# Opposition Brief — SKF USA INC. v. International Trade Commission

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0626%3A4

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2006
- **Citation:** 548 U.S. 904

## Text

5

Federal Circuit also agreed with the Commission's finding
that there was no basis to exclude the SKF bearings sold by
Roller Bearing Company/Tyson Bearing Company
(“RBC/Tyson”) under license from SKF USA but without
SKF USA’s post-sale technical services, and that it was
disingenuous for SKF USA to contend that RBC/Tyson
provided equivalent post-sale services to those of SKF USA
in the face of SKF USA’s stated position that no Respondent
can provide equivalent services to those of SKF USA
because SKF USA's services are per se superior to any
services others could provide. Pet. App. 2la-22a, 79a.
Accordingly, the Federal Circuit affirmed the Commission's
findings that there were no material differences between the
SKF bearings sold by SKF USA and the SKF bearings sold
by Respondents and, thus, affirmed the determination that
there was no infringement. Pet. App. 21 a-22a, 95a-96a.

Notwithstanding its arguments about the standard
allegedly applied by the Federal Circuit and the Commission.
SKF USA did not lose this case because of one or two non-
conforming sales. Instead, non-conforming sales amounted
to 12.6% of SKF USA sales (Pet. App. 6a. 20a-21a).* or
hundreds of millions of dollars. That amount of non-

receiving services on those sales, that customers in several of the
“alternate channels of trade” are generally gray market resellers, and that
the purchasers and/or end users of these bearings would receive the
alleged SKF USA services. Sve, e.g., Pet. App. 83a-84a (describing
obstacles to receiving services).

‘ Contrary to the assertions throughout SKF USA’s Petition, the Federal
Circuit did not find that 97.4% of SKF USA’s bearings sales were
accompanied by SKF USA's post-sale technical and engineering services
and that only 2.6% were unaccompanied by the services, and these
statements certainly are contested by Respondents, notwithstanding SKF
USA’s statement (Pet. 9) that the 97.4% is “uncontested.” In any event,
2.6% 0 of $2.6 billion in bearings sales would still amount to almost $70
million in SKF USA sales of non-conforming product that was not
materially different from the gray market bearings sold by Respondents.
See also JA27S.

6

conforming sales by SKF USA significantly exceeded the
sales by respondents during the same five-year period. See
JA291 n.20; JA288, JA290; see also CX-2468.1C-

* The statement in the Petition (Pet. 17) that gray market sales of SKF
bearings are estimated to exceed $100 million annually is not supported
by the cited evidence, or otherwise. To the contrary, as the Commission
opinion makes clear, the cited evidence relates to Respondents” sales
over a five-year period and demonstrates that SKF*s sales of non-
conforming bearings Were several times greater than Respondents’ sales
of SKF bearings. See Pet. App. 85a n.20 (redacted public version) and
JA291 n. 20 (unredacted confidential version).

J

REASONS FOR DENYING THE PETITION

I. THERE IS NO CONFLICT AMONG THE
CIRCUITS REGARDING THE STANDARD
APPLIED IN GRAY MARKET CASES.

SKF USA errs in claiming that a conflict exists among
the circuits as to the standard used in gray market goods
cases. The Federal Circuit decision in this case did not
create any conflict among the circuit courts. Instead. the
decision below, as well as the other cases cited by SKF USA,
demonstrate that al-of the circuits properly focus on whether
there are “material differences” between the authorized
products and the gray market goods in determining whether
there is trademark infringement. See Societe Des Produits
Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633. 639-40 (1"
Cir. 1992); Original Appalachian Artworks, Inc. v. Granada
Electronics, Inc., 816 F.2d 68, 73 (2d Cir. 1987); /beria
Foods Corp. v. Romeo, 150 F.3d 298, 302-03 (3d Cir. 1998):
Martin's Herend Imports, Inc. v. Diamond & Gem Trading
USA, Co., 112 F.3d 1296, 1302 (5" Cir. 1997): American
Circuit Breaker Corp. v. Oregon Breakers, Inc., 406 F.3d
577, 585-86 (9" Cir. 2005): Davidoff & CIE, S.A. v. PLD
Int'l Corp., 263 F.3d 1297, 1302 (11" Cir. 2001).

