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

y WW

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

In THE

Supreme Court of the United sta

OcroBer TERM, 1986 He

K Mart CorPoRATION,

Petitioner,

v.

CarTIER, INC., et al.

477TH Street Puoro, INC.,

Petitioner,

v.

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, et al.

UNITED States OF AMERICA, ef al.,

Petitioners,

V.

COALITION TO PRESERVE THE INTEGRITY

or AMERICAN TRADEMARKS, et al.

On Writs of Certiorari to the United States Court of

Appeals for the District of Columbia Circuit

BRIEF FOR AMICUS CURIAE

THE MOTOR VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED STATES, INC.

WiLuiaM H. CRABTREE

(Counsel of Record)

Vice President and General

Counsel

Moror V“HICLE MANUFACTURERS

ASSOCIATION OF THE UNITED

Srates, INC.

300 New Center Building

Detroit, Michigan 48202

(313) 872-4311

Attorney for Amicus MVMA

tee’ 7? a7

L, AR,

TABLE OF CONTENTS

INTRODUCTION AND SUMMARY OF

ELS teh CuadeeaGus oh Wiws ots cesses

SEE nae 5 dicho aces eis re Rabe ERT hk Oe ree

THE CUSTOMS SERVICE REGULATION

CONFLICTS WITH PUBLIC POLICIES

AFFECTING MOTOR VEHICLE

DISTRIBUTION IN THE UNITED STATES ...

3

II.

ITI.

A.

The Customs Regulation Operates At Cross

Purposes To The Many Federal And State

Regulations Which Presuppose Manufacturer

Control Of Motor Vehicle Distribution ......

1. Motor Vehicle Safety Regulation........

2. Mobile Source Pollution Control ........

3. Motor Vehicle Fuel Efficiency ..........

4. Warranty and Consumer Information .

The Customs Regulation Adversely Affects

U.S. Manufacturers’ Control Of Distribution

Se We WHEL 50 Cd debbocekanlebese sn

THE CUSTOMS SERVICE REGULATION

CONFLICTS WITH U.S. TRADEMARK LAW ..

A.

D.

Trademarks Provide The Cornerstone To The

Effective Distribution Of Domestic Motor

OE eer et eer es eee rere

1. MVYMA Member Companies’ Trademarks

Serve A Quality Or Guarantee Function. .

2. Customers Of U.S. Motor Vehicle

Manufacturers Have An Interest In

Trademarks That Must Be Protected .

The Customs Service Regulation Impairs U.S.

Pe I n.d 5 Svbeey sts pecenses oi

MVMA Member Companies Have An

Exclusive Right To The Use Of Their

Trademarks In The United States...........

The Statutory Preference To U.S. Parties

Under § 526 Serves A Legitimate Purpose ...

CD 65% vecturesceceeciehyvantusien

PAGE

weve on +>

20

il

TABLE OF AUTHORITIES

Cases: PaGE

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

rev'd, 260 U.S. 689 (1923) ........ “sn RE Lets Sie cy ee 14

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36

NR SUSU EGY Coe ecbcsacbsavecveveeses 5, 12

Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Lid.,

ee 16, 17

McLean v. Fleming, 96 U.S. 245 (1878) ................ 14,19

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

RS = Ss ee 16

Old Dearborn Distributing Co. v. Seagram-Distillers Corp.,

EE LO ee 14

Park’N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189

ee 15, 16, 19

Sturges v. Clark D. Pease, Inc., 48 F.2d 1035 (2d Cir. 1931) 14,15

United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90

TE et eh eee a6 506% Mbeese pene es esse. 19

Warner Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76 (2d Cir.

EELS eg RET ee 18

Statutes:

15 U.S.C. §§ 753-55; 757-60h; 792; 796; 2001-12, Energy

Policy and Conservation Act...................... 9

15 U.S.C. § 1051, et seg., Lanham Act ................ passim

nb wscbcecnesvecce 19

eo. oa tebe eberececs 16

ee ee ee 19

15 U.S.C. § 1126(b), Lanham Act § 44(b) .............. 20

ee rete PO. cece cacwe's 16, 18

15 U.S.C. § 1231, et seg., Automobile Information

Ne nt cece ccnccces 5, 10

15 U.S.C. § 1381, et seg., National Traffic and Motor

co EE 5,7

15 U.S.C. § 1901, et seg., Motor Vehicle Information and

Tee ec ceuceces 5

17 U.S.C. § 601, et seg., Copyright Act ................ 21

19 U.S.C. § 1337, Tariff Act of 1930 § 337 ............. 21

ill

Page

19 U.S.C. § 1526, Tariff Act of 1930 §526 ............ passim

26 U.S.C. § 4064, Internal Revenue Code.............. 5

42 U.S.C. § 4901, et seqg., Noise Control Act ............ 5

42 U.S.C. §§ 6201-6422, Energy Policy and Conservation

fo. Lec Cee S Ce Se eee Sa VAWe potas eeoezess 9

42 U.S.C. § 7401, et seq., Clean Air Act................ 5,8

42 U.S.C. § 7521, Energy Policy and Conservation Act. . 10

Ariz. Rev. Stat. Ann. § 36-1771, et seq. (Supp. 1956),

Arizona Annual Emission Inspection of Motor

es oe Cee e Ve SESE PUNT ES SC UR a bees 9's 1]

Cal. Health & Safety Code § 43000, et seg. (West Supp.

