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

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

IN THE

Supreme Court of the United Stafps svereme dour, vs,

October Term, 1986 EI

K MART CORPORATION, || _ MAF

Vv CLERK

CARTIER, INC., et al.,

Respondents.

47TH STREET PHOTO, INC.,

Petitioner,

Vv

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, et al.,

Respondents.

UNITED STATES OF AMERICA, etal.,

Petitioners,

Vv

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, et al.,

Respondents.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Lee

BRIEF OF AMICUS CURIAE LEVER BROTHERS COMPANY

IN SUPPORT OF RESPONDENTS

ras

ROBERT P. DEVLIN

45 Rockefeller Plaza

New York, New York 10111

JosEPH J. IAROCCI Telephone: (212) 841-5700

Bruce H. LEDERMAN, Attorney for Amicus Curiae

REBOUL, MacMurray, HEwITT, Lever Brothers Company

MAYNARD & KRISTOL

WALTER M. VOLPI

JANICE HANDLER

LYNNE Darcy,

LEVER BROTHERS COMPANY

Of Counsel.

May 7, 1987

_———————_

Questions Presented

1. Whether the United States Customs Service regula-

tions which permit the importation of “grey market” mer-

chandise are consistent with § 526 of the Tariff Act?

2. Whether the Customs Service regulations are con-

sistent with § 42 of the Lanham Act?

Parties to the Proceeding

The petitioners are K Mart Corporation (“K Mart’);

47th Street Photo, Inc. (“47th Street Photo”); and the

United States of America, James A. Baker, III, Secretary

of the Treasury, and William von Raab, Commissioner of

the United States Customs Service (the “‘ederal peti-

tioners”). The respondents are Cartier, Inc.; Charles of

the Ritz Group, Ltd.; and Coalition to Preserve the Integrity

of American Trademarks (“COPIAT”). The petitions

have been consolidated for consideration by the Court upon

the application of petitioner United States of America.

Ps

ist

Lee o

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2 - = Pe

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——S Se SSC CO

TABLE OF CONTENTS

Questions Presented ............ eee eee eeeees

Parties to the Proceeding ..............+-545-

CE EEE er ee ee

Interest of Amicus Curiae ..........050 ee ee eee

A. Lever Brothers’ “Shield” and “Sunlight”

PPP TLE TITEL eee

B. The “Grey Market” Products ............

C. The “Shield” and “Sunlight” Products Manu-

factured by Lever Brothers and its Foreign

Affiliates Differ Significantly .............

D. Damage to Lever Brothers and the American

EEE SSET TT TTEEE REET

Summary of the Argument .............+.++.

ee, te weeeeeececcece

I. The Customs Service Regulations Are Incon-

sistent with § 526 of the Tariff Act. ......

II. The Customs Service Regulations Are Incon-

sistent with § 42 of the Lanham Act. ......

Er eee eee

PAGE

12

21

iv

TABLE OF AUTHORITIES

PAGE

Cases

A. Bourjois & Co. v. Aldridge, 263 U.S. 675

ee ke as eee eee age hi 14, 17, 18,20

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

1921), rev'd, 260 U.S. 689 (1923) ......... 13

A. Bourjois & Co. v. Katzel, 260 U.S. 689

tien vnenh eet eheeteee Sean cake 14, 17-20

Coalition to Preserve the Integrity of American

Trademarks v. United States, 790 F.2d 903 (D.C.

Cir. 1986), cert. granted, — U.S. —, 107 S. Ct.

642 (December 8, 1986) ...............2-. passim

Coty v. Prestonettes, Inc., 285 F. 501 (2d Cir.

1922), rev'd, 264 U.S. 359 (1924) .......... 19

In re Certain Alkaline Batteries, 225 USPQ 823

(1.T.C. 1984), disapproved, 225 USPQ 862,

app. dismissed sub nom. Duracell, Inc. v. U.S.

Int'l Trade Comm'n, 778 F.2d 1578 (Fed. Cir.

Lied ehensn ach wank es baken eee 13

Lever Brothers Company v. United States of Amer-

ica, et al., No. 86-3151, slip op. (D.D.C. January

i EE ai xed yous sca dhe eae ena bene 3

Lever Brothers Company v. United States of Amer-

ica, et al., No. 87-5051, slip op. (D.C. Cir. March

IN ie sk ceed Cad hake ene eat as 3

NEC Electronics v. CAL Circuit Abco, 810 F.2d

1506 (9th Cir. 1987) ........ Pe eee 16

Olympus Corp. v. United States, 792 F.2d 315 (2d

Cir. 1986), petition for_cert. filed, 55 U.S.L.W.

3372 (November 6, 1986) (No. 86-757) ..... 16

Original Appalachian Artworks, Inc. v. Granada

Electronics, Inc., No. 86-7670, slip op. (2d Cir.

ee So ba, os Sea be do dadaed es ans 18, 20

PAGE

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

SE xb dab ne kweuwedbddsune ess 16

Premier Dental Products Co. v. Darby Dental Sup-

ply Co., 794 F.2d 850 (3d Cir.), cert. denied,

— U.S. —, 107 S. Ct. 436 (1986) .......... 10

Prestonettes, Inc. v.-Coty, 264 U.S. 359 (1924) .. 18-19

United States v. Eighty-Nine (89) Bottles of “Eau

de Joy”, 797 F.2d 767 (9th Cir. 1986) ...... 10

Vivitar Corp. v. United States, 761 F.2d 1552 (Fed.

