IP and Gray Market Goods Flashcards
Problem 7-6
- It is mostly consistent with Article 50. Art 50 requires provisional measures can be granted to stop infringement or preserve evidence. To be fully compliant it would need to use the measures detailed in the rticle.
Effectiveness depends on how fast the courts act- delayed notice/hearings could undermine the ability to prevent further piracy, especially in cases where swift action is needed to stop distribution of pirated goods.
- Article 50 doesn’t require proof of irreperable harm. The need to demonstrate it may cause delays or limit access to provisional measures which would conflict with the TRIP objective of expeditious remedies.
Proving irreperable harm can be challenging as in piracy cases it may not be quantifiable which could weaken the effectiveness of the law.
- Consistent with Art 50. allows judicial authorities to require security or equivalent assurance to protect the defendant from potential abuse of provisional measures.
excessive bond amounts could discourage plaintiffs from seeking injunctions, thereby reducing the law’s deterrent effect against piracy.
- Article 50 permits provisional measures to remain in effect until a final decision is made, provided the defendant has the opportunity to be heard. Allowing the preliminary injunction to continue during the trial is consistent with TRIPs, as long as procedural fairness is upheld.
Continuation of the injunction during the trial helps prevent further acts of piracy while the case is being resolved. This feature supports effective enforcement and acts as a strong deterrent to potential infringers.
TRIP ARTICLE 50
Article 50
1.
The judicial authorities shall have the authority to order prompt and effective provisional measures:
(a)
to prevent an infringement of any intellectual property right from occurring, and in particular to prevent the entry into the channels of commerce in their jurisdiction of goods, including imported goods immediately after customs clearance;
(b)
to preserve relevant evidence in regard to the alleged infringement.
2.
The judicial authorities shall have the authority to adopt provisional measures inaudita altera parte where appropriate, in particular where any delay is likely to cause irreparable harm to the right holder, or where there is a demonstrable risk of evidence being destroyed.
6.
[P]rovisional measures taken on the basis of paragraphs 1 and 2 shall, upon request by the defendant, be revoked or otherwise cease to have effect, if proceedings leading to a decision on the merits of the case are not initiated within a reasonable period, to be determined by the judicial authority ordering the measures where a Member’s law so permits or, in the absence of such a determination, p. 628not to exceed 20 working days or 31 calendar days, whichever is the longer.
7.
Where the provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by these measures.
What are the three principal forms of IBTs discussed?
Agency/distributorship, licensing/contract manufacturing, foreign direct investment (FDI)
These forms involve different levels of access to intellectual property rights.
How do IBTs differ from international sales/export-import transactions regarding IP issues?
IBTs generally require greater access to intellectual property rights, creating greater risks for foreign investors
IP issues arise less frequently in traditional sales transactions.
What legal procedures must a U.S. corporation undertake to protect its IP abroad?
Filing and registration requirements for its IP
This includes structuring licensing and FDI transactions through contracts.
What is commercial piracy?
Unauthorized copying of copyrights, trademarks, patents, and trade secrets
It poses significant problems for IP owners.
What has contributed to the rise of commercial piracy?
Growing importance and value of IP, leading to lucrative criminal activity
This includes the rise of information, knowledge, and know-how in business.
What is the estimated global trade in counterfeit goods as of the OECD’s recent study?
Surpassed U.S. $509 billion
This represents over 3 percent of world trade.
List some indirect effects of commercial piracy on G20 countries.
- Loss of government tax revenue
- Impact on welfare spending
- Increased costs of crime enforcement
- Increased costs of health services
These effects can cost an additional $125 billion.
What is a significant factor contributing to the rise of commercial piracy?
Access to materials and technology
This includes the availability of inexpensive, high-quality copy technology.
What role does the Internet play in copyright piracy?
Facilitates the downloading of copyrighted materials and enables mass copying at low costs
Examples include copying movies using handheld digital cameras.
How has the importance of trademarks and brands influenced commercial piracy?
Increased competition leads to higher spending on advertising, making brands more valuable and thus more appealing to counterfeiters
Branding has become essential as products become indistinguishable in quality.