SG REA en Uns Se ne ee 5

Cal. Health & Safety Code § 43204 (West Supp. 1986). .. 10

Cal. Admin. Code tit. 13, § 2085 ................-00e- 10

Fla. Stat. Ann. § 681.101, et seg., (West Supp. 1957),

Motor Vehicle Warranty Enforcement Act.......... )

Ill. Ann. Stat. ch. 121-1/2, § 1201, et seq. (Smith-Hurd

Supp. 1986), New-Car Buyer Protection Act......... 5

Md. Transportation Code Ann. § 23-201, ef seg. (1954) ... 1]

Mass. Ann. Laws ch. 90, § 7N-1/2 (Michie/Law Co-op.

I ss vac bhede seo 94 ROR eee ne re 5

Mich. Comp. Laws Ann. § 257.1051, et seq. (West Supp.

1986), Michigan Vehicle Emissions Inspection and

i ess bby es Ce ees en eel Vere s asus a 1]

N.J. Stat. Ann. § 56:12-19, et seg. (West Supp. 1956), An

Act Concerning Certain Automobile and Motorcycle

7 EMAL Sey Pret ee ee ee ee yee eee 5

N.Y. Gen. Bus. Law § 198a (McKinney Supp. 1957) ... 5

Administrative Regulations and Rules:

19 C.F. § 12.73, of ang. (1984)... ccc eee et eees 6

ee EE Eero rere reer ee ere passim

ee eR ee eee 10

40 C.F.R. § 86.1101-87 (1985) .. 1.2... cece eee ee eee s

49 C.F.R. § 571, et seg. (1986), Federal Motor Vehicle

Bahety BUMMGOrGs .. ww. htc cer ee sc esenes 7

ee oe ii ly vessauy yiaaeas

bo

iv

PAGE

Secondary Materials:

1 McCarthy, Trademarks and Unfair Competition,

ee Rs ee ee ee ice eet clk a bee: 15

Report to the Chairman, Subcommittee on Oversight

and Investigations, Committee on Energy and

Commerce, House of Representatives entitled, “Auto

Safety and Emissions — No Assurance that Imported

Grey Market Vehicles Meet Federal Standards”,

TE ail cy 340050 d nekabeuke beets cebeces 6

In THE

Supreme Court of the United States:

OctoBerR TERM, 1986

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

K Mart Corporation,

Petitioner,

V.

Cartier, INC., et al.

47TH Street Puoro, INc.,

Petitioner,

V.

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, ef al.

UnIrTepD StraTes OF AMERICA, et al.,

Petitioners,

Vs

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 FOR AMICUS CURIAE

THE MOTOR VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED STATES, INC.

IN SUPPORT OF THE POSITION OF

RESPONDENTS

2

INTEREST OF AMICUS CURIAE

The Motor Vehicle Manufacturers Association of the United

States, Inc. (MVMA) is a voluntary, non-profit association com-

posed of companies engaged in the manufacture and sale of

motor vehicles in the United States. MVMA’s eleven members

assemble more than 98% of the cars, trucks and buses produced

in the United States, operate more than 300 manufacturing

facilities and franchise over 20,000 retail dealers of their

vehicles in this country. MVMA submits this brief in support

of the Respondents’ position. Pursuant to Supreme Court Rule

36.2, the written consent of the parties accompanies this brief.

MV MA members’ familiar trademarks, such as FORD, GEN-

ERAL MOTORS, CHRYSLER and JEEP, originated in the

U.S. and are among the most readily recognized marks

worldwide. As trademark owners, MVMA members have a

direct and vital interest in the resolution of the principal issue

before this Court: the validity of the U.S. Customs Service regu-

lation permitting the importation of certain so-called “grey

market goods”. j

Motor vehicles are among the most complex, costly, essential

durable consumer goods and represent the second largest pur-

chase of most consumers. It is well recognized that the motor

vehicle industry is highly regulated. Federal and state govern-"

ments place extensive responsiblity for the safety and quality

of vehicles sold in the United States upon motor vehicle

manufacturers.

‘The Motor Vehicle Manufacturers Association of the United

States, Inc. is an incorporated not-for-profit trade association

which has no parent companies, subsidiaries or affiliates. Its mem-

bers are: American Motors Corporation; Chrysler Corporation;

Ford Motor Company; General Motors Corporation; Honda of

America Manufacturing, Inec.; LTV Aerospace & Defense Com-

pany, AM General Division; M.A.N. Truck & Bus Corporation;

Navistar International Corporation; PACCAR Inc.; Volkswagen

of America, Inc.; and Volvo North America Corporation.

3

The Court’s decision in this case will ultimately define the

degree of control that a domestic vehicle manufacturer may

lawfully exert over the distribution of its trademarked prod-

ucts. Neither Respondents, whose position MVMA supports,

nor Petitioners, are likely to present to the Court the effects of

its decision on the enforcement and implementation of the gov-

ernment policies embodied in the pervasive vehicle safety, emis-

sions, fuel economy and consumer protection regulations.