A. This Case Raises No Conflict Regarding
Whether Material Differences Suffice.

SKF USA argues that a conflict exists among various
circuits as to whether “material differences suffice” to
establish trademark infringement in a gray market case.
Initially, given that the Federal Circuit found that there were
no material differences. the issue of whether a finding of

8

material differences would be sufficient to establish
. ‘ . . 6
infringement is not presented by this case.”

Moreover, SKF USA fails to mention, much_ less
demonstrate, how the Federal Circuit's decision below
conflicts with the decisions of other circuits on this issue.
Pet. 10-11. This failure can likely be attributed to the fact
that the Federal Circuit’s ruling is consistent with the
holdings of other circuits. Citing its previous holding in
Gamut Trading Co. v. International Trade Commission, 200
F.3d 775 (Fed. Cir. 1999), the Federal Circuit recognized
that the “fundamental inquiry in gray market goods cases [is]
‘whether there are differences between the foreign and
domestic products and if so whether the differences are
material.” Pet. App. Ila-12a. Thus, contrary to SKF
USA’s assertions, there is no question that all circuits,
including the Federal Circuit. focus on “material
differences.”

B. There Is No Conflict Regarding Whether
Inferior Quality Is Required.

Once again, SKF USA fails to mention how the decision
below is in conflict with the decision of another circuit on
this particular issue. Indeed, the cases cited by SKF USA in
support of an alleged “conflict” with respect to this issue are
all quality control cases -- cases in which the alleged
infringer failed to provide quality control measures (e.g.,

* Respondents note that even where material differences are found,
consumer confusion may be an issue that still needs to be decided. See,
e.g., Nestle, 982 F.2d at 641 (finding of material differences gives rise to
presumption of confusion, but presumption may be rebutted by evidence
to the contrary). To the extent that SKF USA is seeking to raise any
conflict about what must be proven and who has the burden to do so once
material differences are established. that issue is simply not presented by
this case. because the Federal Circuit found that there were no material
differences.

9

inspections of products) utilized by the trademark owner.
Quality control was not at issue before the Federal Circuit.
and whether “inferior quality is required” was not raised,
addressed or decided by that court. The Federal Circuit's
decision, thus, could not possibly conflict with other circuit
court decisions on this issue.

In any event, no conflict exists as to whether proof of
inferior quality is required. SKF USA contends that the
First, Second, Fourth and Fifth Circuits do not require proof
that the gray market goods are of inferior quality, and the
Third Circuit is somehow in conflict with respect to this
issue. Pet. 11-12. However, the language from the Third
Circuit case cited by SKF USA, /beria, neither indicates nor
suggests that proof of inferior quality is required.’
Moreover, only a few sentences before this cited passage. the
[beria court explicitly stated that “courts do not require
trademark owners to show that the actual quality of the
inspected goods is measurably higher than that of the
uninspected goods.” 150 F.3d at 304 (emphasis added).
Thus, SKF USA’‘s contention that there is some conflict in
the circuits on this point is clearly misplaced.

’ As one district court recognized: “[The plaintiff] is correct in asserting
that differences in quality control procedures may be material for
purposes of the Lanham Act regardless of whether the products
themselves are actually of a higher quality than the allegedly infringing
products . . . ‘the test is whether the quality control procedures
established by the trademark owner are /ikely fo result in differences
between the products such that consumer confusion regarding the
sponsorship of the products could injure the trademark owner's
goodwill” See RJ Reynolds Tobacco Co. vy. Premium Tobacco Stores,
Inc. S7 US.P.Q.2d (BNA) 1253, 1255 (N.D. Hl. 2000) (emphasis in
original) (citing /Acria, 150 F.3d at 304).

10

C. There Is No Conflict Regarding Whether Actual
Harm To Goodwill Is Required.

No conflict exists among the circuits as to whether a
trademark owner must establish actual harm to its goodwill
in a gray market goods case. Once again, the issue of
whether a trademark owner must establish actual harm to
goodwill was not addressed by the Federal Circuit in the
proceeding below; thus, the Federal Circuit's opinion could
not be in conflict with the holdings of other circuits on this
issue. Because no conflict was created on this issue, SKF
USA’s request for certiorari has no basis.

