Amicus Curiae Brief — Idaho Potato Commission v. M & M Produce Farm & Sales, Dba M & M Produce

WIL PIN TIL

FEB 1 0 2004

ons

No. 03-1049

IN THE

Supreme Court of the United States

IDAHO POTATO COMMISSION,

Petitioner,

v.

M & M PRODUCE FARM & SALES,

- Respondent.

On Petition for a Writ of Certiorari to the United States Court

of Appeals for the Second Circuit

MOTION FOR LEAVE TO FILE BRIEF AND BRIEF OF

UNDERWRITERS LABORATORIES INC., AMERICAN

NATIONAL STANDARDS INSTITUTE, CSA INTERNATIONAL,

AMERICAN DENTAL ASSOCIATION, WATER QUALITY

ASSOCIATION, NSF INTERNATIONAL, AMERICAN GAS

ASSOCIATION, STEEL TANK INSTITUTE, JUVENILE

PRODUCTS MANUFACTURING ASSOCIATION, TOY

INDUSTRY ASSOCIATION, NATIONAL MARINE

MANUFACTURERS ASSOCIATION, INTERTEK TESTING

SERVICES NA, INC., ASSOCIATED LOCKSMITHS OF

AMERICA, INC., GREEN SEAL, INC., INTERNATIONAL

ASSOCIATION OF PLUMBING & MECHANICAL OFFICIALS,

NATIONAL ORGANIZATION FOR COMPETENCY

ASSURANCE, PFS CORPORATION, MATERIAL HANDLING

INDUSTRY OF AMERICA, SOCIETY OF ACCREDITED

MARINE SURVEYORS, AND PLUMBING MANUFACTURERS

INSTITUTE AS AMICI CURIAE IN SUPPORT OF PETITIONER

MICHAEL J. ABERNATHY*

SCOTT M. MENDEL

DOLORES K. HANNA

BELL, BOYD & LLOYD LLC

70 W. Madison Street, Ste 3300

Chicago, IL 60602

(312) 372-1121

Counsel for Amici Curiae

* Counsel of Record

February 10, 2004

No. 03-1049

IN THE

Supreme Court of the United States

IDAHO POTATO COMMISSION,

Petitioner,

V.

M & M PRODUCE FARM & SALES,

Respondent.

On Petition for a Writ of Certiorari to the United States Court

of Appeals for the Second Circuit

MOTION OF AMICI FOR LEAVE TO FILE BRIEF AS

AMICI CURIAE

Underwriters Laboratories Inc., American National

Standards Institute, CSA International, American Dental

Association, Water Quality Association, NSF International,

American Gas Association, Steel Tank Institute, Juvenile

Products Manufacturing Association, Toy Industry

Association, National Marine Manufacturers Association,

Intertek Testing Services NA, Inc., Associated Locksmiths of

America, Inc., Green Seal, Inc., International Association of

Plumbing & Mechanical Officials, National Organization of

Competency Assurance, PFS Corporation, Material Handling

Industry of America, Society of Accredited Marine

Surveyors, and Plumbing Manufacturers Institute hereby

request leave to file a brief as amici curiae in support of Idaho

Potato Commission’s Petition for a Writ of Certiorari. Idaho

Potato Commission consented to the filing of the amicus

brief, but M&M Farm Produce & Sales refused its consent.

Amici include certifying, testing, and standards

organizations, as well as an association representing licensees

of certification marks. Together, amici own or rely upon

2

some of the most widely used certification marks in the

United States. Such marks are used to certify the safety and

quality of a broad range of products and services throughout

the national economy. Amici license over 70,000

manufacturers and their marks appear on over 17 billion

products each year. Consumers and government agencies

rely on amici’s certification marks in making purchasing

decisions and in developing regulations to protect public

safety.

Amici have a vital interest in the effective and efficient

enforcement of certification marks. Mark owners and their

licensees make substantial investments in their marks and in

the underlying products and services in reliance upon the

validity of the marks. Mark owners protect their investment

and the investment of their licensees by including “no-

challenge” provisions in their license agreements. The

enforcement of such agreed upon license provisions is

essential for mark owners to efficiently control the use of

their marks. Finding ‘“no-challenge” provisions

unenforceable, as the Second Circuit has in this case, will

result in owners facing validity challenges in virtually every

enforcement action. The consequent increase in the time and

expense of enforcement will discourage mark owners from

developing certification marks and will discourage potential

licensees from licensing certification marks. Consumers

would be deprived of information that is critical to their

making informed purchasing decisions. Government

agencies would be deprived of the standards they need to

develop public safety regulations.

Amici believe that their familiarity with the use of

certification marks throughout the United States economy and

the role such marks play in ensuring safe and high quality

products and services will aid in the Court’s understanding of

the issue presented in the Petition for Certiorari. This brief

-“

3

presents legal and economic analysis supplemental to that in

the Petition.

