trade-

mark law rests upon the proposition that a trademark

symbolizes the good will of the product or service in connec-

tion with which the mark is employed. McLean v. Fleming,

96 U.S. 245 (1878). Though this fundamental proposition is

unchanged, the commercial and legal perceptions of how

trademarks function in the U.S. has gradually evolved dur-

ing this century to meet the needs of consumers and trade-

mark owners. For example, trademarks were once thought

to represent to consumers only the source or origin of the

product or service in connection with which the mark was

used. 1 McCarthy, Trademarks and Unfair Competition

§ 3:3 (2nd ed. 1984). This strict “source” function of

trademarks complemented the theory of trademark “univer-

sality” whereby goods manufactured abroad under a trade-

mark and then imported and sold in the United States were

held not to infringe the rights of the U.S. trademark owner.

The belief was that because the goods originated from the

same foreign source, the public could not be deceived.

Appolinaris Co., Ltd. v. Scherer, 27 F. 18 (S.D.N.Y. 1886); A.

Bourjois & Co., Inc. v. Katzel, 275 F. 539 (2d Cir. 1921), rev'd,

260 U.S. 689 (1923). However, this Court rejected the theory

of “universality” in 1923. -Jd. 260 U.S. at 692.

Evolving to meet commercial reality, the “source” func-

tion of trademarks was broadened, legislatively in 1962 and

judicially, to mean that the consumer expected all goods

6

bearing the same mark to come from a single, albeit, anony-

mous or indistinguishable source. Trademark Act of 1962,

§ 45, Sec. 21, Pub.L.No. 87-772, 76 Stat. 769, 774 (15 U.S.C.

§ 1127, as amended (1962)); Syntex Laboratories, Inc. v. The

Norwich. Pharmacal Company, 437 F.2d 566 (2d Cir. 1971).’

Therefore, in order to be confused, “a consumer need not

believe that the owner of the mark actually produced the

item it places on the market” since a trademark functions as

an indicia of affiliation, sponsorship and approval. Warner

Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76, 79 (2d Cir. 1981).

Despite the broadening of the “source” function, the Cus-

toms regulation which is based on the archaic trademark

law, improperly denies certain domestic registrants such as

Yamaha, the complete benefits of § 526. Arguing that con-

sumers know that grey market goods are of foreign manufac-

ture or are distributed by a U.S. company related to a foreign

manufacturer, Petitioners assert “no confusion of source”’

exists as to such goods. Brief for Petitioner K mart Corp. at

38. This argument focuses on the archaic “source” function

of trademarks ignoring modern, broader protection from con-

fusion of any kind including affiliation, sponsorship and

approval.

The Customs regulation also ignores other accepted trade-

mark functions such as the “quality” or “guarantee” func-

tion. 1 McCarthy, Trademarks and Unfair Competition § 3:4

(2nd ed. 1984). Hence, a mark not only indicates a singie

anonymous source, but also serves as a badge of quality

*The Syntex court held that in amending the Trademark Act

of 1962, 15 U.S.C. §§ 1051-1127 (1982), Congress evinced “a clear

purpose to outlaw the use of trademarks which are likely to

cause confusion, mistake or deception of any kind, not merely of

purchasers nor simply as to source of origin.” Syntex, 437 F.2d

at 568.

7

representing a level of consistent quality of goods or serv-

ices. Park’N Fly, Inc. v. Dollar Park and Fly, Inc., 469 US.

189, 193 (1985) (“trademarks desirably promote competition

and the maintenance of product quality.”); Federal Trade

Commission v. Borden Co., 383 U.S.°637, 651 (1966) (Stewart &

Harlan, JJ., dissenting) (“An important ingredient of the

premium brand inheres in the consumer’s belief, measured

by past Satisfaction and the market reputation established by

Borden for its products, that tomorrow’s can will contain the

same premium product as that purchased today.”)

These trademark functions of quality and source indica-

tion are vital tools for modern business industries such as

authorized dealer networks and franchises. The Customs

regulation creates havoc with these businesses by aiding and

abetting the unauthorized use of trademarks on goods being

distributed outside of an authorized distribution system. As

a result, such goods are beyond the quality and warranty

control of the trademark owner.

To avert this adverse impact on the quality function of

trademarks, some importers of grey goods provide warranty

services.! But in these instances, who is the single, albeit

anonymous entity which assures that all grey marketers

render the same, consistent quality of product support serv-

ices? The answer is, quite simply, no one. This Court has

recognized that “{Sjervice and repair are vital for many

products, such as automobiles and major household appli-

ances. The availability and quality of such services affect a

manufacturer’s goodwill and the competitiveness of his prod-

uct.” Continental T.V. v. GTE Sylvania, 433 U.S. at 55. Yet,

>The quality function of trademarks is codified by the Trade-

mark Act of 1946, 15 U.S.C. § 1127 (definition of “related

company’).

‘Some grey marketers may offer no warranty services. In

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 59 (1977),

this Court observed that “{Bjecause of market imperfections

such as the so called ‘free rider’ effect, these services might not

be provided by retailers in a purely competitive situation... .”

8

the Customs regulation permits inconsistent and unpredict-

able levels of warranty and quality control, to the economic

and legal detriment of the consumer and trademark owner.

In addition, the Customs regulation also impairs the

important advertising element in promoting a merchant’s

goods and services. 1 McCarthy, Trademarks and Unfair

Competition § 3:5 (2nd ed. 1984). Yamaha and its authorized

dealers commit millions of dollars to promote products bear-

ing registered “Yamaha” marks with the expectation that

they alone will enjoy the resulting good will and economic

gains from these expenditures. Such expenditures are

incurred since trademarks function as a highly efficient

means to create consumer demand and acceptance for the

goods and services. See Mishawaka Rubber & Woolen Mfg. Co. v.