SKF USA mischaracterizes the Federal Circuit's decision
in arguing that it created a conflict among the circuits by
requiring that a trademark owner show that gray market sales
“further diminish” the value of the mark if it cannot establish
that “all or substantially all” of its goods are accompanied by
the characteristics it claims as material differences. Pet. 12.
Nowhere in its opinion did the Federal Circuit impose a
“further diminishment™ requirement on SKF USA.

The issue of “further diminishment™ arose when SKF
USA itself argued to the Commission that the Second Circuit
non-gray market quality control case of Warner-Lambert
Company v. Northside Development Corporation, 86 F.3d 3
(2d Cir. 1996), stood for the proposition that if a trademark
owner itself sells non-conforming products, it can. still
prevent an alleged infringer from selling similarly non-
conforming products, as long as the number of non-
conforming sales by the trademark owner is de minimis. See
Pet. App. 19a. The Commission rejected this argument.
holding that Warner-Lambert does not stand for such an
assertion. Pet. App. 93a. Indeed, there is no mention in the
Second Circuit's opinion in Warner-Lambert of the phrase

11

“de minimis.’ Rather. the Second Circuit held that even if
some non-conforming goods “survive” a mark holder's
quality control procedures and enter the marketplace, the sale
of additional nonconforming goods by another can further
devalue the trademark: however, to be entitled to relief, a
trademark holder who sells nonconforming goods must show
that the later sales measurably diminish the value of an
already partially devalued mark. Pet. App. 94a.

The Commission held that despite its attempts to rely on
Warner-Lamberi, the case was of no use to SKF USA
because SKF USA provided no evidence that sales of the
gray market bearings reduced the value of its trademarks
beyond the diminution resulting from its own non-
conforming sales. Pet. App. 95a. The Commission never
ruled that SKF USA was required to show that gray market
sales “further diminished” the value of its mark or even that
Warner-Lamberi was applicable in a non-quality control
case, but instead, simply ruled that SKF USA’s attempts to
rely on Warner-Lambert could not succeed because SKF
USA could not meet the test set forth in that case.

Likewise, the Federal Circuit never imposed a purported
“further diminishment” requirement on SKF USA. Nowhere
in its opinion did the Federal Circuit state that SKF USA
must show that the gray market sales “further diminish” the
value of its marks. Rather. the Federal Circuit explicitly held
that the Commission did not require proof of further
Jminishment, and correctly applied the material differences
standard. Pet. App. 19a. Accordingly, the Federal Circuit's

* Even if Warner-Lambert exempted de minimis sales of non-conforming
goods from consideration under the material differences test, an issue
which the case does not purport to address. SKF USA’s sales of non-
conforming bearings could not be considered de minimis. As stated
above, SKF has sold hundreds of millions of dollars worth of non-
conforming bearings in the United States.

decision below has not created any conflict with respect to
this issue.

SKF USA also mischaracterizes the decisions of other
circuits in an effort to create a non-existent conflict. The
Fourth Circuit case it cites does not hold that actual loss is
required to state a Lanham Act claim, but simply holds that
in the absence of an actual loss, it is within the court's
discretion whether to award monetary damages. Shel/ Oil
Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 108 (4"
Cir. 1991).’ Likewise. the Third Circuit case cited by SKF
USA is equally distinguishable. It concerns a quality control
case, similar to Warner-Lambert, discussed above, and
stands for the same proposition set forth in that case.
Specifically, in quality control cases, to establish the
existence of “material differences.” it must be shown that the
quality control procedures established by the trademark
owner are likely to result in differences between the products
such that consumer confusion regarding the sponsorship of
the products could injure the trademark owner’s goodwill.
Iberia, 150 F.3d at 304. The fact that this Third Circuit case
is consistent with the Second Circuit case of Warner-
Lambert, and even cites Warner-Lambert, refutes SKF
USA’s contention that there is some conflict between those
circuits.