INTRODUCTION AND SUMMARY OF ARGUMENT

This Amicus brief sets forth an analysis of the consequences

which would flow from a reversal of the Court of Appeals deci-

sion to the highly regulated U.S. motor vehicle industry, its

distribution practices and the quality of its products, and its

consumers. It will demonstrate that the U.S. Customs Service

regulation, 19 C.F.R. § 133.21, by facilitating imports into the

United States of automobiles which do not comply with U.S.

requirements, adversely affects legitimate distribution practices

of U.S. vehicle manufacturers. The Customs regulation also

undermines the public interest by failing to assure that vehicles

sold in the United States comply with federal and state

standards.

Contrary to Petitioners’ assertions, grey market motor

vehicles bearing marks identical to the U.S. registered marks

cannot be presumed to be the same as vehicles sold in the

United States by MVMA member companies, or to comply with

standards applicable to the United States. By virtue of the Cus-

toms regulation, importation into this country of unqualified

vehicles from Canada, Mexico and overseas allows a deceit on

the public, as well as an infringement upon the legitimate inter-

ests of the domestic vehicle industry in controlling distribution

of its motor vehicles.

This brief examines the proper context of § 526 of the Tariff

Act, 19 U.S.C. § 1526, to demonstrate that there is no policy or

4

legal justification for the Customs regulation under modern

trademark law. The invalidity of the Customs regulation

becomes apparent when its effect on the substantive rights and

responsibilities of U.S. trademark registrants is considered. The

- motor vehicle industry is characterized by an extensive con-

sumer-manufacturer relationship beginning before the purchase

of a vehicle and lasting for years thereafter. The interest in

meeting consumer needs is reinforced by the expanding range

of statutory obligations to consumers. In this context, the strong

reliance placed on the trademark applied to a vehicle and the

good will established in the United States by MVMA member

companies is undercut by the Customs regulation contrary to

the Tariff and Trademark Acts.

ARGUMENT

I. THE CUSTOMS SERVICE REGULATION

CONFLICTS WITH PUBLIC POLICIES .

AFFECTING MOTOR VEHICLE DISTRIBUTION

IN THE UNITED STATES

Section 526 of the Tar#ff Act, on its face, grants protection to

U.S. owners of registered trademarks without limitation. There-

fore, in order to buttress the Customs Service’s so-called “com-

mon control” exception to this protection, Petitioners have

stressed the importance of the “legitimate commercial expecta-

tions in this instance”. Brief for Federal Petitioner at 44. We

now examine in some detail those “expectations” for the domes-

tic motor vehicle industry.

A. The Customs Regulation Operates At Cross

Purposes To The Many Federal And State

Regulations Which Presuppose Manufacturer

Control Of Motor Vehicle Distribution

U.S. motor vehicle manufacturers are subject to a myriad of

state and federal laws and regulations enacted to protect public

5

health, safety and consumer welfare. These laws and regula-

tions affect vehicle safety, emissions, fuel economy, noise levels,

labelling and warranties.* This phenomenon was recognized by

this Court in Continental T.V., Inc. v. GTE Sylvania Inc., 433 US.

36, 55, note 23 (1977), where it stated that “{Ajs a result of

statutory and common-law developments, society increasingly

demands that manufacturers assume direct responsibility for

the safety and quality of their products.”

In enacting these statutes affecting the automobile industry,

Congress and state legislatures presupposed that U.S. motor

vehicle manufacturers control the distribution of vehicles sold

in the United States under their trademarks. The Customs Serv-

ice regulation undercuts this assumption by facilitating the

importation of grey market brand name vehicles that US.

motor vehicle manufacturers did not intend to be sold in the

United States.

*For example, manufacturer suggested retail price labelling

requirements are set forth in the Automobile Information Disclo-

sure Act, 15 U.S.C. § 1231, et seq.; safety standards, reporting and

recall provisions in the National Traffic and Motor Vehicle Safety

Act of 1966, 15 U.S.C. § 1381, et seqg.; bumper, fuel efficiency and

theft prevention standards in the Motor Vehicle Information and

Cost Savings Act, 15 U.S.C. § 1901, et seg.; emissions standards,

warranties, reporting and recall provisions in the Clean Air Act,

42 U.S.C. § 7401, et seg.; noise standards in the Noise Control Act of

1972, 42 U.S.C. § 4901, et seq.; “gas guzzler” taxes, Internal Reve-

nue Code, 26 U.S.C. § 4064.

In addition, various state laws further regulate vehicle equip-

ment and performance and assorted warranty (i.e., “lemon law’)

obligations. See for example, Cal. Health & Safety Code § 43000, et

seq. (West Supp. 1986); Motor Vehicle Warranty Enforcement Act,

Fla. Stat. Ann. § 681.101, et seg. (West Supp. 1987); New-Car Buyer

Protection Act, Ill. Ann. Stat. ch. 121-1/2, § 1201, et seg. (Smith-

Hurd Supp. 1986); Mass. Ann. Laws ch. 90, § 7N-1/2 (Michie/Law.

Co-op. Supp. 1987); An Act Concerning Certain Automobile and

Motorcycle Warranties, N.J. Stat. Ann. § 56:12-19, et seg. (West

Supp. 1986); and N.Y. Gen. Bus. Law §198a (McKinney

Supp. 1987).

6

Despite the fact that many vehicles intended for sale outside

the United States may look like a U.S. vehicle, there may be

many Significant differences. CHRYSLER, FORD or

CHEVROLET branded vehicles intended for sale outside the

U.S. are equipped to meet local market conditions. As such,

they may possess different suspensions, chassis, engines and

standard and optional equipment.