What is the relationship between FDI and technology transfer?
FDI leads to unprecedented rates of technology transfer and access to intellectual property
This also creates risks of unauthorized use of technology.
What is biopiracy?
Attempts by MNEs to obtain IP in forms of traditional knowledge without sharing profits with indigenous countries
This term highlights ethical concerns regarding the use of genetic resources.
Fill in the blank: Commercial piracy encompasses _______.
copyright piracy, trademark counterfeiting, and patent infringements
What is copyright piracy?
Copyright piracy refers to the unauthorized copying of a fixed content of a medium of expression such as books, films, musical recordings, and computer software.
How does copyright piracy differ from copyright infringement?
Copyright piracy involves the exact duplication of a copyrighted work, while copyright infringement refers to the partial copying of a work.
What are the potential consequences of copyright piracy?
Copyright piracy may be a criminal offense and does not involve a legitimate business dispute.
Why do consumers often purchase pirated products?
Many consumers knowingly purchase pirated products because they want the content and are not concerned about the lack of authorization from the copyright owner.
What was the estimated commercial value of global software theft in 2017 according to the Business Software Alliance?
$46 billion.
What annual losses does music piracy cause to the U.S. economy according to the RIAA?
$12.5 billion.
What is the piracy rate for PC software in the United States as of 2017?
15 percent.
Which country had the highest piracy rate for software in 2017?
China with a piracy rate of 66 percent.
What is the piracy rate for developing countries compared to developed economies as of 2011?
68 percent for developing countries compared to 24 percent for developed economies.
What region had the highest piracy rate in 2017?
Central and Eastern Europe and Asia Pacific at 57 percent.
What is trademark counterfeiting?
Trademark counterfeiting refers to the unauthorized act of producing and passing off exact duplicates of authentic products with trademarks owned by another party.
What types of products can be affected by trademark counterfeiting?
Counterfeit products can include consumer goods, industrial products, agricultural products, food, and drugs.
What is the estimated global economic value of counterfeit and pirated goods by 2022 according to the International Chamber of Commerce?
$2.3 trillion.
Why is consumer deception a serious issue in trademark counterfeiting?
Counterfeiters often attempt to pass off their products as genuine, which can mislead consumers.
What is a significant health risk associated with counterfeit goods?
Counterfeit goods can be of inferior quality and may cause harm, such as counterfeit medicines leading to health risks.
What attracts criminal organizations to commercial piracy, particularly counterfeiting?
High profits and the relatively low-risk nature of the crime.
How do counterfeiters distribute their products in the market?
Counterfeiters identify weak links in distribution networks to sell counterfeit products alongside genuine goods.
What is the maximum jail sentence for counterfeiting under the Trademark Counterfeiting Act of 1984?
Ten years in prison.
What is a significant challenge for law enforcement in combating counterfeiting?
The sheer volume of shipping containers arriving daily makes it impossible to inspect every container.
What are patent infringements?
Patent infringements refer to the unauthorized copying of a registered patent.
Why are patent infringements particularly complex?
They often involve detailed scientific and technical analysis.
What is the estimated cost of research and development for each new pharmaceutical product?
Over $2.5 billion.
What methods do MNEs use to calculate the level of commercial piracy?
MNEs calculate demand through market surveys and compare it to the amount of genuine product shipped.
How do MNEs determine losses from commercial piracy?
They often assume that the presence of a pirated product equals a lost sale of a genuine product.
Fill in the blank: The bulk of the total worldwide losses caused by commercial piracy can be attributed to _______.
trademark counterfeiting.
True or False: Patent infringements are usually grouped with other forms of commercial piracy.
False.
What assumption do MNEs often make regarding pirated products?
The mere presence or availability of a pirated product equals a lost sale of a genuine product at retail price.
How do MNEs calculate losses from counterfeit products?
They claim that the amount of pirated products valued at the retail price of the genuine product represents their losses.
If 20% of shampoo on the market is counterfeit and total sales are $100,000, what do MNEs claim their losses are?
$20,000.
What is the price difference between a genuine bottle of shampoo and a counterfeit bottle in the example given?
Genuine shampoo costs $8, counterfeit costs $2.50.