D. There Is No Conflict Regarding Whether “All or
Substantially All” of the Goods Must Be
Materially Different.

Once again, SKF USA’s assertions regarding this
purported conflict are riddled with inaccuracies. First, as
explained above, while the Federal Circuit did apply an “all

' Moreover, given that damages are not available in Section 337
investigations, the Federal Circuit decision below could not possibly
create a conflict on damages issues.

ee
tyJ

or substantially all” requirement, it did not, as SKF USA
argues (Pet. 12-13), impose a “further diminishment’
criterion.” The Federal Circuit made quite clear that no such
“further diminishment™ requirement was ever applied in this
case.

Second, SKF USA _ mischaracterizes the “all or
substantially al.” requirement imposed by the Federal
Circuit. Specifically, SKF USA argues that this standard
requires that “all but one of the trademark owner's
authorized goods [] be materially different.” Pet. 13. It is
inexplicable how SKF USA could interpret the “all or
substantially all” requirement to mean “all but one.” as the
Federal Circuit explicitly stated that the “all or swhstantially
all” requirement “recognizes that something less than 100%
compliance will suffice and certainly permits a small amount
of nonconforming goods.” Pet. App. 18a-19a. (emphasis in
original). The Federal Circuit never states that “all but one”
of the trademark owner's goods must contain the material
difference. Instead. the opinion makes clear that the inquiry
of how many goods constitute “all or substantially all” is
highly fact specific. See id.

Third. SKF USA incorrectly argues that the imposition of
the “all or substantially all” requirement somehow creates a
conflict among the circuits because “[n]one of the other
circuits has established a quantification requirement for
noncontformity in gray market imports.” Pet. 13.

To the extent that there may be any conflict among the
circuits with respect to quantification, however, such conflict
has already been resolved in SKF USA’s favor. In Martin's
Herend, the plaintiff had itself imported certain products that
it later sought to prevent the defendant from importing. The
Fifth Circuit held that “|a]s long as plaintiffs have ever
approved a piece for importation and sale in this country.
{the defendant] is free to sell any individual piece of the

14

same quality from the same product line.” 112 F.3d at 1304.
The Federal Circuit here. however, held that it would “not go
so far as Martin's Herend to hold that the sale of even one
authorized item lacking a material difference defeats
infringement.” and instead adopted the “all or substantially
all” standard, under which a “single sale of a nonconforming
item typically should not defeat a trademark owner's
protection.” Pet. App. 18a-19a. Not surprisingly, SKF USA
does not rely on, or even acknowledge, this apparent
difference between the Fifth Circuit and the Federal Circuit,
a difference that could only have benefited SKF USA and
provides no basis for review of the decision below.'°

Other than Warner-Lambert, which SKF USA once
again mischaracterizes,’' SKF USA points to no other circuit

‘’ Because SKF USA could not mect the more lenient test applied by the
Federal Circuit, it is obvious that SKF USA could not meet the more
stringent standard applied by Martin's Herend. Accordingly, to the
extent that there is any conflict between the Federal Circuit and the Fifth
Circuit, the resolution of the conflict could not change the outcome of
this case. This Court “reviews judgments, not statements in opinions,”
Black vy. Cutter Laboratories, 351 U.S. 292, 297 (1956), and does not
“decide questions that cannot affect the rights of litigants in the case
before them.” Lewis v. Continental Bank Corp., 494 U.S. 472, 477
(1990) (internal quotations omitted).

'' SKF USA seeks to portray Warner-Lambert as creating a conflict by
suggesting that the Second Circuit held that 4.4% non-conforming
product could be ignored under the material differences test. Pet. at 13.
There is no such holding in Warner-Lambert. Initially, Warner-Lambert
(which SKF USA has elsewhere argued is inapplicable) is not a gray
market case, did not apply the material differences test. and involves
quality control issues, not post-sale technical services. In any event. as
discussed above, Warner-Lambert did not exempt the 4.4% non-
conforming sales from consideration, but rather held that such sales did
not automatically bar plaintiff's claim and that plaintiff could still prevail
if it could show that defendant’s non-conforming sales diminished the
value of its trademark above and beyond the diminishment caused by
plaintiff's own non-conforming sales. It ts further clear that Warner-
Lambert was not holding that a 4.4% test would be applicable in all

15
as having addressed the issue of how much non-conforming
product will preclude a gray market trademark infringement
claim based on alleged material differences. The absence of.
other authority is perhaps not surprising. because most gray
market cases have involved physical differences. In such
cases, the authorized products typically have all contained
the claimed feature. so there has been no need to articulate or
apply a requirement such as the “all or substantially all”
requirement. ~ See, ¢.g., Nestle, supra."* By contrast, this

cases; rather, its willingness to consider an infringement claim
notwithstanding the 4.4% mon-conforming sales was based on the
particular facts and circumstainces of the case.