SS. Kresge Co., 316 U.S. 203, 205 (1942). Yet, the Customs

regulation bequeaths to grey marketers the good will of

Yamaha and hands over the commercial magnetism

symbolized by “Yamaha” trademarks. That grey marketers

intend to poach upon the commercial magnetism is proven

by the more than coincidental fact that grey marketing

occurs regularly with famous trademarks such as “Yamaha”

and those of other Respondents.

Hence, the Customs regulation is inconsistent with

modern trademark law, failing to protect the dual interests

of trademark owners and consumers as mandated by the

courts and Congress. Park’N Fly, 469 U.S. at 198; S. Rep. No.

1333, 79th Cong., 2d Sess. 3, 5 (1946), reprinted in U.S. Code

Cong. & Ad. News 1274.° The regulation inexplicably denies

a certain class of domestic registrants including Yamaha, the

*Congress has explained that of the two bases of trademark

protection, “. . . one is to protect the public so that it may be

confident that, in purchasing a product bearing a particular

trademark which it favorably knows, it will get the product

which it asks for and wants to get. Secondly, where the owner

of a trademark has spent energy, time and money in presenting

to the public the products, he is protected in his investment for

its misappropriation by pirates and cheats. This is the well-

(footnote continued on next page)

9

procedural protections of § 526 and substantive rights of 15

U.S.C. § 1057(b). This denial is premised on an arb-trarily

defined degree of ownership or relationship between the

domestic trademark registrant and a foreign entity or, that

the goods are made overseas where the mark is applied to the

goods with permission of the U.S. trademark owner.’ If the

Customs regulation denies § 526 prote*tion to such select

domestic registrants’ then the regulation directly conflicts

with substantive trademark law by failing to consider the

quality and advertising functions of trademarks. Such

denial of § 526 protection thereby permits widespread grey

marketing, with the Customs regulation laying the good will

of and investment in the U.S. trademark owners’ marks open

to the unauthorized use of others, further exposing the con-

sumer to confusion and quality problems. Thus, select

domestic registrants, like Yariaha, incur the expense and

(footnote continued from preceding page)

established rule of law protecting both the public and the

trademark owner.” /d. 8. Rep. No. 1333, 2d Sess. 3, 5 (1946).

*Several Petitioners, such as K mart Corporation, refer to the

goods as being “trademarked” by a foreign source. This term is

misleading because it connotes the birth of protectable trade-

mark rights by mere affixation of the mark to the goods. How-

ever, it is clear at both common law and under the US.

Trademark Act that protectable trademark rights do not arise

until the mark is used in U.S. commerce by an authorized

entity. 15 U.S.C. § 1127 (definition of “trademark” and “use in

commerce”). Moreover, it ignores the fact that any rights the

purchaser obtains are limited to those granted under the laws of

the country where the transaction occurs.

"No Petitioner has or can explain the dichotomy which exists

under the current Customs regulation where confusion of source

is assumed to exist for domestic trademark registrants qualify-

ing for § 526 protection, while confusion of source is assumed

not to exist for other domestic trademark owners denied § 526

protection. This paradox illustrates that there is no legal justifi-

eation for the Customs regulation.

10

exert the effort but, receive no protection under or benefit

from § 526.

B. The Customs Service Regulation Profoundly Dimin-

ishes the Exclusive Right of Use Accorded Domestic

Trademark Registrants Under the Lanham Act

Because of its irreconcilable conflict with trademark law,

tue Customs regulation inevitably results in a deprivation of

substantive statutory rights granted to Yamaha as a trade-

mark registrant under the Lanham Act. Specifically,

Yamaha, as a registrant, is deprived of its “exclusive right to

use the mark in commerce in connection with the goods and

services specified in the Certificate of Registration.” 15

U.S.C. §§ 1057(b), 1115(b). The Custon.. segulation deprives

many trademark registrants of the most cherished substan-

tive right evidenced by a federal registration issued under

the Lanham Act, the exclusive right of use.

By denying the complete benefits of § 526 protection to

certain domestic U.S. trademark registrants, the Customs

Service places its imprimatur on grey market goods. The

introduction of these goods into commerce and the use of the

trademark to sell the goods without the domestic registrant’s

consent, undeniably invades the exclusive right of use recog-

nized by the Lanham Act. The value of the trademark to the

U.S. trademark registrant clearly becomes diminished since

the trademark registrant is unable to control the use of its

mark or quality or servicing of goods in the grey market.*

The importance of the “exclusive right of use” was

emphasized by this Court’s pronouncement that unless an

incontestable registration could be asserted to enjoin infringe-

ment by others, the “exclusive right”, recognized by the

*Loss of control may lead to a registrant’s loss of its statutory

right to exclusive use of the mark on the ground of abandon-

ment. 15 U.S.C. § 1064(c) (cancellation of registration on the

ground of abandonment); 15 U.S.C. § 1127 (definition of “aban-

donment of mark’”’).

11

Lanham Act, would be rendered meaningless.’ Park’N Fly,

469 U.S. at 196. Under the Lanham Act, the invasion of the

exclusive right of use triggers a registrant’s immediate right

to injunctive relief “to prevent the violation of any right of

the registrant of the mark registered in the Patent and

Trademark Office.” 15 U.S.C. § 1116; See also St. Charles Mfg.

Co. v. St. Charles Furniture Corp., 482 F.Supp. 397 (N.D.IIL.

1979).

The enforcement of a registrant’s exclusive right to use a

trademark or service mark promotes the Lanham Act goals

of providing “national protection of trademarks in order to

secure to the owner of the mark the goodwill of his business

and to protect the ability of consumers to distinguish among

competing producers.” Park’N Fly, 469 U.S. at 198 (citing S.

