Amicus Curiae Brief — United States v. Coalition to Preserve the Integrity of American Trademarks (Nos. 86-625, 86-495, 86-624)

Supreme Court brief1986

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FILED

In THE

° ?

Supreme Court of the United $tate? * **

Ocroper TERM, 1986 Wee Pe E SPANIOL, IR

K Mart CorPorArtION, a

Petitioner,

CaRrTIER, INC., et al.

477TH Street Puoro, INc.,

Petitioner,

COALITION TO PRESERVE THE INTEGRITY

OF AMERICAN TRADEMARKS, et al.

UNITED STATES OF AMERICA, et al.,

Petitioners,

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 AMICUS CURIAE

THE MOTOR VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED STATES, INC.

WILLIAM H. CRABTREE

(Counsel of Record)

Vice President and General]

Counsel

Motor VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED

States, Inc.

300 New Center Building

Detroit, Michigan 48202

(313) 872-4311

Attorney for Amicus MVMA

TABLE OF CONTENTS

PAGE

nn eee eanstvcens ii

INTEREST OF AMICUS CURIAE ................. 2

INTRODUCTION AND SUMMARY OF

Ne ne deb ee ences 3

FR ER a 4

I. THE CUSTOMS SERVICE REGULATION

CONFLICTS WITH PUBLIC POLICIES

AFFECTING MOTOR VEHICLE

DISTRIBUTION IN THE UNITED STATES ... 4

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 ...

B. The Customs Regulation Adversely Affects

U.S. Manufacturers’ Control Of Distribution

Ee 12

Il. THE CUSTOMS SERVICE REGULATION

CONFLICTS WITH U.S. TRADEMARK LAW .. 13

A. Trademarks Provide I'he Cornerstone To The

Effective Distribution Of Domestic Motor

SS re ee 14

1. MVMA Member Companies’ Trademarks

Serve A Quality Or Guarantee Function. . 15

2. Customers Of U.S. Motor Vehicle

Manufacturers Have An Interest In

Trademarks That Must Be Protected .... 16

B. The Customs Service Regulation Impairs U.S.

IID ob onic n Cbws sees ces ccesse 17

C. MVMA Member Companies Have An

Exclusive Right To The Use Of Their .

Trademarks In The United States........... 19

D. The Statutory Preference To U.S. Parties

Under § 526 Serves A Legitimate Purpose ... 20

me ER SE ee 21

cw ons >

TABLE OF AUTHORITIES

Cases: PAGE

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

7 © Bie G7, re rr te 14

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

(erred ere were rye er 5, 12

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

es fF |: ft S . eevee oe 16, 17

McLean v. Fleming, 96 U.S. 245 (1878) .............4.. 14,19

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

Pe BS fs) ee yr ee 16

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

y Ris @ fi ee re 14

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

(ROR... bic ceccn ve teusonsueen eee 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

(RBBB) . 0. ccc ccnwcevdcnecae ous sense 19

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

|_|) rr 18

Statutes:

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

Policy and Conservation Act ...............0000e8.

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

his (8) Pee 19

1S UBC. 6 TER... oo odcnccceuscens ctu sh eee 16

BS UBC. § TERA). «0.0 6 ccccccicvnteosndseun cee 19

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

6 UBC. 6 IGF... us on cckeennne eee eee 16, 18

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

Disclosure Bat... .nccccvctacnshecheeee eee 5, 10

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

Vehicle Safety Act of 1065 2... 2. 00.sceenbunaueneee 5,7

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

Cast Sawing Ast . ...6.cccccnscnssnccesusenneee 5

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

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

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On Write af Certiorari to the Unived Braves Court of

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INTRREOT OF AMICUS CUMIAK

The Motor Veliiele Manufacturers Aesooiation of the United

Matos, lw (MY MA) le a voluntary, favors poreotle wanna tin pres

foro af a) ehgaged in the Wanutaeture and oale of

Hilo vehieles in the United Mates! MYMA's leven momnbwrs

assemble more Than ONL of the ears, (raeke and hises produved

ii the United Mates, perale more than 0 manutaviuring

favilities and franchiow over GUM potmil dealers of thet

vehivles in thie country MY MA euhinite thie beled in eupport

of (he Mespondente® position Purewant to Mupreme Court Mule

1, (he WriHien Consent of the parties aeoompanion (hie helet

MMA members’ failing \rademarke, eve we MOE, (ON

BAL, MOMMA, CH UY ALM and AHMN, originated in the

VK and are among the most readily recognised marke

worldwide Ae Wademark awners, MYMA members have a

Hiveet and VAT Intereet in (he resolution of (he principal imeue

before thie Court the validity of the UA Custome Merview reuw

lation permiling the importation of wertmin wooalled “grey

market gone’