Cir. 1985), cert. denied, — U.S. —, 106 S. Ct.

Pe ED, nan eatencibvaeckGeidneadunns 2, 10, 16

Statutes and Rules

Lanham Act:

15 U.S.C. § 1124 (§ 42 of the Act) ......... passim

Tariff Act of 1922:

42 Stat. 975 (§ 526 of the Act, superseded by 19

EE ae hdicks ¢ ckhbneeeee bew ds 11-12

Tariff Act of 1930:

19 U.S.C. § 1526 (§ 526 of the Act) ........ passim

Trade-Mark Act of 1905:

§ 27 (superseded by 15 U.S.C. § 1124) ..... 14

Bet) BE) ee 2

re Re RE ee 7

21 C.F.R. § 701.13 (1986) ..............08. 7

Legislative Materials

78 Came, Beas. SE7E CIGSP) ccc cccccsvccce 12

S. Rep. 37, 71st Cong., 1st-Sess. 75 (1929) ..... - 11

H.R. 2667, 71st Cong., Ist Sess. (1929) ........ 1]

H.R. Conf. Rep. 1223, 67th Cong., 2d Sess. 158

GE b baw kK 50 nv bes Oe bede ees VAKbaKeoe 1]

IN THE

Supreme Court of the United States

October Term, 1986

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

ry

v

K MART CORPORATION,

Petitioner,

Vv.

CARTIER, INC., ef al.

Respondents.

47TH STREET PHOTO, INC.,

Petitioner,

¥.

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, ef al.,

Respondents.

UNITED STATES OF AMERICA, et al.,

Petitioners,

Vv.

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, et al.,

Respondents.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

&

BRIEF OF AMICUS CURIAE LEVER BROTHERS

COMPANY IN SUPPORT OF RESPONDENTS

2

Interest of Amicus Curiae '

Petitioners contend that the Customs Service regulations

(19 C.F.R. § 133.21) provide a reasoned and “limited

exception” to § 526 of the Tariff Act (19 U.S.C. § 1526)

and § 42 of the Lanham Act (15 U.S.C. § 1124) since

the regulations purportedly discourage foreign manufac-

turers from enforcing exclusive distribution agreements in

the United States. (See Brief for the Federal Petitioners,

p. 9; Brief of Petitioner K Mart Corporation (“K Mart

Brief”), pp. 37-39; Brief for Petitioner 47th Street Photo,

Inc. (“47th Street Photo Brief”), pp. 45-50.) This ratie-—

nale is predicated upon the erroneous assumption that all

“grey market” scenarios are relatively homogeneous. The

“grey market”, however, is not limited to the parallel im-

portation of substantially identical authorized and un-

authorized merchandise originating from a common foreign

source. As the Court of Appeals for the Federal Circuit

observed in Vivitar Corp. v. United States, 761 F.2d 1552,

1570 (Fed. Cir. 1985), cert. denied, — U.S. —, 106 S. Ct.

791 (1986), “[t]he variations of the grey market are

myriad.” Premised exclusively upon the corporate relation-

ship between domestic and foreign trademark registrants,

the regulations have subverted the legitimate interests of

American capital, labor and the consuming public.

Lever Brothers Company (“Lever Brothers”) is con-

fronted with the most invidious type of “grey market”

scenario. Lever Brothers, the American manufacturer of

quality trademarked merchandise, is affiliated indirectly

1 Pursuant to Supreme Court Rule 36.2, all of the parties to this

proceeding have consented to the submission of this brief. The

parties’ written consents have been filed with the Clerk of this Court.

This amicus curiae brief is submitted in support of the Coalition to

Preserve the Integrity of American Trademarks and the other

respondents.

with foreign entities which manufacture similarly trade-

marked products for consumption overseas. While the

products are facially similar, there are significant inherent

differences between the trademarked merchandise manu-

factured by Lever Brothers for domestic consumption and

the similarly trademarked merchandise produced by its

foreign affiliates. Relying upon the regulations, the Customs

Service has sanctioned the importation of increasing quanti-

ties of this foreign merchandise over the past four years.

The influx of this “grey market” merchandise into the

American marketplace has created substantial consumer

confusion and threatens to damage irreparably Lever

Brothers’ reputation for the sale of high quality merchandise.

Since this “grey market” scenario serves to crystalize the

deficiencies inherent in the simplistic Customs Service

regulations, a more detailed review of the evidence is

appropriate.’

2On November 17, 1986, Lever Brothers commenced an action

against the federal petitioners seeking a permanent injunction direct-

ing the federal petitioners to prohibit the importation of foreign-

manufactured products bearing its “Shield” and “Sunlight” trade-

marks pursuant to § 526 of the Tariff Act and § 42 of the Lanham

Act. In conjunction with the commencement of that action, Lever

Brothers sought preliminary injunctive relief. By Memorandum and

Order dated January 21, 1987, the United States District Court for

the District of Columbia denied that application. Lever Brothers

Company v. United States of America, et al., No. 86-3151, slip op.