Rep. 1333, 2d Sess. 3, 5 (1946)). By sanctioning, carte

blanche, an invasion of the statutory exclusive right of use,

the Customs regulation is contrary to and frustrates the

legislative goals of the Lanham Act at a time when effective

protection of American intellectual property against unfair

foreign trade is critical to the survival of American busi-

nesses and jobs.

Petitioners attempt to justify the invasion of the exclusive

right of use on the ground that the regulation assumes

(without provision for factual investigation), that domestic

trademark registrants having a certain degree of foreign

ownership, have not developed independent good will in the

United States apart from any commercial recognition or

good will which the mark may symbolize elsewhere in the

*Registration of a mark on the Principal Register is prima

facie evidence of a registrant’s ownership, the validity of the

registration and of the exclusive right of the registrant to use

the mark in commerce in connection with the goods specified in .

the Certificate of Registration. 15 U.S.C. § 1057(b). After 5

years on the Principal Register, the registration assumes the

status of incontestability and hecomes “conclusive evidence” of

the registrant’s exclusive right to use the mark. 15 U.S.C.

§§ 1065, 1115(b).

12

world. This argument is contrary to the prima facie presump-

tions of validity and ownership which are accorded all US.

trademark registrations. The statutory presumptions of own-

ership and validity carry with them the assumption that

good will exists and is appurtenant to the mark because by

definition, a trademark is a symbol of good will and can have

no existence apart from the good will which it represents.

McLean, 96 U.S. at 252; United Drug Co. v. Theodore Rectanus

Co., 248 U.S. 90, 97 (1918); 15 U.S.C. § 1057(b). When a

registration is granted, it is presumed by statute, that the

registrant holds good will in the registered mark. Certainly,

no administrative agency, including the U.S. Customs Serv-

ice, can promulgate a regulation without opportunity for a

fair hearing, depriving U:S. citizens of statutorily recognized

rights and evidentiary presumptions.

C. Enforcement of the Customs Service Regulation

Deprives Many U.S. Registrants of Substantive Due

Process Rights

By refusing to grant Yamaha and other foreign-owned

U.S. companies a grey goods exclusion order, the Customs

Service, through its regulation, is destroying a key property

right held by such trademark owners. As discussed, under

the Lanham Act, a federal trademark registration recognizes

valuable rights, the most important of which is the right to

the exclusive use of the trademark. 15 U.S.C. 1057(b);

1115(b). It is in this sense of “exclusive right” that

trademarks can be categorized as a form of “property”’.

Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251

(1916). Moreover, there is no doubt that good will, together

with its symbol—the trademark—are legally classified as

“property”. Old Dearborn Distributing Co. v. Seagram- Distillers

Corp., 299 U.S. 183, 194-195 (1936).

Customs’ adherence to its regulation and refusal to issue

genuine grey goods exclusion orders to domestic registrants

who are foreign-owned deprives these trademark owners of

incidents of ownership which impart significant value to

~13

their trademark property. The impairment of the regis-

trants’ statutory exclusive right to use their trademarks so

diminishes the trademarks’ values so as to amount to a

“taking” of the registrants’ property without just compensa-

tion in violation of the registrants’ Fifth Amendment rights.

Cf. Johnson & Johnson, Inc. v. Wallace A. Erickson & Co., 627

F.2d 57, 59 (7th Cir. 1980)."° This Court recognized long ago,

that as a general rule, “|w\hile property may be regulated to

a certain extent, if the regulation goes too far it will be

recognized as a taking.” Pennsylvania Coal Co. v. Mahon, 260

U.S. 393, 415 (1922).

Customs enforcement of its regulation amounts to nothing

less than the “taking” of a U.S. trademark registrant’s statu-

tory property without just compensation. Moreover, the gov-

ernment’s encroachment on the statutory rights of a

tradmark owner does not constitute a reasonable exercise of

police power for a legitimate “public use”. In this regard, it

is noteworthy that the regulation was not intended to protect

the public’s safety or to otherwise protect the public’s inter-

est. Rather, the regulation merely serves to secure and

increase the monetary profits of a few grey market enter-

prises. Customs’ enforcement of its regulation amounts to an

illegal “taking” of trademark rights which unjustly deprives

some U.S. registrants of due process of law.

D. The Customs Service Regulation Imposes Compulsory

and Uncontrolled Trademark Licensing on a Substan-

tial Class of Domestic Trademark Registrants

For the substantial class of domestic trademark registrants

who cannot qualify under the Customs regulation for com-

plete § 526 protection, the U.S. Customs Service grants to

grey marketers the right to use a domestic registrant’s mark

to import, advertise and sel! the goods in the United States

“In this case, the Seventh Circuit found that a patentee

cannot be deprived of his property in the patent right of

exclusion without due process of law.

14

without the registrant’s consent. Because of the discrimina-

tion inherent in the regulation, the Customs regulation

amounts to compulsory, royalty-free licensing of the U.S.

trademarks owned by domestic registrants not qualifying for

§ 526 protection.

Compulsory trademark licensing is an extremely punitive

remedy and only considered where it has been shown that a

trademark has been used contrary to competitive and con-

sumer interests. 1A Callmann, Unfair Competition,

Trademarks and Monopoly § 4.53 (4th ed. 1981).'' There is

no evidence that either the U.S. Customs Service or any

court, department or administrative agency has ever con-

ducted an investigation or issued administrative or judicial

findings which would justify exacting from certain domestic

trademark registrants the highly punitive remedy of com-

pulsory, royalty-free trademark licensing.

In addition to the fact that the Customs regulation is

tantamount to compulsory licensing, it is also “naked” licens-

ing of the various trademarks of those domestic trademark

registrants which do not qualify for § 526 protection. Naked

licensing results when a trademark registrant fails to exer-

cise sufficient quality control over the goods and services

being offered in connection with the trademark by a licensee.