What do MNEs claim for each purchase of a pirated product?
It represents the loss of a sale of a genuine product.
Do some MNEs believe that piracy can be beneficial?
Yes, particularly during the early stages of a product’s introduction in a developing market.
Why might piracy be considered beneficial in developing markets?
It provides access to products where legitimate distribution systems are lacking.
What do pirated products rely on to reach consumers in developing markets?
Underground channels and illegal distributors.
What is the impact of pirated products on brand recognition in developing markets?
They can create brand and name recognition for the IP owner.
What do established distribution systems help prevent?
The proliferation of counterfeits and pirated products.
Why are consumers more likely to purchase counterfeits?
When legitimate products are not available.
What do brand owners prioritize to control counterfeits in developing countries?
Developing distribution channels.
What are ‘soft spots’ in the market?
Areas where logistical problems prevent distribution of genuine products.
In which regions is there often no market for genuine products, leading to a flourishing market of pirated goods?
Least developed countries in Eastern Europe and Asia bordering China.
Fill in the blank: MNEs often claim that a lost sale occurs for each _______ that is purchased by a consumer.
pirated or counterfeit product.
True or False: Pirated products can sometimes help establish a market for genuine products.
True.
What is the main focus of Chapter Five regarding TRIPs?
The impact of TRIPs on the enforcement and protection of IP rights against commercial piracy and other types of infringements
What are the obligations of WTO members under Part III of TRIPs?
To enact laws specifically directed against commercial piracy and to comply with enforcement obligations
What was a major triumph of the Uruguay Round of negotiations?
The inclusion of intellectual property rights within the world trade framework through TRIPs
What does TRIPs require from WTO members regarding domestic IP legislation?
To enact domestic IP legislation that complies with the minimum standards established by TRIPs
By when did developed countries have to comply with TRIPs?
By January 1, 1996
What additional time was given to developing countries for patent protection for pharmaceuticals under TRIPs?
An additional five years from January 1, 1996, until January 1, 2006
What is one of the main criticisms of TRIPs?
It imposes Western-style IP laws on developing countries with different cultural traditions
True or False: TRIPs is considered a self-executing treaty.
False
What is a significant issue regarding the enforcement of IP laws globally?
The problem is not with the existence of IP laws but with their effective enforcement
What organization administers the Paris Convention and the Berne Convention?
World Intellectual Property Organization (WIPO)
What does TRIPs allow member nations to do if another member fails to enforce IP laws?
Bring a complaint within the WTO dispute settlement system and potentially impose tariffs on other sectors
Fill in the blank: TRIPs standards are premised upon the values of _______.
free-market capitalism
What cultural perspective complicates the enforcement of TRIPs in developing countries?
The emphasis on communal ownership of knowledge and information
What must developing countries do to effectively enforce TRIPs-compliant IP laws?
Develop social and legal institutions that support such enforcement
How have advanced industrialized countries historically pressured developing countries regarding IP laws?
To adopt Western-style IP laws and implement the rule of law
What was the deadline for least developed countries to comply with TRIPs?
Initially January 1, 2006, extended to July 1, 2013, and then to July 1, 2021
What is the relationship between TRIPs and access to medicines?
TRIPs has special provisions for pharmaceuticals due to the controversy over access to medicines
What was the criticism regarding the enforcement of TRIPs in developing nations?
The expectation for full enforcement without the necessary supporting institutions
True or False: WIPO has significant enforcement power over IP treaties.
False
What do Members need to ensure according to Article 41 of TRIPs?
Members shall ensure that enforcement procedures are available under their law to permit effective action against any act of infringement of intellectual property rights covered by this Agreement.
This includes expeditious remedies to prevent infringements and remedies that deter further infringements.
What are the requirements for enforcement procedures under TRIPs?
Procedures concerning the enforcement of intellectual property rights shall be fair and equitable, not unnecessarily complicated or costly, and shall not entail unreasonable time-limits or unwarranted delays.
This is specified in Article 41, paragraph 2.
What authority do judicial authorities have under Article 45 of TRIPs?