Perhaps the most glaring regulatory areas in which the Cus-

toms Service regulation is at odds with other federal and state

regulatory efforts involve safety and emissions. Regulations

require that Customs identify vehicles which lack a certificate

attesting conformance to U.S. safety and emissions standards

and require posting a bond to ensure that such vehicles will be

modified to meet those standards.’ The effectiveness of these

regulations hinges on identification by Customs of grey market

vehicles. lf, because of the familiar trademark, a vehicle is not

recognized or policed as grey market, these Customs Service

controls cannot work. Yet, if the Customs Service regulation at

issue followed the plain meaning of § 526, then grey market

vehicles that do not comply with applicable vehicle standards

could be effectively excluded from the United States. These con-

flicting policy concerns with grey market European automobiles

are discussed in a recent report of the United States General

Accounting Offiee.* Similar compliance issues and policy con-

flicts exist with regard to the grey market importation from

Canada and elsewhere of vehicles bearing the trademarks of

U.S. motor vehicle manufacturers.

°19 C.F.R. § 12.73, et seg. (1984).

* Report to the Chairman, Subcommittee on Oversight and Investi-

gations, Committee on Energy and Commerce, House of

Representatives entitled, “Auto Safety and Emissions — No

Assurance that Imported Grey Market Vehicles Meet Federal

Standards”, December 1986. Copies of this report are being lodged

with the Court for its convenience.

7

1. Motor Vehicie Safety Regulation

The National Traffic and Motor Vehicle Safety Act of 1966,

15 U.S.C. § 1381, et seg., as amended, requires that new vehicles

sold or imported into the United States comply with federal

motor vehicle safety standards. Pursuant to that Act, the Secre-

tary of Transportation has issued 49 safety standards to pro-

mote automotive safety and to reduce traffic acciucnts, includ-

ing deaths and injuries. Federal Motor Vehicle Safety

Standards, 49 C.F.R. § 571, et seq. (1986).

In the case of the unbridled importation from Canada or

Mexico of grey market vehicles bearing the trademarks of U.S.

motor vehicle manufacturers because of current Customs

enforcement policies, consumers have no guarantee that such

vehicles meet all U.S. safety standards. It is believed that most

consumers do not even know they are buying a grey market

vehicle because they rely on the U.S. trademark in their pur-

chasing decision.

In the event of a safety recall, whether mandatory or volun-

tary, owners of grey market vehicles bearing the trademarks of

U.S. motor vehicle manufacturers may not be notified. The U.S.

manufacturer has no record of those vehicles being in the

United States. This inability to locate and notify owners of

recalled vehicles may prevent MVMA member companies from

remedying the conditions which required recall.”

The consequences of a failure to locate and recall a grey mar-

ket vehicle could present a safety risk to consumers. The lower

prices claimed by the proponents of grey market goods do not

compensate consumers for such risks.°

‘This assumes, which may not be the case, that the grey market

vehicle has sufficient basic equipment that can be upgr "* cor

rect the faulted conditions.

* National economic conditions, including foreign price contrc.s or

extremely high sales taxes, often have the effect of “lowering” the

manufacturer’s price in some overseas markets, but there is no

8

2. Mobile Source Pollution Control

The Clean Air Act, as amended, 42 U.S.C. § 7401, et seq.,

requires that all new gasoline and diesel fueled vehicles be cer-

tified to the Environmental Protection Agency (EPA), by the

vehicle manufacturer as meeting emission standards for hydro-

carbon, carbon menoxide, oxide of nitrogen, evaporative, and,

where applicable, diesel particulates. These vehicle emissions

may affect air quality and pose public health risks.

Vehicles manufactured for sale outside the United States are

subject to different emission control regulations. For example,

CHEVROLET and PLYMOUTH branded vehicles sold in Mex-

ico lack catalytic converters necessary to meet U.S. emission

standards. Moreover, even if some CHEVROLET, PLY-

MOUTH and FORD branded vehicles sold outside the United

States are capable of meeting U.S. emissions performance stand-

ards, those vehicles do not comply fully with all other U.S.

regulatory requirements, including certification.’ Despite

MVMA member company efforts, the Customs Service rou-

tinely passes uncertified grey market vehicles into the United

States without verifying that these vehicles conform to all

applicable U.S. statutes and regulations. In essence, the Cus-

toms Service allows these vehicles into the United States

basis in law or equity for exporting foreign government economic

distortion to the U.S., where different U.S. governmental policies

have resulted in different costs and different prices.

"EPA regulations allow certain heavy-duty trucks equipped with

gasoline engines to be sold in the United States although they may

exceed U.S. emissions standards. 40 C.F.R. § 86.1101-87 (1985).

Under the law, those vehicles manufactured for use in the United

States require payment of a non-conformance penalty (NCP), and

must display labels indicating payment of an NCP and the non-

conforming pollutant compliance level and a certificate of compli-

ance with EPA regulations. Grey market trucks intended for sale

in Canada do not have an NCP label, nor is any NCP payment

made to EPA.

9

merely because they bear the familiar trademark of a US.

motor vehicle manufacturer.