1 McCarthy, Trademarks and Unfair Competition § 18:14

(2nd ed. 1984). Naked licensing both deceives the public,

which expects the same level of quality from all goods or

services bearing a particular mark, and prevents the trade-

mark owner from controlling both the quality of the goods,

the use of his trademark and his business reputation which

is intimately linked with the trademark. Naked or uncon-

trolled trademark licensing can lead to abandonment of

" E.g., The Federal Trade Commission requested compulsory

royalty-free trademark licensing in the FTC Realemon case, Jn

re Borden, Inc., Docket No. 8978, 891 ATRR, E-1 (1978); See also

Note, Abuse of Trademarks: A Proposal for Compulsory Licensing, 7

U. Mich. J.L. Ref. 644 (1974).

ae

15

trademark rights as the mark may ultimately lose its signifi-

cance as an indication of source and quality. See 15 U.S.C.

§ 1127 (definition “abandonment of mark”); Midwest Fur

Producers Assn. v. Mutation Mink Breeders Assn., 127 F.Supp.

217 (W.D.Wis. 1955) (naked licensing held, resulting in aban-

donment and estoppel to assert trademark rights).

When the Customs Service permits the passage of grey

market goods through the Customhouses without consent of

Yamaha and other domestic trademark registrants, such

registrants have lost their right to control the use of their

marks and their reputations. Cf Dallas Cowboy Cheerleaders,

Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 205 (2d Cir. 1979).

The regulation thus frustrates another of the statutory goals

of the Lanham Act, the ability of a trademark owner to

control the good will of his business and the product quality

symbolized by the trademark, as weli as protecting th abil-

ity of consumers to rely on a trademark as a badge of product

quality. See Park’N Fly, 469 U.S. at 198; S. Rep. No. 1333, 2d

Sess. 3, 5 (1946).

To defend the Customs regulation and the grey marketing

it promotes, it has been urged that a grey marketer may

invade a U.S. registrant’s exclusivity because this is consist-

ent with the implied trademark license which a grey

marketer allegedly acquires by purchase of the goods from a

foreign source. This argument clearly relies on the archaic

“exhaustion” concept of_international trade which suggested

that once a foregin trademark owner placed his goods bear-

ing the mark into international commerce, an assignee in

another country could not locally own or assert trademark

rights superior to those of the foreign owner. Osawa & Co. v.

B & H Photo, 589 F.Supp. 1163, 1174 (S.D.N.Y. 1984). How-

ever, the concept of exhaustion was inextricably linked with

the theory of trademark universality which this Court

rejected in favor of trademark territoriality. A. Bourjois & Co.

v. Kaztel, 260 U.S. at 692. Where a trademark owner in a

different territory has acquired, or by law possesses, an

independent good will as symbolized by the trademark, the

16

exhaustion concept is of no relevance. See Derenberg, Territo-

rial Scope and Situs of Trademarks and Good Will, 47 Va. L.

Rev. 733, 736-37 (1961) (establishment by domestic mark

holder of localized good will justifies trademark protection

against grey market imports).

As noted above, a domestic owner of a U.S. trademark

registration possesses a prima facie presumption under the

Lanham Act that the registered mark possesses good will.

The Customs regulation denegrates this statutory presump-

tion and imposes a contrary presumption that domestic

trademark registrants who do not qualify for § 526 protec-

tion do not possess independent good will in the United

States.

II. SECTION 526 OF THE TARIFF ACT IS CONSISTENT

WITH AND NECESSARY TO PROTECT THE

RIGHTS GRANTED TO U.S. REGISTRANTS UNDER

THE LANHAM ACT

Section 526 and the Customs regulation must not be con-

sidered in a vacuum as Petitioners advocate. While § 526 is

commonly understood to be a customs or trade regulation

statute, application and understanding of this statute cannot

be undertaken without considering the manner in which it

interfaces with trademark law. The language and history of

both § 526 and the Lanham Act confirm that § 526 of the

Tariff Act simply provides an additional remedy to a regis-

tered trademark owner as a further means of enforcing its

statutorily recognized right of exclusivity of use under the

Lanham Act. Section 526, on its face, grants protection to

U.S. owners of registered trademarks without limitation. By

availing themselves of § 526, owners of U.S. registrations

should be able to secure certain procedural benefits to

enhance the protection of their registered trademarks. How-

ever, the Customs regulation arbitrarily interferes with the

enjoyment of these statutorily-granted procedural benefits.

Petitioners’ position that U.S. distributors and trademark

registrants of foreign-made products such as Yamaha, are

17

not entitled to the procedural benefits of § 526 of the Tariff

Act is totally contrary to a long line of distinguished trade-

mark cases. For more than 40 years, courts have recognized

the exclusive rights of American distributors and permitted

trademark infringement suits to be maintained by exclusive

distributors and sellers of trademarked goods who had a

right by agreement with the owner of the trademark to

exclude even the owner from selling in their territory.”

Thus, it is settled law that a trademark may not only

signify the good will of a manufacturer, but may also signify

the independent good will of the exclusive distributor who

imports foreign-made goods and stands behind the goods sold

by it. Most importantly, these decisions permit U.S. dis-

tributors to maintain infringement actions regardless of the

foreign ownership of the distributors. The statutory inter-

pretation of §526 espoused by Petitioners conveniently

ignores the trademark heritage of this section and disregards

accepted case law demonstrating the invalidity of the

regulation.

A plain reading of § 526 consistent with fundamental

modern trademark law manifests the intention of this sec-

tion to include all U.S. registrants who are citizens of and

domiciliaries in the United States regardless of who their

stockholders are and/or what relationship they have with

foreign users of identical marks. Neither the legislative

reports nor the congressional debate contain any clear evi-

dence of a legislative intent to deny trademark protection

where the owner of the U.S. mark is owned or controlled by

the foreign manufacturer of trademarked goods.