Respectfully submitted,

MICHAEL J. ABERNATHY*

ScoTT M. MENDEL

DOLORES K. HANNA

BELL, BOYD & LLOYD LLC

70 W. Madison Street,

Suite 3300

Chicago, IL 60602

(312) 372-1121

Counsel for Amici Curiae

* Counsel of Record

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ...........cccccccsseseesseeeeeseeeeeees il

INTEREST OF AMICL............cccccccesssesseeseessreesessesereeees ]

SUMMARY OF ARGUMENT. ..........cccscsseeesseeesseeeeeeees 2

REASONS FOR GRANTING THE WRIT.............:0000+ 4

I. A. STRONG’ CERTIFICATION MARK

SYSTEM IS MANDATED BY THE LANHAM

ACT AND IS ESSENTIAL FOR CONSUMER

Il. THE SECOND CIRCUIT’S DECISION

SUBSTANTIALLY UNDERCUTS THE

CERTIFICATION MARK SYSTEM AND

HARMS CONSUMER WELFARE...........:::sesee0++ 8

ll. THE SECOND CIRCUIT’S DECISION IS

INCONSISTENT WITH THE DECISIONS OF

THIS COURT AND THOSE OF OTHER

CRUE co sscncerscosencarscesassacsssoonseesesscceeanssnnssnsensesos 12

CONCLUSION .........sssssssscccccsscosscccssrecsssssnsscccccssencssncees 16

Cases:

il

TABLE OF AUTHORITIES

Alflex Corp. v. Underwriters Lab., 914 F.2d 261 ...15

(9th Cir. 1990)

Aronson v. Quick Point Pencil Co., 440 U.S. 257 ..12

(1979)

Beer Nuts, Inc. v. King Nut Co., 477 F.2d 326....4,13

(6th Cir. 1973)

California Dental Ass'n v. Federal Trade Comm'n,..5

526 U.S. 756 (1999)

Consolidated Metal Products, Inc. v. American..6, 14

Petroleum Inst., 846 F.2d 284

(5th Cir. 1988)

ECOS Electronics Corp. v. Underwriters Lab., ..6, 15

743 F.2d 498 (7th Cir. 1984)

E.G.L. Gem Lab Ltd. v. Gem Quality InsSt., ............ 13

90 F. Supp.2d 277 (S.D.N.Y. 2000)

In re Circuit Breaker Litig., F. Supp. 1267 ............. 15

(C.D. Cal. 1997)

Kohler Co. v. Moen, Inc., 12 F.3d 632 ............66 4,13

(7th Cir. 1993)

Lear, Inc. v. Atkins, 395 U.S. 653 (1969) ........... 3, 12

Levy v. Kosher Overseers Ass'n, 104 F.3d 38 ....7, 15

(2d Cir. 1997)

McDaniel v. Appraisal Inst., 117 F.3d 421 .....000...... 6

(9th Cir. 1997)

MWS Wire Industries, Inc. v. California Fire ........ 13

Wire Co., 797 F.2d 799 (9th Cir. 1986)

Park ‘N Fly, Inc. v. Dollar Park and Fly, Inc., ........ 4

469 U.S. 189 (1985)

Professional Golfers Ass'n v. Bankers Life & ......... 7

Casualty Co., 514 F.2d 665 (Sth Cir. 1975)

Qualitex Co. v. Jacobson Products Cou, .....ccccceceeeees 4

514 U.S. 159 (1995)

ill

Seven-Up Bottling Co. v. The Seven-Up Co., «+++. 13

561 F.2d 1275 (8th Cir. 1977)

United States v. Sealy, 388 U.S. 350 (TDG) .cxconcnss 15

United States v. 10,510 Packaged Computer ........... 9

Towers, 152 F. Supp. 2d 1189 (N.D. Cal. 2001)

Statutes:

Trademark Act of 1946 (Lanham Act), .........+-+:++++ 2

15 U.S.C. §§ 1051 et seq.:

15 U.S.C. §§ 1051 ou... eeceeseeereeeceeereeeeeenneesersoees 4

15 U.S.C. §§ 1053 ......ccsccsscesesrecssesrsesreeneseeneees 7

15 U.S.C. §§ 1054.......cccceceereeseeteseeeeeneseeeneees 3,7

15 U.S.C. § 1064........scscseeseesseeeseereessenenesenes 15

15 U.S.C. § 1064(5) ......ceccessceeseeeseeseeeeeenneeseres 10

15 U.S.C. § 1127... eeesscesesseeseesereeeeeeeenaneneess 6,7

15 U.S.C. § 1127, 1064(5)(D).....--:sseceeereeseeeees 7

Miscellaneous:

S. Rep. No. 1333, 79th Cong., «...-+-+-+++++. 2, 4, ba, ¥3

2d Sess. (1946)