(D.D.C. January 21, 1987).

Lever Brothers thereafter filed an interlocutory appeal and re-

uested that the Court of Appeals for the District of Columbia

ircuit enter injunctive relief pending appeal. The Court of Appeals

denied that application, and entered an order directing that the

appeal be held in abeyance pending the disposition of this proceeding.

Lever Brothers Company v. United States of America, et al., No.

87-5051, slip op. (D.C. Cir. March 19, 1987).

On March 6, 1987, Lever Brothers filed a petition for a writ of

certiorari with this Court (Case No. 86-1439). That petition affords

this Court an opportunity to consider Lever Brothers’ claims in

conjunction with this proceeding. -

4

A. Lever Brothers’ “Shield” and “Sunlight” Trademarks

Lever Brothers is a corporation organized under the laws

of the State of Maine which maintains its principal place

of business in New York City. Lever Brothers is engaged

in the manufacture and interstate distribution of various

household products, including soaps and liquid detergents.

(A111, § 2)°

Lever Brothers has manufactured and distributed high

quality deodorant soap throughout the United States under

its “Shield” trademarks since approximately 1977. “Shield”

deodorant soap is manufactured in Hammond, Indiana.

Lever Brothers has applied the “Shield” trademarks to soap

products since approximately 1956. (A112, 43) These

trademarks have been entered on the Principal Trademark

Register of the United States Patent and Trademark Office

as Registered Trademark Nos. 647,223, 1,077,719,

1,134,406 and 1,250,113. (A119-Al22) These registra-

tions are currently in full force and effect, and were re-

corded with the Customs Service on October 1, 1986.

(A124-A131)

Over the past six years, Lever Brothers has expended

approximately $177.9 million advertising and promoting-

its “Shield” soap products. As a result of this substantial

investment, “Shield” deodorant soap has achieved national

distribution in retail grocery outlets representing 88% of

domestic grocery volume, and has attained a 7.8% share

of the deodorant soap market. (A112, 4 4)

Lever Brothers has manufactured and distributed a light

duty liquid detergent on a national basis under its “Sun-

light” trademarks since approximately 1979. “Sunlight”

3 Citations to the Appendix submitted to the Court of Appeals in

conjunction with Lever Brothers’ application for an injunction pend-

ing appeal are designated (A[page]).

detergent is manufactured in Baltimore, Maryland, St.

Louis, Missouri, and Los Angeles, California. Lever

Brothers and its predecessors have applied the “Sunlight”

trademarks to soap and detergent products since 1884.

(A112, ¢ 5) These trademarks have been entered on the

Principal Trademark Register of the United States Patent

and Trademark Office as Registered Trademark Nos.

14,441, 58,465 and 1,148,608. (A165-A172) These regis-

trations are currently in full force and effect, and were

recorded with the Customs Service on October 1, 1986.

(A174-A187)

Since its introduction in 1979, “Sunlight” detergent has

achieved an 8.9% share of the light duty liquid detergent

market. (A113, 46) Over the past six years, Lever

Brothers has incurred expenditures of approximately $245.1

million advertising and promoting “Sunlight” detergent.

(A113, 4 6)

These “Sunlight” and “Shield” products have been widely

accepted by the consuming public. “Sunlight” detergent

sales have increased from $8.86 million in 1981 to $94.09

million in 1985. Similarly, “Shield” deodorant soap sales

have increased from $4.6 miliion in 1980 to $43.6 million

in 1985. (A113, 47) These trademarks serve to identify

Lever Brothers as the exclusive source of these high quality

soap and detergent products.

B. The “Grey Market” Products

Lever Brothers is a wholly-owned subsidiary of Unilever

United States, Inc., which is wholly-owned by Unilever N.V.

(“Unilever”), a corporation organized under the laws of

the Netherlands. Due to-its corporate relationship with

Unilever, Lever Brothers is affiliated indirectly with a num-

ber of foreign registrants of the “Shield” and “Sunlight”

trademarks. Affiliated foreign manufacturers produce

“Shield” deodurant soap and “Sunlight” detergent for con-

sumption in countries other than the United States. (A114,

48; A1l24-A131; Al174-A187)

For example, Lever Brothers Ltd., a corporation organ-

ized under the laws of the United Kingdom, produces

“Shield” and “Sunlight” products for consumption in the

United- Kingdom. Since approximately 1983, many im-

porters and distributors have diverted these “Shield” prod-

ucts from foreign markets into the United States. Diverters

have similarly imported these “Sunlight” products into the

United States since at least January 1986. Lever Brothers

has not sanctioned the distribution of this diverted

merchandise in the United States. Due to differing material

costs and market conditions, including varying currency ex-

change rates, this diverted “Shield” and “Sunlight” mer-

chandise is typically less expensive than the “Shield” de-

odorant soap and “Sunlight” detergent manufactured by

Lever Brothers. (A114, 4 9; A243, § 11)

C. The “Shield” and “Sunlight” Products Manu-

factured by Lever Brothers and its Foreign

Affiliates Differ Significantly.