'* A recent exception to this observation is Bourdeau Bros., Inc. vy.
International Trade Commission, 444 F.3d 1317 (Fed. Cir. 2006), in
which the United States trademark owner, Deere & Co., alleged that
Bourdeau’s importation and sale in the United States of forage harvesters
that had been manufactured solely for sale in Europe violated Section
337 of the Tariff Act. The Commission found infringement based on
material physical differences between the forage harvestors sold by
Deere & Co. and the Europe:an forage harvestors sold by Bourdeau (i.¢.,
differences in safety features. differences in warning labels and safety
decals, differences in the hitch mechanism, differences in the operator's
manuals). The Federal Circuit agreed that such differences would be
material, but noted that Bourrdeau had argued to the ALJ and the court
that Deere itse/f sold Europeian forage harvesters in the United States. It
remanded the case to determine whether the material differences standard
was satisfied in light of such sales. If Deere could establish that the
number of nonconforming products sold in the United States was “so
small that substantially all mf Deere’s sales in the United States were of
North American forage harvesters, such that substantially all of the
authorized sales were of goods bearing the asserted material differences.”
Deere would prevai. in satisfying the “material differences” standard. /d
at 1327. .

’ Nestle’s chocolate differed from the gray market chocolate. which was
manufactured in Venezuela, with respect to the packaging, composition.
shape. price, and quality control. Nestle, 982 F.2d at 635. All of the
chocolate sold or offered for sale in the United States by Nestle differed
from the gray market chocollate in these respects: thus. the only question
to be answered was whether these differences were material, ie¢., whether
consumers would likely comsider these differences to be relevant when

16

case involves only non-physical differences, a circumstance
other circuits have not had occasion to address. See Pet.
App. 6a, 49a.

Physical features of a product will typically remain part
of a product when it reaches the ultimate consumer,
regardless of the number of times it is sold. By contrast,
when dealing with non-physical features, such as post-sale
services, trademark owners must take additional steps to
ensure that the non-physical features accompany the product
through all levels of sale and resale down to the ultimate
consumer. Only by doing so can the feature be considered
an integral part of the product and a basis for claiming that a
product without the post-sale services or other non-physical
feature is materially different. Accordingly, when dealing
with only non-physical differences, it is more likely that
some of the trademark owner’s goods may not be
accompanied by the non-physical characteristics that are
claimed to constitute material differences, particularly
where, as here, the trademark owner intentionally sells
product in some sales channels without accompanying
services. It was thus appropriate and hardly surprising that
the Federal Circuit needed to articulate a test addressing the
impact of non-conforming sales on the material differences
standard. The test that it articulated was appropriate and
consistent with the purposes of trademark law, as discussed
below. No other circuit, however, has addressed the
application of the material differences test to a case
involving only non-physical differences. Therefore. by
definition there can be no inter-circuit conflict at this point as
to how the test should apply in that context.

purchasing the chocolate. 982 F.2d at 638 (holding that “the record is
pellucid that Nestle never authorized the sale of Venezuelan-made
chocolates in Puerto Rico”).

17-

Il. THE FEDERAL CIRCUIT’S DECISION DOES
NOT UNDERMINE TRADEMARK OWNERS
AND THE PUBLIC’S PROTECTION AGAINST
GRAY MARKET INFRINGEMENT

SKF USA's attempt to appeal to purported public policy
concerns is high on rhetoric and low on substance. While
concerns regarding materially different gray market goods
may be valid, the Federal Circuit's opinion in this action has
done nothing to heighten or exacerbate such concerns.

A. The “All or Substantially All” Standard Does
Not Ignore Realities of Consumer Markets or
the Protection of Consumer Expectations.