Just as in the case of safety recalls, MVMA member compa-

nies are unable to recall grey market vehicles for possible emis-

sions equipment modifications. Grey market vehicles are simply

“invisible” for recall purposes; they are a phantom fleet.

3. Motor Vehicle Fuel Efficiency

The Customs Service regulation undercuts the corporate aver-

age fuel economy (CAFE) standards established by Congress

and the Department of Transportation.

In 1975, Congress enacted the Energy Policy and Conserva-

tion Act, 15 U.S.C. §§ 753-55; 757-60h; 792; 796; 1901; 2001-12;

42 U.S.C. §§ 6201-6422, in response to the 1973 Mideast oil crisis

and for the purpose of reducing consumption of petroleum prod-

ucts. Title III of that Act, 15 U.S.C. § 2001, et seg., requires U.S.

motor vehicle manufacturers to meet increasingly stringent

fuel economy goals for their vehicles sold in the United States.

The Act sets a fuel efficiency standard measured by miles per

gallon and averaged over the entire fleet of cars produced each

year for sale in the United States. Under the Act, automobile

manufacturers not meeting the CAFE standards are subject to

fines.

The large scale importation into the United States of grey

market vehicles intended for sale in foreign countries falls out-

side of any CAFE calculation. By not blocking the importation

of grey market motor vehicles, the Customs Service regulation

is thwarting the intent of Congress with regard to U.S. con-

sumption of petroleum products.

4. Warranty And Consumer Information

Vehicles intended for sale outside the United States are

likely to be equippea differently and perform differently than

their U.S. counterparts. They are likely to contain metric

10

instrument gauges, have owner’s manuals in a foreign lan-

guage, lack labels or other consumer notices required by U.S.

law, and have different warranties, ever: though the motor vehi-

cle may bear a famous trademark of a MVMA. member com-

pany and model designation identical to that used in the United

States.

All vehicles intended for sale in the United States must

exhibit price labels or “window stickers” as required by the

Automobile Information Disclosure Act, 15 U.S.C. § 1231, et seg.

Among other things, this label informs consumers of all

optional and standard equipment contained on the vehicle

including the manufacturer’s suggested retail price for each

item. The label of vehicles intended for sale outside the United

States may not display all of the information that is required

by U.S. law. Although the Act provides that an importer also

must affix this label, there is no assurance for example, that a

broker importing 200 new CADILLAC branded vehicles from

Canada to the United States will be able to list accurately the

equipment they contain, provide the correct manufacturer’s

suggested retail prices in U.S. dollars or fuel consumption infor-

mation in miles per gallon.

Motor vehicles intended for sale outside the United States

may differ with respect to the manufacturers’ warranties. The

scope of U.S. and foreign warranties may vary as to the equip-

ment covered and the term of the protection, and the grey mar-

ket importer is unlikely to make-up any warranty deficiency.*

“Components such as tires may have separate warranties from

those extended by the vehicle manufacturer. The warranties may

have no value outside the country where the vehicle was sold ini-

tially. Emissions performance warranties by the U.S. vehicle man-

ufacturer required by federal and California law may not be appli-

cable to grey market vehicles. See, e.g., Energy Policy and

Conservation Act, 42 U.S.C. § 7521; 40 C.F.R. § 85.2107 (1986); Cal.

Health & Safety Code § 43204 (West Supp. 1986); Cal. Admin. Code

tit. 13, § 2035.

1]

The Customs Service regulation permitting the importation

of these vehicles into the United States facilitates customer

deception and a loss of good will on the part of vehicle manufac-

turers and their dealers because consumers end up getting

vehicles different from those they reasonably expected to

receive. As a result, owners of the vehicles may unexpectedly

face fines or repair costs before the vehicles can be registered.”

Further, whatever warranty might be provided by the manu-

facturer may have already expired by the time a problem is

noted. For example, the time clock on warranties starts with the

first sale of the vehicle by a dealer. By the time the vehicle has

passed from a foreign dealer through the grey market channel,

several months of warranty may have elapsed, yet the U.S.

consumer is unaware of this since he views the vehicle as new.

A consumer who unknowingly buys a new grey market vehi-

cle, intended for sale in the United Kingdom, Mexico, Canada

or elsewhere, expects the vehicle to meet all U.S. legal require-

ments and believes that his warranty and servicing will be the

same as for authorized vehicles sold in the U.S. In most cases,

consumers believe that they are purchasing U.S. authorized

vehicles because the grey market vehicle bears a famous trade-

mark identical to those used in U.S. production. Consumers fre-

quently become confused and dismayed as to why there is no

warranty or why the warranty is different from those of other

domestic vehicles. MVMA member companies suffer a loss of

good will because the consumer blames the U.S. trademark

owner and not the grey market importer. =

* See, e.g., Arizona Annual Emission Inspection of Motor Vehicles,

Ariz. Rev. Stat. Ann. § 36-1771, et seg. (Supp. 1986); Md. Transpor-

tation Code Ann. § 23-201, et seg. (1984); and Michigan Vehicle

Emissions Inspection and Maintenance Act, Mich. Comp. Laws

Ann. § 257.1051, ef seq. (West Supp. 1986).