While the products are facially similar, there are sig-

nificant differences between the “Shield” and “Sunlight”

products manufactured by Lever Brothers and its foreign

affiliates. For example, the “Shield” and “Sunlight” prod-

ucts manufactured by Lever Brothers and its British

counterpart have been specially formulated to (a) achieve

optimal efficacy under differing environmental conditions,

(b) satisfy the particular preferences of American and

British consumers and (c) conform to differing regulatory

standards. (A213, 4 4)

Due to higher concentrations of coconut soap and fatty

acids, Lever Brothers’ “Shield” deodorant soap (“US

Shield”) generates a richer and more substantial lather

than the “Shield” deodorant soap produced by its British

affiliate (“UK Shield”). (A214, 4 7; A220-A225; A227-

A231) In addition, US Shield contains a bacteriostat which

enhances substantially the deodorant properties of US

Shield by inhibiting the reproduction of bacteria. Due to

differing climatic conditions and consumer preferences, UK

Shield does not contain any bacteriostat. (A215, 4 11;

A220-A225; A233) Finally, the deo-perfume formulas and

colorants in US and UK Shield differ significantly. While

US Shield’s colorants have been certified by the Food and

Drug Administration (“FDA”), the colorants in UK Shield

‘have not been certified by the FDA.* (A216, 44 12, 13)

Similarly, the “Sunlight” detergent manufactured by

Lever Brothers (“US Sunlight”) differs substantially from

the “Sunlight” detergent produced by its British affiliate

(“UK Sunlight”). US Sunlight has been formulated to

achieve optimal efficiency under prevailing environmental

conditions in the United States. British water has a higher

mineral content than the water available in most metro-

politan areas of the United States. Whereas UK Sunlight

performs effectively in British “hard water”, US Sunlight

demonstrably outperforms UK Sunlight in the “soft water”

generally available in this country.’ (A217, §4 15-18;

A235-A238 ) -

4 UK Shield may violate a number of federal regulatory standards.

UK Shield, which is labeled as a “Soap Deodorant’, does not bear

an ingredient statement, as required by law. 21 C.F.R. § 701.3

(1986). Moreover, the net weight statement on the UK Shield pack-

age is determined within 24 hours of manufacture. Due to moisture

loss during transshipment, this net weight statement will not “accur-

ate[ly] state[ ]. . . the quantity of the contents of the package.” 21

C.F.R. § 701.13(a), (s) (1986). (A216, 4 13 n. 2)

5 Lever Brothers unconditionally guarantees its “Shield” and

“Sunlight” merchandise. These guarantees do not encompass its

British affiliate’s products. (A213, 44 n. 1)

8

D. Damage to Lever Brothers and the

American Consumer

The recent influx of these “grey market” products has

created substantial consumer confusion respecting the

origin of this merchandise, and threatens to damage irre-

parably Lever Brothers’ reputation for the sale of high

quality products. Formulated for a different market, UK

Shield and Sunlight will inevitably disappoint many Ameri-

can consumers. The resulting injury to Lever Brothers’

reputation will necessarily compromise its sales of US Shield,

Sunlight and other products. (A115, 4 11; A243, 49)

As Ms. Eileen S. Farnham of Upper Marlboro, Maryland,

wrote respecting her purchase of UK Shield:

“T have sensitive skin and need a deodorant soap.

For several years now, I have used Shield exclusively.

I recently got a good buy at a local ‘discount’ chain.

Bought six bars, with scarce attention to the new

packaging on ‘my’ familiar product! This soap can’t

be my Shield! It smells—and is—harsh. If you’ve

changed it, here is one emphatic vote for changing

it back! Is this a ‘counterfeit’? Do you formulate

differently for a British market (belatedly noticed

the fine print). I don’t even want to use the other

five bars. It’s not even the same color or shape.

“I’m disappointed. I feel tricked. And now I

guess I have to start trying to find sore other soap

to like and trust.”

(Copies of Ms. Farnham’s letter to Lever Brothers, dated

December 15, 1985, and other consumer complaint letters

are reproduced at A197-A210.)

Moreover, the continuing importation of UK Shield and

Sunlight has resulted in lost US Shield and Sunlight sales of

at least $4,615,026.80, and $437,931.02, respectively, and

deteriorating sales force morale. (A244, § 12; A247-A290;

A292-A294)

9

Summary of the Argument

In assessing the propriety of the Customs Service regula-

tions, this Court should consider the “grey market” scenario

confronted by Lever Brothers. This “grey market” scenario

serves as a prism through which the inadequacies of the

regulations are clearly defined.

Lever Brothers is not a sales agent for a foreign manu-

facturer. Lever Brothers is an American manufacturer

which employs domestic labor to produce high quality

trademarked merchandise for distribution in the United

States. The “grey market” merchandise produced by Lever

Brothers’ foreign affiliates is not substantially identical to

the trademarked products manufactured by Lever Brothers.