SKF USA argues that the Federal Circuit's “all or
substantially all” standard is impossible for a trademark
owner to satisfy because “even the most conscientious and
scrupulous trademark owners . . . cannot prevent
nonconforming trademarked goods from ever entering the
stream of commerce.” Pet. 14. Once again, SKF USA
mischaracterizes the Federal Court’s decision.

This action does not involve a “conscientious and
scrupulous” trademark owner who implemented the most
“rigorous and demanding manufacturing. -distribution, and
service procedures.” ret, 14. Instead. SKF USA
intentionally chose to sell Aundreds of millions of dollars of
bearings that were not accompanied by its post-sale technical
support. This case is thus entirely distinct from the quality
control cases relied on by SKF USA, which acknowledge the
practical reality that, despite the lapses one must realistically
expect under even the most rigorous quality controls, a
trademark owner nonetheless has the right to protect the
quality controls it consistently implements with respect to all
or substantially all of its products. Not only do the cases
cited by SKF USA not involve the purposeful nonconformity

18

involved here. they do not support the notion that a
trademark owner can establish the existence of material
differences based on procedures it has chosen not to apply.
See Pet. 15 (citing Philip Morris, Inc. vy. Allen Distributors,
Inc., 48 F. Supp. 2d 844, 848 (S.D. Ind. 1999); RJ. Reynolds
Tobacco Co. 57 U.S.P.Q.2d at 1255; El Greco Leather
Prods. Co. v. Shoe World. Inc., 806 F.2d 392, 395 (2d Cir.
1986)). In effect. SKF USA has chosen to sell two products
— one with services and one without — yet wishes to be free at
the same time to claim that others are selling a materially
different product when they import and sell the second
product.

SKF USA argues that the Federal Circuit’s “all or
substantially all” standard is impracticable in the context of
non-physical differences where the nonconforming nature of
the sales is intentional. Pet. 15. For example, SKF USA
argues that a manufacturer of a guitar may offer extensive
warranties to nearly all of its customers, but agree not to
offer such warranties to rock musicians who use guitars in a
destructive manner. Pet. 15. What SKF USA fails to
acknowledge 1s that the material difference standard entails a
comparison of authorized products to unauthorized products
— regardless of the channels of trade through which those
products may have traveled on their way to the ultimate
consumer. See Pet. App. 22a. 63a (rejecting SKF USA’s
channels of distribution argument); Gamut, 200 F.3d at 779.
Nothing in gray market precedent supports the exemption of
certain channels of trade or certain classes of consumers
from the material differences inquiry where a trademark
owner purposefully chooses not to offer services."

'* Moreover, the underpinning of SKF USA’s argument that it could treat
different sales channels differently was its claim = that consumers
purchasing in different channels had different expectations as to what, if
any, post-sale technical services they would receive. As the Federal

19

SKF USA‘*s argument that the Commission should have
ignored its non-conforming product sold in certain sales
channels in the United States is disingenuous in fight of the
relief it seeks under Section 337. SKF USA has asked for a
general exclusion order that would block a// unauthorized
imports of SKF bearings. without regard to whether such
bearings would be resold in channels in which consumers
allegedly did not expect the claimed post-sale services that
SKF USA asserted were a material difference. There is no
authority to support this proposition, much less a conflict
among the circuits.

SKF USA also argues that the Federal Circuit's “all or
substantially all” standard conflicts with “fundamental tenets
of the trademark law directed to protecting the expectations
of average consumers.” Pet. 16. Contrary to SKF USA's
contention, the “all or substantially all” requirement is
consistent with the protection of consumer expectations. In
enacting the Lanham Act to protect consumers, lawmakers
recognized that “|e]very product is composed of a bundle of
characteristics . . . Consumers who purchase a_ particular
product expect to receive the same special characteristics
every time.” See Davidoff, 263 F.3d at 1301 (internal
citations omitted). Thus. “when a product identical to a
domestic product is imported into the United States under the
same mark, no violation of the Lanham Trade-Mark Act

vecurs . . . In such a situation, consumers get exactly the
bundle of characteristics that they associate with the
mark....° See Nestle, 982 F.2d at 641 (emphasis in

original). If less than “substantially all” of a trademark
owner's products are sold without being accompanied by a
certain characteristic, which, in this case. constituted sales

Circuit and the Commission noted in the proceedings below, however,
SKF USA failed to establish that purchasers of SKE bearings in the
“alternate channels of trade” had any such different expectations. Pet.
App. 21a. 80a, 86a-88a.