Criminal Trafficking in Counterfeit ............-:++-+0++ 2

Marks: Hearings on S. 2428 Before the Senate

Judiciary Comm., 97th Cong. 8 (1982)

(statement of William F. Baxter,

Assistant Attorney General, Antitrust Division,

U.S. Department of Justice)

William M. Landes & Richard A. Posner,.....4-6, 14

The Economics of Trademark Law,

78 TRADEMARK REP. 267 (1988)

George A. Akerlof, The Market for 'Lemons’: .......- 6

Quality Uncertainty and the Market Mechanism,

84 Q.J. ECON. 488 (1970)

Rules:

1V

J. Thomas McCarthy, McCarthy on Trademarks and

Unfair Competition (4th ed. 2000):

THEE. Tciotasunneccnaticcuseniaiaiinmansmpadacnminhe 5

Patricia Kimball Fletcher, Joint Registration of ....5

Trademarks and the Economic Value of a

System, 36 U. MIAMI L. REV. 297 (1982)

Roger E. Meiners & Robert J. Staaf,.........0.0..... 5, 14

Patents Copyrights, and Trademarks: Property

or Monopoly?, 13 HARV. J.L. & PUB. POL'Y

911 (1990)

Terry E. Holzman, Tips from the Trademark ......... 7

Examining Operation, 81 TRADEMARK REP.

180 (1991)

DENVER, CoLo., Mun. Cope § 23-2 (2003).............. 10

New York, Ny., Cope § 28-01 (2003) .................00 9

St. Pau, Minn. LEGIS. Cope § 94.12 (2003)........... 9

i iy Ft Ce iacttsnnnnickeriontnesensntensaansvaniinnns 9

INTEREST OF AMICI’

Twenty certifying, testing and standards organizations,

including some of the largest such organizations in the United

States, submit this amicus brief in support of the Idaho Potato

Commission’s (“IPC”) Petition for Certiorari.”

As owners of some of the most widely used and relied upon

certification marks attesting to product safety and quality,

amici have a Vital interest in the enforceability of their license

agreements, particularly provisions that enable amici to

efficiently protect the validity of their marks. Amici test and

certify a wide range of products that represent a broad cross

section of the United States economy, including appliances,

computer equipment, furnaces, fuses, smoke detectors, fire

extinguishers, water treatment products, disinfectants, water

system components, plumbing fixtures, electrical and telecom

conduit, wastewater treatment systems, bottled water, food

and beverage dispensing and processing equipment, bakery

products, dietary supplements, baby carriages, high chairs,

cribs, walkers, toys, boats, toothpaste and toothbrushes.

Amici also certify the environmental impact of products and

training programs for health care and other professionals.

Amici’s certification marks are applied to over 17 billion

products and services annually, provided by over 70,000

manufacturers and service providers.

Most amici are non-profit organizations. Each is an

independent, technically expert organization that has no

1 No counsel for a party authored this brief in whole or in part. The

Idaho Potato Commission made a monetary contribution to the

preparation of this brief.

2 Amicus American National Standards Institute accredits certifying

organizations and has an interest in the credibility and validity of the

organizations’ marks. Members of amicus Plumbing Manufacturers

Institute (“PMI”) license certification marks and invest heavily to ensure

that their products meet certification standards. PMI’s members have a

strong interest in the continued validity of the marks they license.

2

financial interest in the ultimate profitability of the products it

certifies. American businesses and consumers heavily rely on

amici’s unbiased evaluation of the safety and quality of the

products and services they test. Federal, state and local

government agencies rely on amici’s certification of products

and services in their purchasing decisions and in their

regulatory efforts to protect public safety.

The enforceability of ‘“no-challenge” provisions in

certification mark license agreements is a matter of great

concern to amici. Such provisions control the cost of

protecting and enforcing certification marks. If licensees are

not bound by their agreements to forego challenging the

validity of the marks they license, the litigation costs of all

mark owners will soar. Validity challenges by infringers will

become a_ standard litigation _ strategy. Non-profit

organizations, such as most amici, can ill afford protracted,

expensive litigation to enforce their marks. In addition,

amici’s ability to assure licensees and the public of their

marks’ validity will be diminished. The higher costs and

increased uncertainty regarding the validity of marks will

result in a reduction in the certification of products.

Consumers will receive less information about the safety and

quality of products, information which is essential to

informed purchasing decisions.

SUMMARY OF ARGUMENT

Certification marks are one of four types of marks protected

by the Lanham Act. Trademark Act of 1946 (Lanham Act),

15 U.S.C. §§ 1051-1072, 1091-1096, 1111-1127, 1141a-

1141n (2003). Congress determined that Lanham Act marks

should receive the “greatest protection that can be given

them” to preserve their consumer welfare benefits. S. Rep.

No. 1333, 79th Cong., 2d Sess. 6 (1946). By reducing

consumer search costs and information asymmetries between

sellers and consumers, certification marks, like trademarks,

incent sellers to offer better and safer products and services.