Indeed, the significant inherent differences between these

products have created substantial consumer confusion

which threatens to compromise the goodwill which Lever

Brothers has generated in the United States. =

Premised exclusively upon the corporate relationship

between domestic and foreign trademark registrants, the

regulations are inconsistent with § 526 of the Tariff Act

and § 42 of the Lanham Act. These statutory import pro-

hibitions clearly protect the interests of American manufac-

turers and domestic trademark registrants which have

developed independent goodwill in the United States. The

Customs Service cannot continue to ignore the interests of

American manufacturers, like Lever Brothers, which have

developed independent goodwill in this country. As viewed

through the “grey market” scenario presented by this amicus

curiae, petitioners can hardly deny that the regulations

undermine the interests of American capital, labor and the

consuming public.

10

ARGUMENT

The Customs Service Regulations Are

Inconsistent with § 526 of the Tariff Act.

In view of the comprehensive analysis of § 526 of the

Tariff Act by the Court of Appeals for the District of

Columbia Circuit and the substantial discussion of this

statute by respondents, this amicus curiae will not belabor

this Court with further detailed analysis of the statute and

its legislative history. Rather, we shall briefly review the

statute in the interest of supplementing respondents’ analysis

of § 526 of the Tariff Act.

The broad import prohibitions of § 526 cannot fairly

be characterized as ambiguous. (K Mart Brief, p. 15; 47th

Street Photo Brief, pp. 19-22.) Section 526 of the Tariff

Act requires the Customs Service to exclude from entry

into the United States any foreign-manufactured mer-

chandise bearing a trademark registered by a United States

citizen or corporation absent the domestic registrant's

consent. As the Court below observed, the prohibitory

terms of § 526 could not be any clearer and its “review

of the circumstances prompting the enactment of Section

526 and its legislative history persuade us that the statute

embodies a purpose as sweeping as the terms its drafters

employed.” Coalition to Preserve the Integrity of American

Trademarks vy. United States, 790 F.2d 903, 909 (D.C.

Cir. 1986), cert. granted, — U.S. —, 107 S. Ct. 642

(December 8, 1986) (“COPIAT”). Accord, United States

v. Eighty-Nine (89) Bottles of “Eau de Joy”, 797 F.2d 767

(9th Cir. 1986); Premier Dental Products Co. v. Darby

Dental Supply Co., 794 F.2d 850 (3d Cir.), cert. denied,

— U.S. —, 107 S. Ct. 436 (1986); Vivitar Corp. v. United

States, supra, 761 F.2d at 1165.

11

While the breadth of the legislative history of § 526 has

been disputed, there can be no doubt that § 526 was en-

acted to protect the trademark interests of American manu-

facturers like Lever Brothers. As the Conference Com-

mittee Report accompanying the 1922 Tariff Act observed:

“A recent decision of the circuit court of appeals

holds that existing law does not prevent the importa-

tion of merchandise bearing the same trade-mark as

merchandise of the United States, if the imported

merchandise is genuine and if there is no fraud upon

the public. The Senate amendment makes such

importation unlawful without the consent of the

owner of the American trade-mark, in order to pro-

tect the American manufacturer or producer; and

the House recedes with an amendment requiring that

the trade-mark be owned, at the time of the importa-

tion, by a citizen of the United States or by a cor-

poration or association created or organized within

the United States.”

H.R. Conf. Rep. 1223, 67th Cong., 2d Sess. 158 (1922)

(emphasis supplied).

The evolution of the Tariff Act of 1930 further confirms

that the Congress intended that § 526 protect the interests

of American manufacturers of trademarked merchandise.

The bill proposed by the House of Representatives (H.R.

2667, 71st Cong., Ist Sess. (1929) ) provided for the reen-

actment of § 526(a) without substantive modification. The

Senate, however, proposed to modify § 526(a) by omitting

the clause which permits a United States trademark owner

to consent to the importation of foreign-manufactured prod-

ucts bearing its registered trademark. S. Rep. 37, 7\st

Cong., Ist Sess. 75 (1929). The proposed amendment

represented an attempt to prevent American manufacturers

from relocating facilities overseas and thereby displacing

domestic labor.

12

While § 526(a) was reenacted without modification, the

proposed amendment was predicated upon the assumption

that § 526 inured to the benefit of all American manu-

facturers of trademarked merchandise and that, by deleting

the “consent” clause, these manufacturers would be dis-

couraged from relocating their facilities overseas and im-

porting their foreign-manufactured products. As Senator

George, who opposed the amendment but agreed with its

proponents’ interpretation of § 526, observed:

“The section, as it exists in the present law, pro-

vides means whereby a manufacturer in this country

can register his trade-mark . . . and prevent the im-

portation of merchandise bearing an infringing

trade-mark.”

71 Cong. Rec. 3872 (1929).

The Congress has never intimated that an American

manufacturer’s affiliation with foreign trademark registrants

would deprive the manufacturer of these protections. Sec-

tion 526 is not so conditioned, and there is no support in

the legislative history of either the 1922 or 1930 Tariff

Acts which would support such a distorted interpretation

of § 526 of the Tariff Act.

The Customs Service Regulations Are

Inconsistent with § 42 of the Lanham Act.