"? See Quabaug Rubber Co. v. Fabiano Shoe Co., Inc., 567 F.2d 154,

159-160 (1st Cir. 1977); Watson v. E. Leitz, Inc., 254 F.2d 777, 780

(D.C. Cir. 1958); Avedis Zildjian Co. v. Fred Gretsch Mfg. Co., 251

F.2d 530, 532 (2d Cir. 1958); Georg Jensen & Wendel, A/S v. Georg

Jensen Handmade Silver, Inc., 111 F.2d 169, 172 (C.C.P.A. 1940);

and Osawa v. B & H Photo, 589 F.Supp. at 1179.

18

Petitioners ask this Court to ignore the express language

of § 526, which has remained unchanged by Congress for

over 60 years, in lieu of their own interpretation of the

sketchy and confused legislative history of this section. Peti-

tioners, the Customs Service and this Court, should not

attempt to legislate where Congress has had the opportunity

but has clearly chosen not to do so. Accordir gly, these Amict,

urge the Court to reject Petitioners’ spurious statutory inter-

pretation of § 526, on which they premise their defense of the

Customs regulation, and reaffirm the plain language of the

statute in view of its consistency with established trademark

law and thereby invalidate the regulation.

A. Absent the Customs Service Regulation, Section 526

Provides an Efficient and Crucial Means for Protection

of a U.S. Registrant’s Trademark Rights

As stated above, the procedure set forth in § 526 provides

one of the most efficient means of protection for a USS.

trademark owner. Rather than promote the effectiveness of

the recording procedure of § 526, the Customs regulation

undermines the procedural benefits of the statute. By not

being able to record its trademark at Customs to receive

protection from imported grey goods, the trademark owner is

unable to avail itself of the vast resources of the Customs

Service and guard against the unauthorized importation of

any infringing products. No comparable alternate means

exists for an individual trademark owner to police and con-

trol the importation and sale of infringing goods in this

country.

If the U.S. trademark owner cannot stop shipments of

infringing goods from the foreign source of such goods via an

exclusion order, it is faced with an endless pursuit of sepa-

rate infringers in the distribution chain, while infringing

gaods continue to pour into the country. Thus, the trade-

mark owner is unable to effectively combat the actual cause

of its infringement problems. Under the current regulation,

Yamaha is unable to avail itself of the full benefits of § 526

19

protection against grey imports and is thereby denied enjoy-

ment ci the meaningful protection of its trademark rights

intended by the Tariff Act and the Trademark Act.

B. The Statutory Preference to Domestic Registrants

Under § 526 Serves a Legitimate Purpose

Unlike the provisions of the Lanham Act, § 526 does not

extend its procedural advantages to foreign entities. Con-

trary to the view of the Federal Petitioners, § 526 does not

impart any additional substantive trademark rights on its

beneficiaries, and therefore is not inconsistent with § 44(b) of

the Lanham Act, 15 U.S.C. 1126(b) (1982), or with relevant

international treaties which require reciprocity of rights.

Brief for the Federal Petitioners at 10. See Paris Convention

for the Protection of Intellectual Property, March 20, 1883,

as revised, Art. 2, 21 U.S.T. 2140, T.I.A.S. No. 6923.

As a Customs and trade regulation statute, § 526 was

intended to protect American trade and domestic businesses.

This is a lawful and legitimate purpose which is also the

basis for similar procedural benefits accorded to U.S. owners

of other intellectual property.’ Contrary to Petitioners’

belief, this purpose is not defeated by enabling legitimate

domestic trademark registrants, whether partly or wholly

foreign owneu to enjoy the procedural benefits of the statute.

A company like Yamaha, which is incorporated in one of the

50 states, maintains a place of business in the U.S., employs

USS. citizens and pays U.S., State and local taxes, is no less of

an “American” company because its capital stock is foreign

owned. In fact, in defining a “domestic industry” in investi-

gations conducted under the Tariff Act of 1930, § 337, the

‘Under the Copyright Act, 17 U.S.C. §§ 601-603 (1982), only

a U.S. national or domiciliary can exclude the importation of

certain copyrighted works while under the Tariff Act of 1930,

§ 337, 19 U.S.C. § 1337, mer®handise may be excluded by the

International Trade Commission if it finds the existence of

unfair practices or unfair methods of competition causing

injury to a domestic industry.

20

International Trade Commission often includes domestically

formed entities which may be partly or wholly, foreign

owned. Certain Airtight Cast-Iron Stoves, No. 337-TA-69, 215

U.S.P.Q. 963 (U.S. ITC 1980).

Without offer of factual support, Petitioners would have

this Court accept the “negative” assumption of the Customs

regulation that every domestic company with foreign owner-

ship or manufacturing plants is not an “American” company

deserving of the procedural benefits of § 526. This assump-

tion is not only at odds with decades of case law recognizing

the separate existence of a corporation from its owner(s)",

but it is totally contrary to recent decisions where courts

considering this question have found a foreign-owned domes-

tic company to constitute a legitimate American business.

See Bell & Howell:Mamiya Co. v. Masel Supply Co., 548 F.Supp.

1063, 1079 (E.D.N.Y. 1982), vacated and remanded, 719 F.2d 42

(2d Cir. 1983); Osawa v. B & H Photo, 589 F.Supp. at 1165.