Judicial authorities shall have the authority to order the infringer to pay the right holder damages adequate to compensate for the injury suffered.
This is to ensure that the right holder is made whole for any infringement.
What procedures must Members adopt according to Article 51?
Members shall adopt procedures to enable a right holder to lodge an application for the suspension by customs authorities of the release of counterfeit or pirated goods.
This applies when there are valid grounds for suspecting the importation of such goods.
What does Article 61 require from Members regarding criminal procedures?
Members shall provide for criminal procedures and penalties for willful trademark counterfeiting or copyright piracy on a commercial scale.
Remedies may include imprisonment, monetary fines, seizure, forfeiture, and destruction of infringing goods.
What measures does U.S. law provide for trademark and copyright owners?
U.S. law provides simple procedures for obtaining border enforcement measures against counterfeit and pirated copyright goods.
These procedures are defined in 19 C.F.R. Chap. 1, Part 133, Subparts C & D.
What is the process for U.S. Customs to seize counterfeit goods?
Counterfeit goods are subject to seizure at ports of entry by U.S. Customs under 19 C.F.R. § 133.21.
Customs has the authority to detain goods that infringe a registered U.S. trademark under § 133.22.
What must a trademark owner do for Customs to detain infringing goods?
The trademark owner must first record the trademark with Customs under the procedures set forth in §§ 133.1–133.4.
This is necessary for Customs to detain goods that infringe but do not counterfeit a registered U.S. trademark.
How does the process for copyrights differ from trademarks regarding Customs?
For copyrights, Customs will detain goods that infringe a registered U.S. copyright only if the owner has recorded the copyright with Customs under § 133.31.
Unlike trademarks, Customs does not distinguish between pirated and infringing copyright goods.
What happens to seized or detained goods according to U.S. Customs regulations?
Customs regulations contain procedures for the forfeiture and destruction of the goods or their release to the importer if the charges cannot be substantiated.
This ensures due process for the accused parties.
What is the statutory scheme that protects patent holders from unfair import competition?
Patent holders are protected under § 337 of the Tariff Act of 1930, codified as 19 U.S.C. § 1337.
This requires patent holders to obtain an exclusion order from the International Trade Commission.
What is a major problem faced by IP owners regarding counterfeiters?
Counterfeiters and pirates destroy evidence and flee at the first sign of trouble.
What does Part III of TRIPs require from its members?
Members must provide provisional (or temporary) measures against infringers.
Under which rule can a plaintiff apply for a seizure order in U.S. law?
Rule 65 of the Federal Rules of Civil Procedure.
What can a plaintiff apply for under Rule 65?
A seizure order for counterfeit, pirated, or infringing goods and a temporary restraining order (TRO).
What is a ‘John Doe’ TRO?
A TRO issued when the plaintiff cannot obtain the name and identity of the suspected offender.
What happens if a court grants a plaintiff’s application for a TRO?
The plaintiff can go to the premises of the suspected infringer with a federal marshal to serve the TRO and seize the goods.
What is a temporary restraining order (TRO) used for?
To prevent the defendant from engaging in additional illegal activity until the case is resolved.
What is usually the final resolution of a case involving true counterfeiting?
The entry of the TRO and the seizure of the goods.
What can happen if the parties agree to settle a case without a trial?
The court enters a consent decree.
What is a permanent injunction?
A court order that permanently bars the defendant from engaging in certain activities.
Why do many IP owners believe pretrial relief is essential?
To preserve the element of surprise and to obtain effective civil action.
What does Article 50 of TRIPs require regarding provisional measures?
It mandates features available under U.S. provisional measures.
Fill in the blank: Provisional measures allow a brand owner to immediately stop a _______.
counterfeiter from engaging in additional harmful conduct.
What is the main purpose of TRIPs in relation to pharmaceutical patents?
To address concerns about commercial piracy and counterfeiting by requiring patent protection for pharmaceuticals among WTO members.
Which countries initially refused to offer patent protection for pharmaceuticals before TRIPs?
Thailand and India.
Why did some developing countries justify not enacting patent laws for pharmaceuticals?
Public health needs required unrestricted access to essential medicines.
What is the territorial nature of patents?