A dispositive review of the regulations may entail the

consideration of both § 526 of the Tariff Act and § 42 of

the Lanham Act.® The regulations are predicated upon

6 The petitions for writs of certiorari submitted by the United

States, 47th Street Photo, and K Mart only asked this Court to

(footnote continued on following page)

13

§ 526 of the Tariff Act and § 42 of the Lanham Act, and

restrict the federal petitioners’ enforcement of these import

prohibitions. The regulations, therefore, may not be sus-

tained unless they are consistent with both § 526 of the

Tariff Act and § 42 of the Lanham Act.

The Tariff and Lanham Act import prohibitions do not

necessarily implicate the same trademark interests. CO-

PIAT, supra, 790 F.2d at 910 n. 10; In re Certain Alkaline

Batteries, 225 USPQ 823 (I.T.C. 1984), disapproved,

225 USPQ 862, app. dismissed sub nom. Duracell, Inc. v.

U.S. Int'l Trade Comm'n, 778 F.2d 1578 (Fed. Cir. 1985).

Section 526 of the Tariff Act expressly prohibits the im-

portation of foreign-trademarked products absent the con-

sent of the domestic trademark registrant. This legislation

represented the Congressional response to the continuing

ratification of the principle of trademark “universality” in

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

rev'd, 260 U.S. 689 (1923). In Katzel, the Court of Appeals

for the Second Circuit held that a domestic trademark

registrant could not enjoin the distribution of foreign-

trademarked merchandise so long as a foreign registrant

had authorized the use of the trademark. Section 526 only

requires that the domestic registrant be a United States

citizen or corporation. The application of § 526 is not

expressly conditioned upon the development of domestic

goodwill or the likelihood that the foreign merchandise

will create consumer confusion.

(footnote continued from preceding page)

consider whether the regulations were consistent with § 526 of the

Tariff Act. While K Mart’s petition refers obliquely to § 42 of the

Lanham Act, the brief which K Mart has submitted requests

that the regulations be reviewed under § 42 of the Lanham Act.

(K Mart Brief, p. (i).) The briefs submitted by K Mart and 47th

Street Photo have addressed this issue. (K Mart Brief, pp. 37-39;

47th Street Photo Brief, pp. 45-50.)

14

Sectior 42 of the Lanham Act, which reenacted § 27 of

the Trade-Mark Act of 1905, prohibits the importation of

“cop[ies]” or “simulat[ions]” of a registered trademark.

This Court defined the scope of this prohibition over 60

years ago. As interpreted by this Court in A. Bourjois &

Co. v. Aldridge, 263 U.S. 675 (1923), and A.-Bourjois &

Co. v. Katzel, 260 U.S. 689 (1923), § 27 of the Trade-

Mark Act and its successor prohibit the importation of

genuine merchandise bearing a domestic trademark if the

domestic registrant has developed independent goodwill and

the distribution of the foreign merchandise is likely to

create consumer confusion. (See discussion infra at 17-20.)

Due to the limited evidentiary record developed before

the District Court, this case may not afford this Court an

opportunity to explore fully the trademark interests impli-

cated by § 42 of the Lanham Act. In this case, COPIAT,

a trade association comprised of numerous American trade-

mark registrants, challenged the validity of the regulations.

COPIAT did not seek declaratory or injunctive relief ad-

dressed to specific trademarked merchandise. In conjunc-

tion with its motion for summary judgment, COPIAT

offered evidence which was generally limited to the parallel

importation of authorized and “grey market” merchandise

originating from a common foreign source. Although war-

ranties and other ancillary services differed, the authorized

and “grey market” products were substantially identical.

(See Plaintiff's Statement of Material Facts as to Which

There is No Dispute, dated April 4, 1984 (“Plaintiff's State-

ment”), together with Exhibits 1 through 6.)’ Consequently,

7 The statement submitted by Robert H. Miller, President of

Charles of the Ritz Group Ltd., indicates that most of the “Opium”

perfume which is distributed in the United States through authorized

channels is manufactured in New Jersey. Mr. Miller, however,

(footnote continued on following page)

15

COPIAT only offered limited evidence of independent

domestic goodwill and consumer confusion resulting from

these “grey market” products. These “grey market” prod-

ucts do not adequately highlight the significant trademark

interests implicated by § 42 of the Lanham Act.

This limited record may serve to distort this Court's

analysis of §42 of the Lanham Act. Indeed, K Mart’s

summary discussion of § 42 of the Lanham Act serves to

underscore the analytical deficiencies invited by the limited

record generated before the District Court in this case.

Relying upon the record below, K Mart argues that “there

can be no confusion of source as to parallel distribution

imports, which are, by definition, manufactured and

trademarked with the authorization of the trademark

holders . . . [and] there can be no ‘American goodwill’

separate from the global goodwill which the foreign parent

company has generated.” (K Mart Brief, p. 38.)

“Grey market” merchandise, however, is not limited to

the parallel importation of substantially identical merchan-

dise originating from a common foreign source. The “paral-

lel import” evidence offered by COPIAT tends to over-

simplify the “grey market” and obfuscate the significant

trademark interests advanced by § 42 of the Lanham Act.