So long as an ongoing business is established in the United

States, the purpose of § 526 is fulfilled and, the equity owner-

ship of the business is irrelevant. For example, Yamaha

maintains an established place of business in the US.,

spends thousands of dollars on advertising and promoting its

trademarked products and services, provides warranty serv-

ices and sells products in the U.S. and carries on all other

activities engaged in by other American companies. U.S.

subsidiaries of foreign manufacturers which were set up for

legitimate business reasons, such as distribution, promotion,

“By assuming that foreign-owned domestic companies are

not legitimate American businesses, Petitioners attempt to

unjustifiably pierce the corporate veil and deem the domestic

companies to be the alter egos of their foreign owners. This

piercing is unwarranted without a showing that the domestic

companies we.e created for some deceitful purpose. Petitioners’

gross mischaracterization of these domestic businesses as corpo-

rate shells is equally unwarranted. There is no evidence sup-

porting or legal basis justifying Petitioners’ assum pts.

21

and servicing of trademarked products clearly fall within

the literal scope of § 526.

Moreover, there is no administrative rationale for the

“negative” assumption against foreign owned registrants

embodied in the Customs regulation. Petitioners speculate

that in the absence of the regulation foreign companies will

fraudulently apply for and receive grey goods exclusion

orders pursuant to § 526. However, these concerns can easily

be allayed by employing similar safeguards to those which

have long been commonly used by administrative agencies.

Various administrative agencies have effectively utilized and

accepted sworn affidavits and/or declarations under the pen-

alty of perjury to support statements of fact submitted for

government action.” See, eg., administrative declarations

under 18 U.S.C. § 1001 (1982).

Hence, there is no procedural justification for the Customs

regulation. Employing standard administrative safeguards

would allow all legitimate U.S. companies to record their

trademarks with Customs, but not foreclose a challenge to

the domesticity of a U.S. registrant when it seeks to enforce

its rights under § 526. Interested third parties would be free

to file a protest with Customs or raise the issue as a defense

in a suit between the parties. Under a literal interpretation

of § 526, certain U.S. registrants would not be forced to bear

the burden of being precluded from obtaining relief from

grey imports. Instead, the burden would be shifted to the

challenger as it should be in deference to the statutory rights

of exclusivity accorded to trademark owners.

'’ For example, in its administration of a bi-level fee schedule,

the Patent and Trademark Office relies on verified statements

made by the patent applicant concerning its size of employ-

ment. 37 C.F.R. § 1.27 (1984). On a larger scale, the IRS

routinely accepts tax returns signed by the taxpayer under the

penalty of perjury. Utilizing a similar procedure, Customs

could carry out the provisions of § 526 by requiring registrants

to submit sworn statements verifying their domicile and

citizenship.

22

C. The Antitrust Enforcement Rationale for the Customs

Service Regulation Has No Justification In Section 526

There is no justification for the Customs regulation as an

enforcement tool of U.S. antitrust law and policy. Enforce-

ment of § 526 in accordance with its express language, is in

harmony with antitrust law as articulated in Continental T.V.

v. GTE Sylvania, 433 U.S. 36 (1977)."* Petitioners’ reliance on

United States v. Guerlain, Inc., 155 F.Supp. 77 (S.D.N.Y. 1957),

in support of their argument that a literal reading of § 526

fosters anticompetitive practices is misplaced. The preceden-

tial value of Guerlain is minimal to non-existent in view of

its vacatur and its dismissal with prejudice. The apparent

reasoning behind the Guerlain court’s construction of § 526 as

limited to “independent” distributors was based on its view

of the merits of the antitrust claims.

Under current antitrust law, the Guerlain court’s definition

of the relevant market is fatally flawed. Indeed, a key legal

premise in Guerlain, that the relevant market consisted only

of the trademarked goods, has been discredited by this Court.

See, e.g., United States v. E.I. du Pont de Nemours & Co., 351

U.S. 377, 393 (1956). Moreover, as noted by the government

in its amicus curiae brief submitted to the Second Circuit in

connection with Bell & Howell v. Masel, the Guerlain court’s

analysis is inconsistent with current legal precedent and

sound economic analysis.” Citing this Court’s decision in

‘Petitioners urge this Court to recognize a different and

discriminatory rule as to antitrust policy when the trademark

owner is a foreign-owned company than when the trademark

owner is an “independent” American trademark owner. They

contend that enforcement of § 526 is acceptable for competitive

purposes if the registrant has no direct or indirect foreign

ownership, but would violate antitrust policy if the same regis-

trant has any foreign ownership.

"The first § 526 regulation which Customs promulgated was

an attempt to implement its perception of antitrust policy

which was undoubtedly influenced by the rationale of the

Justice Department in bringing the Gwerlain action. See

(footnote continued on next page)

;

23

International Boxing Club of New York v. United States, 358 U.S.

242, 251 (1959) and Sullivan, Antitrust 51 (1977), the govern-

ment also explained that properly defined, a trademarked

good is in a market of its own only where a supra-competi-

tive price for that good would not cause consumers to move to

other goods. The government further stated that it may not

be presumed that every trademark confers such power over

price. “That is a matter to be determined on the basis of the

competitive reality relevant to each product.” Brief for the

United States of America Amicus Curiae at 16. See Joint

Appendix as filed with the U.S. Court of Appeals for the

D.C. Cireuit at 321-342. The opinion of the district court in

Guerlain, which adopted the same theory as the Customs

regulation, has also been seriously criticized. See Osawa v.

B & H Photo, 589 F.Supp. at 1177; Bell & Howell v. Masel, 548

F.Supp. at 1077 and Handler, Trademark—Assets or Liabilities,

48 Trade-Mark Rep. 661 (1958).

While Petitioners contend that Respondents’ interpreta-

tion of the trademark laws and § 526 fosters anticompetitive

practices, discriminatory pricing and violations of antitrust

law and policy, they fail to produce a single shred of evi-

dence or economic data to support this contention. Petition-

ers also speculate, without any economic justification or

evidentiary support, that a literal interpretation of § 526 will

harm consumers economically. However, the remote possi-

bility of price savings to consumers must not in and of itself

override the statutory rights guaranteed to trademark regis-

trants under the Lanham Act. The economic rationale

underlying Continental T.V. v. GTE Sylvania is that compa-

nies such as authorized U.S. distributors and their authorized

dealers will be willing to make expenditures necessary to

(footnote continued from preceding page)

Atwood, Import Restrictions on Trademarked Merchandise—The

Role of the United States Bureau of Customs, 59 Trade-Mark Rep.