A U.S. patent for a drug is only effective within the United States and requires a separate application in other countries.
What significant change did TRIPs bring to Thailand’s patent laws?
Thailand enacted a domestic patent law, allowing U.S. patent holders to receive patent protection for their drugs.
What are unauthorized copies of U.S. drugs in Thailand considered post-TRIPs?
Illegal.
What are the four main criticisms of TRIPs regarding access to medicines?
- Increased patent protection leads to higher drug prices
- Enforcement restricts local manufacturing capacity
- Discouragement of R&D for diseases prevalent in developing countries
- Pressure for ‘TRIPs plus’ protection beyond twenty years
What is a compulsory license under TRIPs?
A provision allowing host countries to override a patent for public health reasons.
What is the significance of Article 31 in the TRIPs Agreement?
It outlines conditions under which a member can use a patent without the right holder’s authorization.
True or False: The provision for compulsory licenses in TRIPs is viewed as sufficient by most critics.
False.
What event in the 1990s sparked significant controversy over access to medicines?
A lawsuit by multinational drug companies against the South African government regarding access to patented medicines.
What did the Doha Declaration emphasize regarding TRIPs and public health?
That the TRIPs Agreement should not prevent members from taking measures to protect public health.
What was the outcome of the U.S. action against Brazil regarding its patent law?
The U.S. withdrew its complaint due to international pressure.
What was recognized in paragraph 6 of the Doha Declaration?
The special problems faced by least developed countries regarding access to medicines.
What is the definition of a ‘pharmaceutical product’ as per the WTO General Council decision?
Any patented product or product manufactured through a patented process needed to address public health problems.
Fill in the blank: The Doha Declaration allows least-developed countries to grant a _______ to domestic companies for making inexpensive copies of medicines.
compulsory license.
What must an eligible importing member do to utilize the system set out in the WTO General Council’s decision?
Notify the Council for TRIPs of their intention to use the system.
What conditions must be included in a compulsory license granted by an exporting member?
- Only necessary amounts for eligible importing members
- Clear identification of products produced under the license
- Notification of the license grant to the Council for TRIPs
What is required if a member considers that measures to prevent diversion of products are insufficient?
The matter may be reviewed in the Council for TRIPs at the request of that Member.
What is biopiracy?
A practice where developing countries accuse MNEs and developed countries of stealing traditional knowledge and biological resources.
How does biopiracy subvert the patent system?
It converts commonly shared knowledge and traditions into private property for financial gain.
What is the main concern of indigenous tribes regarding biopiracy?
They are not compensated for the use of their traditional knowledge and resources.
What are the three elements required for a patent under U.S. patent law?
- Novelty
- Utility
- Non-obviousness
Why is traditional knowledge often not patentable under TRIPs standards?
It usually does not satisfy the novelty requirement as it has been publicly available for centuries.
What does Article 8(j) of the Convention for Biological Diversity require?
To respect, preserve, and maintain traditional knowledge of indigenous and local communities.
What is the Nagoya Protocol?
An international agreement to ensure fair and equitable sharing of benefits arising from genetic resources.
What must user nations affirm according to the Nagoya Protocol?
That they have obtained genetic resources with prior informed consent and under mutually agreed terms.
Is the United States a party to the Convention for Biological Diversity?
No, the United States is not a party to either the CBD or the Nagoya Protocol.
What is the difference between gray-market goods and parallel imports?
Gray-market goods are genuine products not intended for the U.S. market, while parallel imports involve authorized and unauthorized channels.
How might a gray-market good arise?
Through unauthorized imports of genuine products intended for foreign markets.
What is a common concern for U.S. manufacturers regarding gray-market goods?
They can undermine price discrimination strategies between different markets.
True or False: Gray-market goods are considered counterfeit products.
False.
What is one potential benefit of gray-market goods for consumers?
They offer lower prices and more choices.
Fill in the blank: The TRIPs Council is instructed to examine the relationship between the TRIPs Agreement and the ______.
[Convention on Biological Diversity]
What was the outcome of the Doha Ministerial Conference regarding traditional knowledge?
Recognition of the problem of traditional knowledge and instruction to examine its relationship with TRIPs.