(footnote continued from preceding page)

suggests that, while the packaging may differ, the “Opium” perfume

manufactured in the United States and France are qualitatively iden-

tical. (Plaintiff's Statement, Exhibit 2, 94 5, 16.)

Similarly, the statement submitted by Pierre Valentin, Vice Presi-

dent and Treasurer of the Commercial Division of Michelin Tire

Corporation, indicates that most of the “Michelin” tires which are

distributed in the United States through authorized channels are

manufactured in North America. Mr. Valentin, however, does not

claim that diverted “Michelin” tires differ from those manufactured

in the United States. (Plaintiff's Statement, Exhibit 4.)

16

The “grey market” scenario presented by Lever Brothers

sharply focuses the tradernark interests implicated by § 42

of the Lanham Act since it does not involve the parallel

importation of substantially identical authorized and “grey

market” merchandise. Lever Brothers’ “Shield” and “Sun-

light” products are manufactured in the United States for

domestic consumption. The competing “grey market” prod-

ucts are manufactured overseas for foreign consumption.

Lever Brothers is only affiliated indirectly with these foreign

manufacturers, and has no control over their sale of “Shield”

and “Sunlight” products.

Lever Brothers has clearly developed goodwill in its

“Shield” and “Sunlight” trademarks which is factually dis-

tinct from the goodwill associated with those marks in for-

eign countries. See Osawa & Co. v. B & H Photo, 589 F.

Supp. 1163, 1172-74 (S.D.N.Y. 1984). Lever Brothers

has expended approximately $423 million advertising and

promoting its “Shield” and “Sunlight” products in the United

States over the past six years. (A112, 4 4; A113, 4 6)

As a result of this substantial investment, Lever Brothers’

“Shield” and “Sunlight” products have attained 7.8% and

8.9% shares of the national deodorant soap and light duty

liquid detergent markets. Jd. The American public associ-

ates these products with Lever Brothers, not with affiliated

foreign registrants of the marks.

Unlike the parallel imports involved in Vivitar, Olympus

Corp. v. United States, 792 F.2d 315 (2d Cir. 1986),

petition for cert. filed, 55 U.S.L.W. 3372 (November 6,

1986) (No. 86-757), NEC Electronics v. CAL Circuit

Abco, 810 F.2d 1506 (9th Cir. 1987), and this case, the

“Shield” and “Sunlight” products manufactured by Lever

Brothers’ foreign affiliates are substantially different from

Lever Brothers’ “Shield” and “Sunlight” merchandise.

17

Indeed, the evidence offered by Lever Brothers in its action

against the federal petitioners established that the “Shield”

and “Sunlight” products manufactured by Lever Brothers

and its British counterpart have been specially formulated

to (a) achieve optimal efficacy under differing environ-

mental conditions, (b) satisfy the particular preferences

of American and British consumers and (c) conform to

differing regulatory standards. Formulated for different

markets, the domestic distribution of foreign “Shield” and

“Sunlight” products has resulted in substantial consumer

confusion and damaged Lever Brothers’ reputation for the

sale of high quality merchandise. By adopting a simplistic

standard predicated exclusively upon the corporate relation-

ship between the American and foreign registrants, the

federal petitioners have failed to recognize that “grey

market” merchandise may seriously compromise the inter-

ests of American capital, labor and the consuming public.

This simplistic corporate litmus test is inconsistent with

the trademark principles espoused by this Court in Katzel

and Aldridge. In Katzel and Aldridge, this Court rejected

the trademark “universality” doctrine, and adopted the prin-

ciple of trademark “territoriality”. As the Court of Appeals

observed in this case:

“Justice Holmes’ opinion adopted what has come

to be called the ‘territoriality’ theory of trademark.

This approach maintains that the source and scope

of trademark protection arise from the law of a

particular sovereign state, and thus that it is mean-

ingless to discuss the ‘genuineness’ of a trademark

in the abstract. See Note, The Greying of American

Trademarks: The Genuine Goods Exclusion Act

and the Incongruity of Customs Regulations 19

C.F.R. § 133.21, 54 Fordham L. Rev. 83, 106-109

(1986). Justice Holmes wrote:

18

‘It is said that the trade mark here is that of the

French house and truly indicates the origin of

the goods. But that is not accurate. It is the trade

mark of the plaintiff only in the United States and

indicates in law [, and, it is found, by public under-

standing] that the goods come from the plaintiff

although not made by it.’ 260 U.S. at 692... .”

COPIAT, supra, 790 F.2d at 909-10 (footnote omitted;

emphasis in original).

In rejecting the “universality” doctrine, this Court recog-

nized that the protections afforded American registrants and

consumers by the trademark laws do not end at our shores.

The relationship between the domestic and foreign trade-

mark registrants was not determinative. See Original Appa-

lachian Artworks, Inc. vy. Granada Electronics, Inc., No.

86-7670, slip op. (2d Cir. April 7, 1987). The standard, as

suggested by this Court in Katzel, was whether the domestic

registrant had developed sufficient goodwill in its trademark

to warrant protection under the trademark laws. Indeed,

this Court expressly found that plaintiff had expended sub-

stantial resources developing goodwill in the United States:

“{ Plaintiff] uses care in selecting colors suitable for

the American market, in packing and in keeping up

the standard, and has spent much money advertis-

ing, etc., so that the business has grown very great

and the labels have come to be understood by the

public here as meaning goods coming from the

plaintiff.”