3

As Section 4 of the Lanham Act, 15 U.S.C. § 1054,

demonstrates, Congress intended certification marks to

receive the same protections as trademarks. Any

interpretation of the Lanham Act that impairs the ability of

certification mark owners to protect their marks threatens the

certification mark system established by Congress.

Licensees of certification marks, like trademark licensees,

routinely agree to forego challenging the validity of the

licensed marks. These “no-challenge” commitments are

essential to the mark owners’ ability to control their litigation

costs and efficiently protect their marks. Such provisions also

assure other licensees that the marks will remain valid,

encouraging them to invest in the marks and in those products

and services bearing the marks.

By holding that “no-challenge” provisions in certification

mark licenses are unenforceable, the Second Circuit’s

decision will substantially increase the cost and risk of

enforcement actions. Virtually every lawsuit seeking to

enjoin infringement of a certification mark will be met with a

counterclaim seeking to cancel the mark. Often, as in this

case, such validity challenges are the primary litigation

strategy employed by infringers to discourage Owners from

enforcing their marks. This strategy can be particularly

onerous to certification mark owners, as they are typically

non-profit organizations or government agencies. The

increased cost and risk of enforcement actions will reduce the

stability and value of certification marks, decrease use of

certification marks by owners and licensees, and, in turn,

deprive consumers, including government agencies, of

information vital to their ability to make informed choices.

The Second Circuit’s decision is based on an erroneous

reading of Lear, Inc v. Atkins, 395 U.S. 653 (1969). In Lear,

this Court held that the public interest in competition in the

use of ideas precluded patent licensee estoppel. Congress, the

courts and economists have long recognized that, unlike

patents, Lanham Act marks, including certification marks, do

4

not withdraw any ideas from public use. Marks protect the

public from deception and preclude others from using

confusingly similar words or symbols to brand their products

or services. They do not preclude others from offering

competitive products or services. As a result, courts have

consistently refused to expand Lear’s narrow holding to

trademarks and have upheld contractual “no-challenge”

provisions regarding trademarks. See, e.g., Beer Nuts, Inc. v.

King Nut Co., 477 F.2d 326 (6th Cir. 1973). No principled

basis exists to treat “no-challenge” provisions in certification

mark licenses different from such provisions in trademark

licenses.

REASONS FOR GRANTING THE PETITION

I. A STRONG CERTIFICATION MARK SYSTEM IS

MANDATED BY THE LANHAM ACT AND IS

ESSENTIAL FOR CONSUMER WELFARE.

Through the Lanham Act, 15 U.S.C. §§ 1051, et seq.,

Congress provided for national protection of trademarks,

service marks, collective marks and certification marks

(collectively ‘“marks”). Before the Lanham Act, state

common law and a patchwork of federal statutes protected

marks. Congress determined that marks were so essential to

product quality and safety that “sound public policy requires

that [marks] should receive nationally the greatest protection

that can be given them.” Park ‘N Fly, Inc. v. Dollar Park and

Fly, Inc., 469 U.S. 189, 193 (1985) (quoting S. Rep. No.

1333, 79th Cong., 2d Sess. 6 (1946)) (emphasis added).

Congress, the courts and economists have long recognized

that protecting marks fosters competition and enhances

product quality by securing reputational benefits to the mark

owner and its licensees. See S. Rep. No. 1333, 79th Cong.,

2d Sess. 4 (1946); Qualitex Co. v. Jacobson Products Co.,

514 U.S. 159 (1995); Kohler Co. v. Moen Inc., 12 F.3d 632

(7th Cir. 1993); William M. Landes & Richard A. Posner, The

Economics of Trademark Law, 78 TRADEMARK REP. 267

5

(1988) [hereinafter Landes & Posner]; 1 J. Thomas McCarthy

On Trademarks And Unfair Competition §§ 2:3 - 2:5 (4th ed.

2000) [hereinafter McCarthy]; Roger E. Meiners & Robert J.

Staaf, Patents, Copyrights, and Trademarks: Property or

Monopoly?, 13 HARV. J.L. & PUB. POL’Y 911, 929-34 (1990)

[hereinafter Meiners & Staaf]; Patricia Kimball Fletcher,

Joint Registration of Trademarks and the Economic Value of

a Trademark System, 36 U. MIAMI L. REV. 297, 323-30

(1982) [hereinafter Fletcher]. The Assistant Attorney General

for the Antitrust Division of the Department of Justice

testified before Congress that “the maintenance of a strong

trademark system [is] very important, if not absolutely

essential, to the workings of competitive markets in a wide

variety of commercial sectors.” Criminal Trafficking in

Counterfeit Marks: Hearings on S. 2428 Before the Senate

Judiciary Comm., 97th Cong. 8 (1982) (statement of William

F. Baxter, Assistant Attorney General, Antitrust Division,

U.S. Department of Justice).