12

B. The Customs Regulation Adversely Affects U.S.

Manufacturers’ Control Of Distribution Of Their

Vehicles

U.S. manufacturers distribute trademarked motor vehicles

through over 20,000 independent franchised dealers whose rela-

tionships with the U.S. motor vehicle manufacturers are con-

trolled by comprehensive sales and service agreements. A dealer

makes a significant capital investment in order to be authorized

to sell at retail and to provide services for new vehicles. In most

cases, a dealer’s investment includes real estate, sales and serv-

ice facilities, a trained staff of certified technicians, mechanics

and an inventory of new vehicles and parts. A typical dealer’s

agreement contains not only vertical restrictions intended to

promote marketing efficiency, “° but also requirements regard-

ing pre- and post- sale information, equipment and training and

replacement parts inventories.

This Court has recognized that “(Sjervice and repair are vital

for many products, such as automobiles and major household

appliances. The availability and quality of such services affect

a manufacturer’s good will and the competitiveness of his prod-

uct.” Continental v. GTE, 433 U.S. at 55.

Consumer dissatisfaction with grey market vehicles harms

the good will of MVMA member companies and their dealers

and the image and reputation of their products and trademarks.

Brokers of grey market vehicles have no incentive to protect the

good will of MVMA member companies’ trademarks. The

” “Vertical restrictions promote interbrand competition by allowing

the manufacturer to achieve certain efficiencies in the distribution

of his products. ... Established manufacturers can use them to

induce retailers to engage in promotional activities or to provide

service and repair facilities necessary to the efficient marketing of

their products. ... Because of market imperfections such as the so-

called ‘free rider’ effect, these services might not be provided by

retailers in a purely competitive situation, despite the fact that

each retailer’s benefit would be greater if all provided the service

than if none did.” Continental v. GTE, 433 U.S. at 54-55.

13

marketing scheme of grey market brokers is to sell famous

brand name products solely on the basis of price. This goal is

achieved by the unauthorized use of famous trademarks of

MVMA member companies which, because of the commercial

magnetism of the marks, allows the grey market broker to sell

grey market goods with little or no investment. In this manner,

the grey market broker free rides on the advertising, servicing

and good will associated with the trademark and disrupts the

legitimate distribution of goods and services under U:S. regis-

tered trademarks.

II. THE CUSTOMS SERVICE REGULATION

CONFLICTS WITH U.S. TRADEMARK LAW

Petitioners’ treatment of trademark rights has a distinct

“now you see it, now you don’t” quality ™~ ‘‘tioners invoke

principles of trademark law to point to the “sharp departure”

supposedly represented by § 526 of the Tariff Act as reason for

this Court to ignore the plain language of the statute and,

instead, delve into the ambiguous legislative history and con-

flicting case law surrounding the statute. Thereafter, they con-

sider § 526 and the Customs regulation in a vacuum as far as

the substantive rights of U.S. trademark owners are concerned.

It is clear that the Customs regulation is enabled by both the

1930 Tariff Act and the Lanham Act. While § 526 is commonly

referred to as a Customs or trade statute, it is also clear that

application and understanding of this statute cannot be

undertaken without reference to trademark law. Yet, trademark

owners’ rights, which are at the heart of § 526, are totally

ignored. P

The banner trademarks of the MVMA member companies,

such as CHEVROLET, FORD, CHRYSLER and JEEP, are

the linchpins that make the franchised vehicle dealer system

function. The good will associated with these and similar marks

is the magnet that draws retail customers to the dealership.

14

Grey market distribution of motor vehicles puts this valued

good will in the hands of others and beyond the legitimate

control of MVMA member companies. That is quite simply not

fair or in the public interest. Affirmance of the Court of Appeals

decision would assure that domestic vehicle manufacturers can

enjoy in full the benefits of the good will they have worked to

establish in their famous marks and to assure that the policy

interests behind the vehicle safety, emissions and fuel economy

laws are satisfied.

A. Trademarks Provide The Cornerstone To The

Effective Distribution Of Domestic Motor Vehicles

The foundation of American trademark law rests upon the

bedrock proposition that a trademark symbolizes the good will

of the product, service or business in connection with which the

mark is employed. McLean v. Fleming, 96 U.S. 245 (1878).

Adjunct to this proposition is that a trademark, as a symbol of

good will, constitutes legally protectable property. Old Dearborn

Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, 194

(1936).

A. Bourjois & Co., Inc. v. Katzel, 260 U.S. 689 (1923), estab-

lished the principle of “territoriality” of trademarks and barred

the importation of goods produced abroad and bearing a “genu-

ine” trademark. In Bourjois, the Court held that the mark in

question was the trademark of the plaintiff in the United

States; that mark “indicates in law” and by public under-

standing that the goods came from the plaintiff, although not

made by it. 260 U.S. at 692.

It is generally acknowledged that § 526 of the Tariff Act was

enacted in response to the decision by the Court of Appeals for

the Second Circuit in A. Bourjois & Co., Inc. v. Katzel, 275 F. 539

(2d Cir. 1921), rev'd 260 U.S. 689 (1923). The same Circuit Court

subsequently considered the scope of § 526 in Sturges v. Clark D.

Pease, Inc., 48 F.2d 1035 (2d Cir. 1931). It held that a second-

15

hand “Hispano-Suiza” auto shipped from Europe should be

excluded because the U.S. owner of the “H-S” trademark regis-

tration had filed it with Customs authorities. The Second Cir-

cuit recognized that, under § 526, the U.S. trademark owner and

U.S. distributor for “Hispano-Suiza” cars had the right to have

Customs exclude even one single automobile. This decision

broadly interpreting § 526 was by the very court that earlier

had decided that the goods in Kaizel should not be excluded.