20

totaling hundreds of millions of dollars, the trademark owner
cannot argue that this characteristic is included in the
“bundle” that consumers expect to receive every time.

B. The “All or Substantially All” Standard Does
Not Undermine The Remedy Against Gray
Market Imports, But Rather Ensures That Such
a Remedy Is Appropriate.

SKF USA argues that the importation of gray market
goods demands a unique legal solution, namely, in rem
actions under Section 337, and contends that the Federal
Circuit's decision endangers the exclusion remedies
available under Section 337. Pet. 18-19. Respondents agree
that in rem actions and remedies under Section 337(d)(2) of
the Tariff Act of 1930, 19 U.S.C. §1337(d)(2) are unique, in
that they allow trademark owners to prevent importation by
all others of entire classes of genuine products. These
remedies are not appropriate, however, when the subject
products are identical to products sold by the trademark
owner itself.

Indeed, as noted above, SKF USA here sought a general
exclusion order under Section 337 against a// imports of
unauthorized SKF bearings, regardless of whether those
bearings were to be sold in channels where SKF USA itself
did not offer post-sale technical support. Thus, SKF USA
sought to exclude bearings identical to hundreds of millions
of dollars of bearings SKF USA itself has sold in the United
States. Before a party is permitted to obtain the extreme
relief under Section 337 of excluding imports of all
unauthorized goods, it should be required to prove that the
gray market goods are materially different from “all or
substantially all” of the authorized goods sold by the
trademark owner. To allow otherwise would be to disregard
consumer expectations in favor of providing trademark
owners with an exclusive distributorship. Accordingly, SKI

21

USA’s contention that the Federal Circuit’s decision
somehow endangers exclusion remedies under Section 337 is
simply incorrect. To the contrary, it ensures that these
remedies comport with the goals of the Lanham Act.

CONCLUSION
The Petition fora writ of certiorari should be denied.

Respectfully submitted.

/s/ Steuart LH. Thomsen
Patricia B. Cunningham — Steuart H. Thomsen

SUTHERLAND ASBILL & Counsel of Record
BRENNAN LLP SUTHERLAND ASBILL &

999 Peachtree St., NE BRENNAN LIP

Atlanta, GA 30309 1275 Pennsylvania Ave., N.W.

(404) 853-8000 Washington, D.C. 20004-2415

(202) 383-0100

Counsel for Respondent Bearings Limited

Lyle B. Vander Schaaf
BRYAN CAVE LLP

700 Thirteenth Street, N.W.
Suite 700

Washington, D.C. 20545
(202) 508-6191

Counsel for Respondent McGuire Bearing Company

May 26, 2006

/ FILED
: JUN 1~ 2006
}

eee cert,

No. 05-1236 | § eu coues oe

IN THE

Supreme Court of the United States

SKF USA Inc.,
Petitioner,
v.

INTERNATIONAL TRADE COMMISSION, BEARINGS LIMITED,
and McGuire BEARING CoMPANY,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

REPLY BRIEF
BENNETT EVAN COOPER HERBERT C. SHELLEY
STEPTOE & JOHNSON LLP Counsel of Record
Collier Center ALICE A. KIPEL
201 East Washington Street STEPTOE & JOHNSON LLP
Suite 1600 1330 Connecticut Ave., N.W.
Phoenix, AZ 85004-2382 Washington, D.C. 20036
(602) 257-5200 (202) 429-8146

Counsel for Petitioner

i
RULE 29.6 STATEMENT ~

No change has occurred with regard to the disclosure
statement made on page ii of Petitioner’s Petition For A Writ
of Certiorari.

ii

TABLE OF CONTENTS
Page
TARA AAT ERO btininicsscniceieicanticinabigibaae ili
SUE rea Mek TRS ec shsid cchhndniaieavuisavisaeesbinsce asaaninbanoneasiioe ]