This Court has recognized that information asymmetries

can lead to market imperfections. See California Dental

Ass’n v. Federal Trade Comm’n, 526 U.S. 756, 772 (1999).

Lanham Act marks reduce this imbalance by enabling

consumers to readily assess product quality and safety, and to

distinguish between competitive offerings. Marks reduce

consumer search costs and encourage sellers to invest in

enhancing the quality and safety of their products and

services. See Landes & Posner, supra, at 271; Meiners &

Staaf, supra, at 932. Marks also enable consumers to punish

sellers who produce products of lower or unpredictable

quality. Consumers can readily identify the products of such

sellers through their marks and curtail future purchases.

The failure to provide adequate legal protection for marks

will ultimately reduce competition over the quality and safety

of products and eliminate the incentive to maintain or

improve product offerings. See Landes & Posner, supra, at

272. A seller, like M&M Produce Farm & Sales (“M&M”) in

6

this case, who infringes on another’s mark, free rides on the

mark owner’s and its licensees’ investment in the mark and.

the underlying products. Any interpretation of the Lanham

Act that increases the difficulty or expense of enjoining such

economic parasites “will eventually destroy the information

capital embodied in a trademark . . . eliminat[ing] the

incentive to develop a valuable trademark in the first place.”

Id.

Economists agree that reducing the use of marks would

impede consumers’ ability to distinguish between high and

low quality goods and services. Consumers would be

unwilling to pay more for a product whose quality and safety

cannot be assured. Sellers’ incentives to improve their

products would diminish and higher quality, safer products

would be driven from the market. See George A. Akerlof,

The Market for ‘Lemons’: Quality Uncertainty and the

Market Mechanism, 84 Q.J. ECON. 488, 499-500 (1970);

Landes & Posner, supra, at 279, 299-300; Meiners & Staaf,

supra, at 931.

Certification marks provide the same economic benefits as

the other Lanham Act marks. Certification marks impart

information critical to consumers and induce sellers to

provide safe, high quality products and services. See

McDaniel v. Appraisal Inst., 117 F.3d 421, 423 (9th Cir.

1997) (defendant’s “certification program enhances

competition and efficiency of markets by reducing search

costs and mistakes”); Consolidated Metal Products, Inc. v.

American Petroleum Inst., 846 F.2d 284, 296 n. 46 (Sth Cir.

1988) (certification mark increases consumer demand and

encourages producers to improve products); ECOS

Electronics Corp. v. Underwriters Lab., 743 F.2d 498, 503

(7th Cir. 1984) (certification marks eliminate market

imperfections by providing information to consumers).

The Lanham Act makes little distinction between the four

types of marks. Each is included in the statute’s definition of

“mark,” 15 U.S.C. § 1127, and, except as explicitly provided

7

in the Act, each is accorded the same treatment. Indeed,

Sections 3 and 4 of the Act, 15 U.S.C. §§ 1053, 1054,

specifically state that service marks, collective marks and

certification marks “shall be entitled to the protection

provided herein in the case of trademarks.” Congress could

not have spoken more clearly that all four types of marks are

of equal importance and are afforded equal protection.

Certification marks differ from the other Lanham Act

marks only in that certification mark owners may not market

goods or services under their certification marks and they

must license all those that meet their standards on a non-

discriminatory basis. 15 U.S.C. §§ 1127, 1064(5)(D). These

features enhance the pro-competitive and consumer welfare

benefits of certification marks. Because the certification

mark owner does not market the certified goods or services,

consumers are assured of an objective evaluation of the

products and services that bear the marks. That all who meet

the mark owner’s standards may receive a license facilitates

new entry into markets by reducing thé investment a new

entrant must make in developing its own brand.

Recognizing that the Lanham Act mandates equal treatment

of the four types of marks and that each type provides the

same important consumer welfare benefits, courts, including

the Second Circuit, have uniformly accorded equal protection

to certification marks, service marks, collective marks and

trademarks. See, e.g., Levy v. Kosher Overseers Ass’n, 104

F.3d 38, 39 (2d Cir. 1997) (“Certification marks are generally

treated the same as trademarks for purposes of trademark

law.”); Professional Golfers Ass’n v. Bankers Life & Casualty

Co., 514 F.2d 665, 668 (5th Cir. 1975) (“{T]he Lanham Act

clearly contemplates that owners of collective marks and

service marks receive the same treatment as holders of more

orthodox trademarks.”); Terry E. Holzman, Tips From the

Trademark Examining Operation, 81 TRADEMARK REP. 180,

189 (1991).

8

Providing the same protections to certification marks as

trademarks is essential to preserving the Lanham Act system

carefully crafted by Congress. With the ever increasing

number and complexity of goods and services from which

consumers must choose, a system providing the strongest

protection for marks is even more critical today.