301 (1969). Nothing in § 526 or its legislative history even hints

that Congress intended to confer authority on Customs to condi-

tion the benefits of § 526 on its-analysis of antitrust policy.

24

make themselves strong competitors in the overall market-

place if they are protected from intrabrand competition.

Without their trademark assets, U.S. distributors would not

make the investments necessary to become important factors

in the United States market. Yet, it is standard economic

theory that the absence of a viable competitor, such as the

U.S. distributors, might well decrease price competition in

the long run to the detriment of consumers.

Moreover, there are numerous explanations why grey

marketers can sell goods cheaper than the exclusive U.S.

distributor, such as fluctuations in international currency

rates, differing costs and market conditions in other coun-

tries, maintenance of dealer networks and education pro-

grams, warranty services, advertising and other public

relations costs. Osawa v. B & H Photo, 589 F.Supp. at 1176.

These expenses are incurred in connection with the mainte-

nance and enhancement of the good will and reputation

which a trademark symbolizes. Continental T.V. v. GTE

Sylvania, 433 U.S. at 55. Such activities when undertaken by

the U.S. distributor create and maintain consumers’ desire

for products bearing the trademark. Indeed, if consumers’

desire for the trademarked merchandise was not perpetuated

by the U.S. distributors/trademark owners, grey marketers

would have no interest in seliing the products. Petitioners’

argument that arbitrary price discrimination is practiced by

foreign manufacturers to unjustifiably increase the cost of

trademarked goods to U.S. consumers is merely an attempt to

divert attention from the free-ride taken by grey marketers

on the good will and recognition built in the trademark by

the U.S. owner.

Even assuming that practices of some foreign manufactur-

ers are found to violate the antitrust laws, other remedies

exist which do not detract from the statutory rights accorded

to trademark owners. For instance, should antitrust viola-

tions be shown, a proper remedy would be the denial of

_enforcement of the trademark registration or imposition of

liability for violation of the antitrust laws. See, e.g., 15 U.S.C.

— ——

ee ee ee. Pee, ee

A emeee ee

25

§ 1115(b)(7) (use of a trademark to violate antitrust laws is a

defense to an incontestable trademark registration). —

Furthermore, the effectiveness of the Customs regulation

as an antitrust enforcement tool is highly suspect. Antitrust

questions are much too complex to be fairly decided solely by

reference to a short statement regarding corporate ownership

required under the Customs regulation. Customs’ determina-

tions on this basis take no account, for example, of whether

the similarly marked goods in fact compete with one another

or if so, what is the definition of the relevant market in

which they compete.” The Customs regulation automati-

cally presumes antitrust violations, without any considera-

tion of market conditions, from the sole fact of common

control of foreign and domestic trademark owners. More-

over, in view of the remedial alternatives which are avail-

able’ the regulation should not be allowed to stand and

preempt the statutory trademark rights of U.S. registrants.

‘*It is also curious that the regulation denying exclusion of

genuine-foreign-trademarked goods based on the relationship

between the U.S. and foreign markholders denies exclusion of

imports bearing counterfeit trademarks on the same basis.

What principle of antitrust law could possibly be served by

withholding the exclusion of counterfeits by reason of relation-

Ships between the domestic and foreign markholders?

Noteworthy is that §42 of the Lanham Act, unlike § 526,

extends protection to foreign holders of U.S. marks (under

certain circumstances) as well as to U.S. citizens and corpora-

tions. Osawa v. B & H Photo, 589 F.Supp. at 1177.

"Such alternatives include civil actions to challenge the

propriety of the issuance of the exclusion order based on anti-

trust violations, trebled damages actions, suits for unfair compe-

tition and defenses to infringement actions. See Timken Roller

Bearing Co. v. United States, 341 U.S. 593, 598-99 (1951); Carl Zeiss

Stiftung v. V.E.B. Carl Zeiss, Jena, 298 F.Supp. 1309, 1314

(S.D.N.Y. 1969), aff'd as modified, 433 F.2d 686 (2d Cir. 1970), cert.

denied, 403 U.S. 905 (1971); and 15 U.S.C. § 1115(b)7). -

26

III. THE CUSTOMS SERVICE REGULATION

ADVERSELY IMPACTS ON BOTH YAMAHA AND

CONSUMERS AND IS AGAINST PUBLIC POLICY

The Customs regulation has a decidedly adverse impact on

Yamaha and purchasers of grey market sound equipment.

In defense of the regulation, all Petitioners make two errone-

ous assumptions: (1) that goods bearing marks identical to

the registered U.S. marks are the same throughout the world

and, (2) that the trademark affixed to grey goods has the

same meaning to consumers, in fact and law, throughout the

world.”” From these erroneous assumptions, Petitioners con-

clude that the regulation is valid because through grey

marketing, consumers are receiving the same goods bearing

the same mark at allegedly lower prices. Both assumptions,

are completely: unsupported by both fact and law.