I. THE FEDERAL CIRCUIT’S STANDARD
CREATES A PRONOUNCED CONFLICT WITH
OTHER CIRCUITS’ APPROACHES... 2

A. The “All or Substantially All”
Requirement Alone Justifies this Court’s

ATI LCR TA ETE HIER EF 2
B. Other Aspects of the Federal Circuit’s
Standard Broaden the Conflict. ....................... 6

Il. THIS CASE PRESENTS THE APPROPRIATE
VEHICLE TO RESOLVE THE CONFLICT......... 8

CA FIG BAe ION sinvnicscsscnicdsneqaitbvipnetinnn kanes coiueeb tenet sae ABMaEES 10

ill

TABLE OF AUTHORITIES
Page
CASES

Bourdeau Bros., Inc. v. International Trade

Commission, 444 F.3d 1317 (Fed. Cir. Mar.

PR EE Cisishb iia ncdackehinc alin hineui akadniibiaasins 1,10
El Greco Leather Prod. Co. v. Shoe World, Inc., 806

dl ee a Ae OEE chee tcistin ssi dacceanisnudansadansacalots 6
Iberia Foods Corp. v. Romeo, 150 F.3d 298 (3d Cir.

PINs. ink sctisivesDinisdacddieamnidicssicesbecoakoauicinnue toes 4,5, 6
Martin's Herend Imports, Inc., v. Diamond & Gem

Trading USA, Co., 112 F.3d 1296 (Sth Cir.

WTB akinécsihnccetsaesgaeiiasicds aks niaca eatin reeks 6,9
Monsanto Co. v. Haskel Trading, Inc., 13 F. Supp. 2d

Re CELEBS: © FED See Nestle, 982 F.2d at 640 (“A showing that the alleged infringing
product suffers in quality is not necessary to prove a Lanham Trade-Mark
Act violation.”); El Greco Leather Prod. Co. v. Shoe World, Inc., 806 F.2d
392, 395 (2d Cir. 1986) (“the actual quality of the goods is irrelevant’’);
Iberia Foods, 150 F.3d at 304 (citing El Greco); Shell Oil Co. v.
Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir. 1991) (same);
Martin’s Herend Imports, Inc., v. Diamond & Gem Trading USA, Co., 112
F.3d 1296, 1302 (Sth Cir. 1997) (agreeing with Nestle’s approach). -

7

Act on its head.” Monsanto, 13 F. Supp. 2d at 356-57
(quotation omitted). Moreover, the First Circuit recognized in
Nestle that “(t]he Lanham Act contains no...proof-of-injury
requirement. By its very nature, trademark infringement
results in irreparable harm because the attendant loss of
profits, goodwill, and reputation cannot be satisfactorily
quantified....Hence, irreparable harm flows from an unlawful
trademark infringement as a matter of law.” 982 F.2d at 640
(citation omitted).

In a similar light, Respondents offer an unsupportable
reading of the Fourth Circuit’s opinion in Shell Oil Co. v.
Commercial Petroleum, Inc., 928 F.2d 104 (4th Cir. 1991).
The Government claims that the Fourth Circuit “held only
that district courts have discretion to refuse to award damages
in the absence of actual loss,” and that Petitioner quoted “the
court’s description of the litigant’s argument” rather than the
court’s holding. Govt. Br. at 11 & n.1. To the contrary, the
Fourth Circuit cited the district court’s holding that, despite
the infringement, “the evidence does not show any damages
suffered by Shell and none will be assessed,” and held that
“we do not believe that [the district court] misinterpreted the
requirements for awarding damages.” 928 F.2d at 108
(emphasis added). The Fourth Circuit’s discussion of the
district court’s discretionary equitable power to award
damages without proof of actual loss did not concern injury to
the trademark owner’s good will, but instead restitution of the
“infringer’s profits.” /d. Accordingly, the court effectively
concluded, as recognized by the plaintiff and quoted by
Petitioner, “that a finding of actual loss[] is a prerequisite to
an award of damages.” Jd. Damages, of course, are not
relevant in a Section 337 action, and do not go to the issue of
infringement.

Indeed, the Federal Circuit’s second prong effectively
undoes Congress’s explicit elimination of a requirement that
the complainant prove injury or harm. Such a requirement
existed in gray market Section 337 cases before the enactment

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0626%3A4. Public record. Not legal advice.