Motor vebiclon are among the mont eomplen, eustly, essential

Hirable consumer goods and represent the second largest pur

chawe of mont consumers. 1 ie well recognined that the mower

vehicle industry is highly regulated. Federal and simte govern:

mente fihace exteneive reaponsibiity for the safely and quality

of vehieles sold in the United Mates upon mot vehiele

manufacturers

The Court's decision in (hie eae will ultimately define (he

degree of wontrol that a dementio vehiele manutaciurer may

oy enert aver ihe disteihiation of ite trademarhed prod

wither Heapondenta, whome poeition MYMA capporte,

py ’ peslenane, are likely to prewent io the Court the effeoie of

ite dewiaion on the enforoement and implementation uf the gow

erniment polieiee embodied in (he pervanive vehiole eafety, cme

sions, Fuel eoonnmy and consumer proteution regulations

INTRODUCTION AND GUMMARY OF ARGUMENT

sion ‘the ny toeeh por boa VM minor vhiele industey, | ite

dietvibution practions and the quality of ite products, and ite

conmumers Te will eee that the U8 Customs Merviee

regulation, 10 C.F (IMEI, by faetitating Imports inte the

United Minton of automobiles ‘ahh do nat comply with UF

quirements, adversely affects legitimate distribution practives

q UA vehicle manufacturers Custome regulation ale

nuibilie intereat hy failing to demure that vehicles

wld in tne United Mates comply with federal and wate

arey market Td

resumed w be the same as vehiclon wuld in the

vd Uva " ioabv og Nphedone ¢ with

standards applivable tv the United Water Hy f viet 1 the Cie

' ‘ ee Cisatd dete © lasek

Ne AF ringeMent upon (he legitimate inter:

omnentle vehiele induetry in proba n Metvihution

of ie motor vehieloe,

Thin briel exam

Aut, 10 0, § 1088,

aper content of § MM of the Tarif

vnelrate that there iene polley uF

‘

legal juetifieation for the Oustome ‘the th under modern

ivademarh law. The invalidity of the Custome regulation

hewmen apparent when ite Meet on the eulmtantive rights and

reaponeitilition of 1M trademark regietrante ie considered The

moter vehiele industry ie characieriond by an exteneive con

cviner manufacturer relationehip heginning before the purehace

of a vehiole and lwnting for years thereation The interent in

meeting coneumer needs le reinforoed hy the expanding range

of wtatatory chligations io consumers Tn thie content, the arong

reliance placed on the trademark applied to a vehicle and the

good will eatabiiohed in the United Mates hy MYMA member

companion ie underout hy the Customs regulation contrary t

ihe Tarif and Trademark Acts

Mection hh 2 ihe torit Aet, on te face, granite proteetion to

UM 1 AT fistered cfygg stad without ienivation "nore

dons in thie (netanee” ‘tiiet ‘an weep nth “ “4 We

Hw examine in some detail (hue “expectations for the demew

He motor veiele industry.

Cpernion At Crom

das : fy have

Us moter vebiese manweriarers 670 wifes 0 myriad of

late and federal laws and regulations enacted to proteet pulde

health, eatery and conwumer welfare, Thewe laws and regula

inne afoot veniole eatery, arnienione, fuel eonimny, note levels,

iabellinng and warrantion’ This phenomenon wae recognined hy

die Gower in Continental 1, Ine « OTR Mylanta tne, AO 8

Mm, fh, note a (1977), where it ated that Ap a rowutt of

ity and commonlaw developmente, aeclety ineremelnaly

mande that manufacturers aenume Mireot roagrneibility for

(he safety and quality of (hein producte ”

in anmering thene sation affecting the automobile induetry,

Congress wate legislatures ippened that UM motor

veniele manufacturers content (he Aiwtritnation of vebielon aed

in the nied Mates ander their trademaricn The Cuetonme Mery

nH undercute (hie aawumnption hy facilitating (he

importation of grey market bwand name vehicles thar 18

miter veniele manufacturers Ma net intend to be eld 18 he

lined Mates

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. If, 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 Office.‘ 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.

1. Motor Vehicle Safety Regulation

The National Traffic and Motor Vehicle Safety Act of 1966,

15 U.S.C. § 1381, et seq., 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 accidents, includ-

ing deaths and injuries. Federai Motor Vehicle Safety

Standards, 49 C.F.R. § 571, et seg. (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 upgraded to cor-

rect the faulted conditions.

* National economic conditions, including foreign price controls or

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

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

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 monoxide, oxide of nitrogen, evaporative, and,

where applicable, diesel particulates. These vehicle emissions

may affect air quality and pose public health risks.

Vehicles manufaciured 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 vertification.’ 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 iabel, nor is any NCP payment

made to EPA.

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

fue] 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 equipped differently and perform differently than

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

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

guage, lack labels or other consumer notices required by US.

law, and have different warranties, even 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 seq.

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, eg., 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.

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 dealefS 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 manvu-

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 US.

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, ef seg. (1984); and Michigan Vehicle

Emissions Inspection and Maintenance Act, Mich. Comp. Laws

Ann. § 257.1051, et seg. (West Supp. 1986).

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

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-US. at 54-55.

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. Petitioners 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.

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.

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 Katzel 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. MYVMA 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.

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 badges 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.

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

U.S. trademarks and thus impairs their substantive rights. One

Petitioner 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 US. 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

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, serv-

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

US. 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 U\S.

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.

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 US.

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

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 US.

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 US.

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

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.

III. CONCLUSION

The decision of the Court of Appeals for the District of

Columbia Circuit should be affirmed.

Respectively submitted,

WILuiAM H. CRABTREE*

Vice President and General