Judge Augustus Hand stated:

“A mark betokening the origin of a car is an important

element in its value, and the American owner of the mark

is entitled to have the benefit of such sales as are affected

by it.” 48 F.2d at 1037.

The case for the MVMA member companies’ trademarks

such as CHRYSLER, FORD and CHEVROLET is more com-

pelling than Sturges. These famous marks originated in the U.S.

and are owned by long established U.S. companies.

1. MYMA Member Companies’ Trademarks Serve A

Quality Or Guarantee Function

Supporters of the Customs Service regulation misconceive the

nature and scope of the function of trademarks; they would

allow consumers to be deceived and misled. Trademarks have,

among other things, a “quality” or “guarantee” function.

1 McCarthy, Trademarks and Unfair Competition, § 3:4 (2nd

ed. 1984). Under the quality function of trademarks, a mark not

only indicates a source, but also serves as a badge of quality to

indicate a level of consistent quality of goods or services. Park’N

Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 193 (1985)

(‘trademarks desirably promote competition and the mainte-

nance of product quality...”). In fact, some of the very

trademarks of MVMA member companies, such as CADIL-

LAC, LINCOLN, and NEW YORKER, in the minds of Ameri-

can consumers, set the standards for quality.

16

Passage of the Lanham Act in 1946 and subsequent amend-

ments codified the quality function of trademarks. 15 U.S.C.

§ § 1114 and 1127 (expanded test of confusion of any kind and

definition of “related company”). It is the trademark functions

of indication of quality and of source which provide the very

basis for modern business franchising so vital to U.S. motor

vehicle manufacturers. The Customs Service regulation at issue

here aids and abets the unauthorized use of the marks, to the

total detriment of the franchise system.

Trademarks also serve the manufacturer, merchant or seller

as an important advertising element in promoting their goods

and services. The advertising function of trademarks creates

the consumer demand for the goods and services on which the

mark appears. MVMA member companies have committed

significant funds to promote products bearing their registered

trademarks with the expectation of sales and resultant eco-

nomic gain. Not only are their trademarks symbols of good will,

indications of source and badgés of quality, but a highly effi-

cient means for creating consumer demand and acceptance for

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

SS. Kresge Co., 316 U.S. 203, 205 (1942) (“protection of

trademarks is the law’s recognition of the psychological value

of symbols” in the purchasing decision).

2. Customers Of U.S. Motor Vehicle Manufacturers

Have An Interest In Trademarks That Must Be

Protected

Trademarks protect the interests of trademark owners, their

franchisees and consumers. The multiple interest in trademark

protection (i.e., the interest of the consumer as well as the trade-

mark owner), have been recognized by the courts and Congress.

Park’N Fly, 469 U.S. at 198. (The Lanham Act protects a trade-

mark owner’s good will and consumer’s ability to distinguish

competing products.) See also, Dallas Cowboys Cheerleaders, Inc.

17 mi

v. Pussycat Cinema Lid., 604 F.2d 200, 205 (2d Cir. 1979). Protec-

tion of U.S. trademarks, therefore, must be viewed from both

the trademark owners’ and the consumers’ interests. By deny-

ing § 526 protection to certain U.S. manufacturers and domestic

registrants and thereby permitting widespread grey marketing,

the Customs Service regulation fails to protect the interests of

consumers as well as U.S. manufacturers and trademark own-

ers. Specifically with respect to the U.S. motor vehicle indus-

try, it flies in the face of the public policy embedded in the

federal and state vehicle safety, emissions and fuel economy

laws.

B. The Customs Service Regulation Impairs U.S.

Trademark Rights

There can be no doubt that the Customs Service regulation

fails to protect a substantial number of domestic registrants of

US. trademarks and thus impairs their substantive rights. One

retitioner argues that the Customs Service regulation comports

with U.S. trademark law, but the contrary is true.

The Customs Service regulation denies MVMA member com-

panies owning U.S. registered trademarks the procedural pro-

tection that the plain meaning of § 526 provides. Protection is

denied simply on the grounds of an arbitrarily defined degree of

ownership or relationship between the domestic trademark reg-

istrant and a foreign entity or because the goods are made over-

seas where the mark is applied to the goods with permission of -

the U.S. trademark owner. —

Petitioners attempt to justify the Customs Service regulation

on the ground that, as to this class of U.S. trademark regis-

trants, the procedural protections of § 526 should be denied as

there can be “no confusion of source” as to grey market goods.

Brief for Petitioner K Mart at 38. Petitioners attempt to

explain that in these instances (and paradoxically not in

others), consumers know the goods are of foreign manufacture

18

or are distributed by a U.S. company having some relationship

with the foreign trademark owner and manufacturer. This

argument narrowly focuses on archaic functions of trademarks

and completely ignores the obvious fact that a domestic trade-

mark registrant is entitled to protection from confusion of any

kind including confusion as to affiliation, sponsorship and

approval. See Warner Bros., Inc. v. Gay Toys Inc., 658 F.2d 76, 79

(2d Cir. 1981). If, as Petitioners urge, the Customs Service regu-

lation denies § 526 protection to certain U.S. registrants because

of the alleged absence of source confusion, then the regulation

directly conflicts with U.S. trademark law by failing to consider

other forms of confusion, such as confusion concerning the qual-

ity and advertising functions of trademarks. These functions

and services are being performed by U.S. motor vehicle manu-

facturers and their authorized franchisees who distribute, serve——

ice and promote the sale of vehicles which meet federal and

state laws and bear their famous U.S. trademarks.