Yamaha strenuously disputes the assumption that all

goods manufactured or distributed by all trademark regis-

trants are the same throughout the world. Brief for Peti-

tioner 47th Street Photo at 2. Because of the myriad federal

and safety regulations governing the products sold by

Yamaha in the US., as a matter of law, products bearing the

“Yamaha” trademarks and intended for overseas distribu-

tion are “different because of the regulations.” For example,

FCC regulations specifically require products sold by

Yamaha to meet certain technical specifications, bear proper

labelling and to include FCC information in the owner's

manual. Compact dise players sold by Yamaha are subject to

FDA regulations due to the laser contained in the player. 21

C.F.R. §§ 1000, 1040 (1984). Additionally, products not

intended for the U.S. market do not carry Underwriters

Laboratories, Inc. (U.L.) warnings pursuant to U.L. Regula-

tion 469. Equipment intended for overseas markets may not

be able to handle the standard electrical current found in the

For example, Petitioners K mart and 47th Street Photo

preoccupy themselves with trademark law from Japan and the

European Economic Community. Brief for Petitioner K mart

at 44; Brief for Petitioner 47th Street Photo at 40, 42.

27

U.S. As a result of the foregoing, grey market sound equip-

ment drawn from overseas commerce, is distinctly different

than that intended for the U.S. market notwithstanding the

fact that it bears an identical mark.

In addition to the legally required differences between

U.S. sound equipment and grey market equipment, there are

other differences between the equipment mandated by the

needs and product uses in overseas markets. For example,

accessories and owners manuals differ from country to coun-

try. An owner’s manual in a foreign language is of little use

or benefit to a U.S. consumer.

Warranties represent another aspect of the differences

between genuine and grey market equipment. Warranties

and the accompanying services are not the same for equip-

ment sold in the U.S. and other parts of the world. A USS.

consumer who purchases sound equipment intended for a

foreign market expects the equipment to meet U.S. standards

and that his warranty will he the same as authorized equip-

ment because the grey market equipment bears a trademark

identical to the registered U.S. trademark. However, grey

market goods are often sold with no warranty. Consumers

frequently become confused as to why their warranty is not

the same as the warranty on authorized equipment since

they look to the trademarks as badges of quality and fully

expect the U.S. trademark owner to stand behind the quality

of the goods. Thus, the assumption that all grey market

goods are the same as goods intended for sale in the USS. is

erroneous.

The second erroneous assumption raised by Petitioners in

support of the Customs regulation is that trademarks affixed

to grey market goods possess the same meaning to consumers

as the U.S. registered marks. It is undisputed that the

bundle of substantive rights accorded trademark owners

vastly differs throughout the world as a matter of sovereign

28

law.?! For example, in many countries outside the United

States, enforceable trademark rights are born merely

through registration without regard to actual use of the

mark on any goods or services. Because the nature and

degree of trademark protection varies throughout the world,

a trademark applied to sound equipment outside the United

States may have a completely different legal function and

significance than does the same mark when applied to goods

in U.S. commerce.

Likewise, because the nature and quality of the goods,

warranty services and advertising varies with each country

based on market needs and economic and competitive con-

siderations, trademarks necessarily take on different mean-

ings for consumers in various countries. Thus, because

consumers throughout the world have different understand-

ings as to the kinds of goods, services and advertising

symbolized by a particular trademark, it is thoroughly erro-

neous to assume that famous trademarks such as “Yamaha”

have the same meaning to European consumers as does that

same mark to U.S. consumers.

Lastly, grey market sales frustrate and interfere with the

fundamental basis for the franchise system. It is difficult to

explain to an authorized dealer why he must or should

compete with an unauthorized dealer who utilizes-the

famous trademarks in the-sale of grey market goods. The

existence of grey market goods deters capital investment and

dealer participation, and interrupts orderly distribution of

goods and services under the trademark. It is only the

famous brand name of Yamaha that enables the grey market

dealer to effectively sell his products. Yet, it is Yamaha, the

21 See Paris Convention for the Protection of Intellectual Prop-

erty, March 20, 1883, as revised, Art. 6, 21 U.S.T. 2140, T.1.A.S.

No. 6923 (authorizing territorial assignments of trademark

rights subject to national law); General Inter-American Conven-

tion for Trade-Mark and Commercial Protection, Feb. 20, 1929,

Art. 11 (authorizing territorial transfers given reliable proof,

subject to national law of transfer and registration).

ee he 8 er eee

ee eo eet

]

:

|

:

:

'

:

:

:

29

trademark owner that has devoted the time and expense of

creating and maintaining U.S. consumers’ desire for its

products.

Unauthorized grey market dealers have no incentive to

protect the good will of the trademark. The marketing goal

of grey marketers is to sell only famous brand goods soiely

on the basis of price in order to reap a profit for themselves.

The commerciai magnetism of Yamaha’s trademarks allows

the grey marketers to sell grey goods with little or no invest-

ment of their own. In this manner, the grey market dealers

take a free ride on the advertising, servicing and good will

associated with the trademarks while contributing nothing.

Thus, the value of Yamaha’s trademarks are materially

diminished and could ultimately be destroyed. Under the

express language of the Tariff Act and without the regula-

tion, the quality and flow of goods under Yamaha’s regis-

tered trademarks could be properly monitored to avoid

consumer confusion and deception, thereby promoting the

welfare and investment of Yamaha and its authorized

dealers.

30

CONCLUSION

The judgment of the Court of Appeals should be affirmed

in its ent vety.

Davip Lu

Corporate Legal Counsel

YAMAHA INTERNATIONAL

CORPORATION

6600 Orangethorpe Avenue

Buena Park, California 90622

(714) 522-9214

Respectfully submitted,

ROBERT E. WAGNER*

LINDA A. KUCZMA

ALAN L. BARRY

ROBERT E. BROWNE

Amy L.H. ROCKWELL

WALLENSTEIN, WAGNER, HATTIS,

STRAMPEL & AUBEL, LTD.

100 South Wacker Drive

Chicago, Illinois 60606

(312) 641-1570

Attorneys for Amici Curiae

Yamaha International

Corporation

and Yamaha Electronics

Corporation, USA

*Counsel of Record