Il. THE SECOND CIRCUIT’S DECISION

SUBSTANTIALLY UNDERCUTS THE

CERTIFICATION MARK SYSTEM AND

HARMS CONSUMER WELFARE.

The Second Circuit’s decision seriously undermines the

ability of certification mark owners to protect their marks.

Certification mark licenses, like trademark, service mark and

collective mark licenses, routinely contain provisions under

which the licensee acknowledges the validity of the mark and

agrees not to challenge the mark. “No-challenge” provisions

are essential to providing stability and predictability for marks

and to reducing mark owners’ costs in administering and

protecting their marks.

For certification mark owners, the stability of their marks

and the ability to enforce them efficiently are particularly

important. Certification mark owners are often not-for-profit

entities, like most of the amici, or government agencies, like

IPC. These organizations have limited funds with which to

enforce their certification marks and to ensure that all

licensees comply with their standards. While trademark

owners have the choice not to license their marks,

certification mark owners are not permitted to refuse to

license their marks to qualified licensees or to market

products using their marks. Only licensees may use

certification marks. Thus, license agreements are a critical

feature of the certification mark system and the central means

by which mark owners control their marks. Unlike a

trademark owner, a _ certification mark owner cannot

selectively license its mark based on, for example, the

Owner’s assessment of the integrity and honesty of the

9

potential licensee. Any licensee whose products or services

meet the owner’s standards must be licensed. For this reason,

“no-challenge” provisions are even more important to

certification mark owners than to trademark owners as a

critical tool to protect against disreputable licensees. Also,

certification mark owners largely generate revenue through

license fees or product testing. That limited revenue stream

would be jeopardized if certification marks are weakened by

limiting the owners’ ability to protect their marks.

As licensees are the only users of certification marks, mark

owners’ enforcement of their marks, through infringement

litigation or otherwise, principally benefits their licensees and

consumers and government agencies who rely on the marks.

3 McCarthy § 19:92.1, at 19-297; Fletcher, supra, at 329.

Licensees, like the members of amicus Plumbing

Manufacturers Institute, often numbering in the thousands for

each certification mark, invest heavily in ensuring that their

products or services comply with the marks’ standards and in

promoting and selling their products and services under the

marks.? Customers of licensees rely on certification marks to

accurately portray the quality and safety of the underlying

product. See United States v. 10,510 Packaged Computer

Towers, 152 F. Supp. 2d 1189, 1197 (N.D. Cal. 2001).

Government agencies also rely on certification marks in

developing regulations to protect public safety. See, e.g., 40

CER. § 82.3 (2004) (air quality regulation providing that all

equipment used in the recycling of refrigerants shall meet

certification standards of Underwriters Laboratories or an

equivalent certifying body); NEW YORK, N.Y., CODE § 28-01

(2003) (ordinance providing that all smoke detecting devices

shall meet Underwriters Laboratories’ testing standards); ST.

PAUL, MINN. LEGIS. CODE § 94.12 (2003) (code requiring

relief valves in water storage containers to meet testing

3 For example, Underwriters Laboratories Inc. has over 66,000

licensees. See Underwriters Laboratories Inc., About UL (visited Feb. 8,

2004) <http://www.ul.com/about/index.html>.

10

standards of certifying bodies, including Underwriters

Laboratories); DENVER, COLO., MUN. CODE § 23-2 (2003)

(ordinance providing standards for food sanitation and

handling equipment must meet certification standards of one

of several non-profit certification bodies).

Under the Second Circuit’s decision, certification mark

owners may no longer rely on a licensee’s contractual

commitment not to challenge their marks. If this decision is

permitted to stand, every enforcement action by a certification

mark owner against a wayward or former licensee will likely

face a counterclaim challenging the mark’s validity.* Such

challenges will protract and substantially increase the cost of

enforcement litigation, as validity challenges are fact

intensive and involve substantial discovery. In the case

below, M&M voluntarily relinquished its license to use IPC’s

certification mark. Nonetheless, M&M continued to use the

mark. M&M had no defense to IPC’s infringement claim; it

did not contest it was using IPC’s mark without the required

license. Petition Appendix at 4a. Its only available litigation

strategy was to seek cancellation of the mark. M&M

challenged the mark despite its contractual commitment not to

do so and after benefiting as a licensee of the mark for several

years.

Licensees knowingly enter into such license agreements. In

return, they obtain not only the use of the mark, but the

benefit of the combined investments of the mark owner and

all other licensees. These investments are made in reliance

upon the mark’s validity and with the understanding that each

licensee has committed, or will commit, not to challenge the

mark. One licensee, or former licensee, who breaches its

contractual commitments, infringes the mark and then

* The Second Circuit’s decision places certification mark owners in a

difficult position. Failure to control their certification marks risks

cancellation, 15 U.S.C. § 1064(5), yet, any attempt by a mark owner to

enforce its mark also risks cancellation.

he

1]

challenges the mark as part of its litigation strategy,

jeopardizes the investments of all other licensees.