A. Bourjois & Co. Vv. Katzel, supra, 260 U.S. at 691.

Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924), does

not, as suggested by petitioners K Mart and 47th Street

Photo, limit the application of Katzel and Aldridge to

domestic registrants which have no corporate relationship

19

with foreign registrants.* In distinguishing Katzel, this

Court confirmed that Katzel served to protect the domestic

goodwill represented by a trademark while insuring that the

trademark would not be employed to deceive the public.

As this Court explained:

“A trade-mark only gives the right to prohibit the

use of it so far as to protect the owner’s good will

against the sale of another’s product as his. [Cita-

tion omitted] There is nothing to the contrary in

A. Bourjois & Co. v. Katzel.... There the trade-

mark protected indicated that the goods came from

the plaintiff in the United States, although not

made by it, and therefore could not be put upon

other goods of the same make coming from abroad.

When the mark is used in a way that does not de-

ceive the public we see no such sanctity in the word

as to prevent its being used to tell the truth.”

Prestonettes, Inc. Vv. Coty, supra, 264 U.S. at 368.°

Indeed, the federal petitioners have apparently acknowl-

edged that the existence of “independent domestic goodwill”

8 Prestonettes was an action for injunctive relief commenced by

Coty, the domestic and foreign registrant of the “Coty” and

“L’Origan” marks, against a distributor which had purchased and

repackaged Coty’s “L’Origan” toilet powder and perfumes. In re-

versing an order directing the entry of injunctive relief, this Court

found that defendant had not improperly used plaintiff's trademarks.

Defendant’s labels had merely advised the public that the contents

of the repackaged merchandise originated from plaintiff. Accord-

ingly, defendant had not misrepresented the source of the mer-

chandise or otherwise infringed plaintiff's trademarks.

®In relying upon Prestonettes, K Mart and 47th Street Photo

have failed to recognize the relationship between the foreign and

domestic registrants in that action. Had this Court intended to

restrict Katzel to so-called “independent” domestic registrants, this

Court could have disposed summarily of the Prestonettes appeal

since Coty was both the domestic and foreign registrant of the

“Coty” and “L’Origan” trademarks. See Coty v. Prestonettes, Inc.,

285 F. 501, 504-5 (2d Cir. 1922), rev'd, 264 U.S. 359 (1924).

20

serves to trigger the exclusionary provisions of § 42 of the

Lanham Act. As the Court below observed:

“The appellees note that Holmes’ opinion in

Katzel (upon which Aldridge relied) emphasized

that the plaintiff had expended considerable sums

in advertising the French firm’s powder, so that ‘the

labels have come to be understood by the public

here as meaning goods coming from the plaintiff.’

260 U.S. at 691, 43 S. Ct. at 245. Thus, it is argued,

Katzel and Aldridge suggest that a plaintiff must

demonstrate the existence of independent domestic

goodwill before he may prevail on a claim that

goods bearing an identical but genuine trademark

infringe his trademark, and likewise before he may

demand that such goods be excluded from importa-

tion under Section 42.”

COPIAT, supra, 790 F.2d at 910 n. 10.

The Customs Service regulations do not represent a rea-

soned interpretation of § 42 of the Lanham Act. As the

federal petitioners have conceded previously, the existence

of independent domestic goodwill, not an artificial standard

premised upon the domestic registrant’s corporate affiliation,

should serve as the basis for excluding entry to foreign-

trademarked merchandise under § 42 of the Lanham Act.

Should this corporate litmus test be sustained as the basis

for enforcing § 42 of the Lanham Act, domestic trademark

registrants, like Lever Brothers, would be required to pursue

countless infringement actions while the Customs Service

continues to sanction the importation of merchandise which

damages the registrants’ domestic goodwill and creates con-

sumer confusion. See Original Appalachian Artworks, Inc.

v. Granada Electronics, Inc., supra; Olympus Corp. v.

United States, supra, 792 F.2d at 320. Such a result can

hardly be justified as a reasoned approach to the enforce-

ment of domestic trademark interests.

21

Conclusion

For all of the above reasons, the decision of the Court

of Appeals for the District of Columbia Circuit should be

affirmed.

May 7, 1987

Respectfully submitted,

ROBERT P. DEVLIN

45 Rockefeller Plaza

New York, New York 10111

Telephone: (212) 841-5700

Attorney for Amicus Curiae

Lever Brothers Company

JOSEPH J. I[AROCCI

Bruce H. LEDERMAN,

REBOUL, MACMurRRAY, HEwiITT,

MAYNARD & KRISTOL

45 Rockefeller Plaza

New York, New York 10111

Telephone: (212) 841-5700

—

WALTER M. VOLPI

JANICE HANDLER

LYNNE DARcy,

LEVER BROTHERS COMPANY

390 Park Avenue

New York, New York 10022

Telephone: (212) 688-6000

Of Counsel.