Moreover, Petitioner’s argument supporting the Customs

Service regulation under the source theory of trademarks con-

siders only alleged absence of confusion as to the identity of the

manufacturing source without considering the identity of the

U.S. distributional source of the goods or services. The “dis-

tributional source” function of trademarks is found in the very

definitions of the terms “trademark” and “service mark” in the

Lanham Act. 15 U.S.C. § 1127.

No Petitioner has explained, or can explain, the paradox

which exists under the Customs Service regulation where con-

fusion of source is assumed to exist for U.S. trademark regis-

trants qualifying for § 526 protection, while for other US.

trademark owners who are denied § 526 protection, confusion of

source is assumed not to exist. This anomaly serves to illustrate

that there is no legal or policy justification for the Customs

Service regulation under modern trademark law.

_

19

C. MVMA Member Companies Have An Exclusive

Right To The Use Of Their Trademarks In The

United States

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. 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 infringement by others, the “exlcusive

right” recognized by the Lanham Act would be rendered mean-

ingless. Park’N Fly, 469 U.S. at 196. This same “exclusive right”

is in fact stripped away by the Customs Service regulation since

it allows others to use the famous marks of MVMA member

companies without their consent.

Petitioners attempt to justify the invasion of a US. trade-

mark registrant’s exclusive right of use by asserting that the

registrant does not qualify for § 526 protection when its mark

does not possess good will in the United States apart from any

good will which the mark enjoys elsewhere in the world. This

justification is contrary to the statutorily conferred prima facie

and conclusive presumptions of validity and ownership which

are accorded all U.S. trademark registrations. 15 U.S.C. §§ 1057,

1115(b). These statutory presumptions of ownership and valid-

ity carry with them the added presumption 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 v. Fleming,

96 U.S. at 252; United Drug Co. v. Theodore Rectanus Co., 248 U.S.

90, 97 (1918); 15 U.S.C. § 1057(b). In Park’N Fly, this Court

stated that “'T\he Lanham Act provides national protection of

trademarks in order to secure to the owner of the mark the good

20

will of his business and to protect the ability of consumers to

distinguish among competing producers”. 469 U.S. at 198.

The denial of § 526 protection to a substantial class of U.S.

trademark registrants such as MVMA member companies on

the ground that such registrants have not established good will

in the United States is directly contrary to the statutory pre-

sumption that the registered mark is valid and owned by the

registrant of record and, therefore, symbolizes good will. It is

pure folly to suggest that MVMA member companies such as

General Motors, Ford and Chrysler do not have established

good will in the United States. Yet, the Customs regulation

denies this fact.

The question before this Court cannot be decided by Petition-

ers’ contorted reading of the statute and resort to inapplicable

principles of statutory construction. A plain reading of § 526

with a fundamental knowledge and appreciation of modern

trademark law manifests the intention of this section to include

all U.S. registrants who are citizens of and domiciliaries in the

United States regardless of what relationship they have with

their authorized users of identical foreign marks.

D. The Statutory Preference To U.S. Parties

Under § 526 Serves A Legitimate Purpose

Section 526 enhances the substantive rights granted to U.S.

trademark owners under the Lanham Act by creating a proce-

dure for recording trademark registrations with the Customs

Service and receiving a comprehensive exclusion order. Unlike

the provisions of the Lanham Act, § 526 does not extend its

procedural advantages to foreign entities. However, since § 526

does not impart any additional substantive trademark rights on

its beneficiaries, it is not inconsistent with § 44(b) of the

Lanham Act, 15 U.S.C. § 1126(b), or relevant international trea-

ties which require reciprocity of rights.

Moreover, as a Customs and trade statute, § 526 was

naturally designed and intended to protect United States trade

|

21

and domestic businesses such as MVMA member companies.

This is a lawful and legitimate purpose which has also been the

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

other intellectual property rights. For example, under § 601, et

seq. of the Copyright Act, 17 U.S.C. § 601, et. seg, only a US.

national or domiciliary can exclude the importation of certain

copyrighted works. Likewise, under § 337 of the Tariff Act of

1930, 19 U.S.C. § 1337, merchandise may. be excluded by the

International Trade Commission if it finds the existence of

unfair practices or unfair methods of competition against a

domestic industry.

Petitioners and this Amicus agree that § 526 was enacted to

protect domestic businesses such as the MVMA member compa-

nies here. Yet, the Customs regulation prevents MVMA mem-

ber companies from availing themselves of the benefit of the

Tariff Act simply because products bearing these trademarks

are sold abroad with their consent.

II. “ONCLUSION

The decision of the Court of Appeals for the District of

Columbia Circuit should be affirmed.

Respectively submitted,

WituaM H. CRraprree*

Vice President and General

Counsel

Moror VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED

STaTes, INc.

300 New Center Building

Detroit, Michigan 48202

(313) 872-4311

Attorney for Amicus MVMA

*Counsel of Record