Any reduction in mark owners’ ability to enforce their

marks will discourage investment by licensees and decrease

the owners’ ability to protect consumers from fraudulent use

of the marks. Organizations like amici would be less likely to

develop certification marks and potential licensees would be

less willing to license the marks. A reduction in the use of

certification marks would deprive consumers of their

important informational benefits. Government agencies that

rely on such marks would be required to develop their own

safety standards at taxpayers’ expense.

The reasoning of the Second Circuit’s decision also raises

questions about the validity of other important provisions

commonly found in certification mark license agreements.

The court found that “no-challenge” provisions conflict with

public policy because they place “a non-quality control

related restriction on sellers of the certified product and other

licensees that benefit[] the mark owner in contravention of the

mark owner’s obligation not to interfere with a free market

for products meeting the certification criteria.” Petition

Appendix at 15a-l6a. License agreements, however,

commonly contain a number of provisions designed to reduce

the costs for administering the licensor-licensee relationship,

including indemnification, insurance, limitations on liability,

record keeping and auditing provisions. Licensees could

argue that such critical provisions are “non-quality control

related restrictions” — even though they limit the transaction

costs of certification mark licensing and preserve the

availability of such marks.

Further, the Second Circuit is unable to point to any support

for its assertion that Congress intended to promote a free

market for products bearing the same certification mark.

Rather, the legislative history reveals that Congress intended

the Lanham Act to facilitate purchasing decisions by enabling

consumers to make informed choices between products

12

bearing competing marks. See S. Rep. No. 1333, 79th Cong.,

2d Sess. 4 (1946). Congress also intended that the Act make

“relief against infringement prompt and effective.” Jd. at 3.

The Second Circuit’s decision defeats both of these purposes

by impairing the enforceability and therefore the utility of

certification marks. Moreover, the court failed to explain

how a non-discriminatory “no-challenge” provision included

in each of the mark owner’s license agreements interferes in

any way with the “free market” for the certified product.

Ill. THE SECOND CIRCUIT’S DECISION IS

INCONSISTENT WITH THE DECISIONS OF

THIS COURT AND THOSE OF OTHER

CIRCUITS.

The Second Circuit erroneously relied upon this Court’s

decision in Lear, Inc v. Adkins, 395 U.S. 653 (1969), in

holding that “no-challenge” provisions in certification mark

license agreements are unenforceable. Lear involved a patent

license that did not even contain a “no-challenge” provision.

In declining to apply licensee estoppel to patents, this Court

focused on the “important public interest in permitting full

and free competition in the use of ideas which are in reality a

part of the public domain.” Jd. at 670. The Court was

concerned that licensee estoppel in the patent context would

require the continuing payment of “tribute to would-be

monopolists.”” Id.

. In Aronson v. Quick Point Pencii Co., 440 U.S. 257 (1979),

the Court made clear that its narrow holding in Lear was “to

further the strong federal policy that only inventions which

meet the rigorous requirements of patentability shall be

withdrawn from the public domain.” 440 U.S. at 264. The

Court emphasized that “neither the holding nor the rationale

of Lear controls when no patent has issued and no ideas have

been withdrawn from public use.” Jd.

Until the Second Circuit’s decision, courts of appeal had

adhered to Lear’s narrow rationale in upholding the

13

enforceability of ‘“no-challenge” provisions outside the

context of patent licenses. In Beer Nuts, Inc. v. King Nut Co.,

477 F.2d 326, 328-29 (6th Cir. 1973), the court found Lear

inapplicable to trademark agreements. The court recognized

that trademarks do not involve the withdrawal of ideas from

public use or risk unjustified payments to would-be

monopolists. Jd. Rather, trademarks protect the public from

deception and the mark owners’ investment in advertising and

quality control. Trademarks confer no exclusionary power

over products or services. The only “exclusivity” accorded —

trademarks is over the specific word or symbol employed.

Because the supply of words and symbols available for marks

is essentially limitless, there is no public policy reason to

supplant the longstanding contract rule “that a person should

be held to his undertakings.” Jd. at 329. Similarly, the court

in E.G.L. Gem Lab Ltd. v. Gem Quality Inst., 90 F. Supp. 2d

277 (S.D.N.Y. 2000), found the Lear rule inapplicable to

trademark licenses because “[t]rademarks, unlike patents, do

not confer legally protected monopolies on useful advances in

science and technology in order to provide incentives for

inventors.” 90 F. Supp. 2d at 291-92. See also MWS Wire

Industries, Inc. v. California Fine Wire Co., 797 F.2d 799,

801-04 (9th Cir. 1986); Seven-Up Bottling Co. v. The Seven-

Up Co., 561 F.2d 1275, 1279 (8th Cir. 1977).

Congress, courts and economists have consistently

acknowledged that trademarks have none of the potential

monopolistic tendencies associated with patents. in passing

the Lanham Act, Congress recognized that “[t]rade-marks are

not monopolistic grants like patents and copyrights.” S. Rep.

No. 1333, 79th Cong., 2d Sess. 3 (1946). In Kohler Co. v.

Moen, Inc., the court noted that “while a patent creates a type

of monopoly pricing power by giving the patentee the

exclusive right to make and sell the innovation, a trademark

gives the owner only the right to preclude others from using

the mark when such use is likely to cause confusion or to

deceive.” 12 F.3d at 637. Marks take nothing from the “store

sa en lpi an i mm

14

”

of common or public property.” Meiners & Staaf, supra, at

929-30; see also Landes & Posner, supra, at 276 (Words

suitable for marks “are as a practical matter infinite. ...A

proper trademark is not a public good; it has social value only

when used to designate a single brand.”).

In their competitive impact, certification marks are identical

to trademarks and wholly unlike patents. They have no

potential for monopoly and are not essential for a firm to

enter or compete in a product or service market. See

Consolidated Metal Products, Inc. v. American Petroleum

Inst., 846 F.2d 284, 292 (Sth Cir. 1988). Certification marks

do not provide the owner or its licensees with any exclusive

right to make, use or sell any good or service. The words or

symbols that may be used for a certification mark are

numerous and anyone wishing to do so may develop its own

mark. Certification marks, unlike patents, do not impair “full

and free competition in the use of ideas,” the concern that

animated the Court in Lear. Nor do “no-challenge”

provisions have any potential to require licensees of

certification marks to improperly pay royalties to a “would-be

monopolist.” A licensee is always free to cancel its license

agreement. Such a cancellation would have no impact on the

licensee’s ability to continue selling its goods or services

under its own name or mark, or a mark licensed from another

mark owner.

Potential licensees have a choice of certification options. A

United States producer of electrical products, for example,

can choose among several certifying organizations, including

three amici, Underwriters Laboratories Inc., Intertek Testing

Services NA, Inc. and CSA International, to certify the safety

of its products. A manufacturer of drinking water treatment

products can choose among amici NSF International,

Underwriters Laboratories, Inc. and Water Quality

Association for testing and certification services. Similarly,

M&M repackaged numerous other varieties of potatoes from

several states other than Idaho and from Canada. It did not

15

need IPC’s license to compete in the packaging and

distribution of potatoes. Thus, the Second Circuit’s rationale

— that the public policy underlying certification marks is more

akin to patents than trademarks — is unsupported by economic

reality and is inconsistent with every other court of appeals

that has considered this issue.

The Second Circuit’s concern that only licensees have the

economic incentive to challenge the validity of certification

marks is also unsupported. Competitors of mark owners or

licensees, and firms who have been denied certification mark

licenses, all have the incentive to challenge, and have in fact

challenged, the validity of certification marks or the actions of

mark owners. See, e.g., Levy v. Kosher Overseers Ass'n, 104

F.3d 38 (2d Cir. 1997) (competitor of mark owner); Alflex

Corp. v. Underwriters Lab., 914 F.2d 261 (9th Cir. 1990)

(competitor of licensee); ECOS Electronics Corp. Vv.

Underwriters Lab., 743 F.2d 498 (7th Cir. 1984) (same); Jn re

Circuit Breaker Litig., F. Supp. 1267 (C.D. Cal. 1997) (non-

licensee counterfeiter). The Federal Trade Commission has

the statutory authority to seek cancellation of certification

marks. See 15 U.S.C. § 1064. The Antitrust Division of the

Department of Justice also challenges license agreements that

are used to restrain competition. See, e.g., United States v.

Sealy, 388 U.S. 350 (1967). There is no shortage of would-be

challengers of a certification mark, and no lack of incentive to

do so, if a mark owner is misusing the mark.

Thus, the Second Circuit’s reasoning in denying

enforcement of “no-challenge” provisions in certification

mark license agreements is flawed and is inconsistent with the

congressional intent underlying the Lanham Act, as well as

the decisions of this Court and other courts of appeal. The

decision below threatens to significantly erode the vital role

that certification marks play in the national economy in

ensuring safe, high quality products and services.

16

CONCLUSION

To preserve the certification mark system established by

Congress, which is essential for maintaining effective

competition and enhancing consumer welfare, amici

respectfully request that the Court grant IPC’s Petition for

Certiorari.

Respectfully submitted,

MICHAEL J. ABERNATHY*

SCOTT M. MENDEL

DOLORES K. HANNA

BELL, BOYD & LLOYD LLC

70 W. Madison Street,

Suite 3300

Chicago, IL 60602

(312) 372-1121

Counsel for Amici Curiae

February 10, 2004 * Counsel of Record