What is one reason developing countries have concerns about biopiracy?
MNEs profit from their traditional knowledge without compensation.
What is a key challenge for traditional knowledge holders under TRIPs?
Lack of eligibility for patent protection.
What kind of products are considered gray-market goods?
Genuine products imported without the consent of the trademark owner.
What occurs when a U.S. company purchases the U.S. rights to a foreign trademark?
The U.S. company registers the mark as a U.S. trademark and begins to manufacture and sell the product in the U.S.
What is a gray market in the context of trademark rights?
A market where genuine goods are imported and sold without the consent of the trademark owner, leading to competition with authorized products
What are the two variants of affiliated companies under common ownership?
- A is a U.S. subsidiary of B, the foreign parent company
- A is a U.S. parent company with B as a foreign subsidiary
In a parent-subsidiary relationship, who typically owns the U.S. trademark?
The U.S. subsidiary (A) is the registered owner of the U.S. trademark.
What happens when a U.S. company licenses manufacturing abroad?
The foreign company imports the goods into the U.S. or sells them to a third-party distributor for import.
Prior to 1922, how did U.S. trademark law treat gray-market goods?
Gray-market goods were permitted free entry into the United States.
What was the outcome of the A. Bourjois & Co. v. Katzel case?
The Second Circuit allowed the importation of genuine goods, finding it was not trademark infringement.
What legislation did Congress enact in response to the Katzel case?
Congress enacted § 526 of the Tariff Act of 1922, which prohibited the importation of gray-market goods.
What does § 526 of the Tariff Act of 1922 require for importation of foreign manufactured goods?
Prior consent from a U.S. trademark owner is required.
What ambiguity exists regarding the ownership of trademarks under § 526?
It is unclear if the trademark is owned by a citizen of the U.S. when the foreign parent company owns the subsidiary.
How does § 526 relate to goods manufactured by a subsidiary of a U.S. parent company?
It is arguable that goods manufactured by the subsidiary are not considered goods of foreign manufacture.
What did the U.S. Customs Service do in response to the ambiguities in § 526?
Enacted regulations interpreting § 526 to result in a partial ban on gray-market goods.
What was the main issue in K Mart Corp. v. Cartier?
Whether U.S. Customs regulations recognizing a partial ban were a reasonable interpretation of § 526.
Fill in the blank: The classic gray-market goods case involves a U.S. company purchasing the U.S. rights to a foreign trademark and _______.
[registering the mark as a U.S. trademark]
K Mart Corp v Cartier
Facts:
This case involves the legality of importing gray-market goods—products legally made abroad that bear a valid U.S. trademark but are imported into the U.S. without the consent of the trademark owner. The U.S. Customs Service had promulgated regulations under § 526 of the Tariff Act of 1930 allowing such imports under certain exceptions, namely:
Common control (same parent company or affiliated entities).
Authorized use (a foreign manufacturer had permission to use the U.S. trademark abroad).
K Mart and 47th Street Photo supported these exceptions, while a group of U.S. trademark owners challenged the regulation’s validity. The district court upheld the regulation, but the appellate court reversed. The Supreme Court granted certiorari to resolve the split.
Issue:
Is the U.S. Customs Service regulation (19 C.F.R. § 133.21(c)) permitting the importation of certain gray-market goods a reasonable interpretation of § 526 of the Tariff Act of 1930?
Rule:
Under § 526 of the Tariff Act, it is illegal to import foreign-made goods that bear a trademark owned and registered in the U.S. by a U.S. company or citizen, unless the trademark owner’s written consent is provided. Agencies may issue reasonable interpretations of ambiguous statutory language, but they cannot override clear Congressional intent.
Application:
The Court found parts of § 526 ambiguous—specifically the phrases “owned by” and “merchandise of foreign manufacture.” Because of this ambiguity:
The common control exception (§ 133.21(c)(1)-(2)) was found reasonable. If a U.S. trademark owner and foreign manufacturer are the same or affiliated entities (e.g., parent-subsidiary), it’s reasonable to allow importation.
However, the authorized-use exception (§ 133.21(c)(3)) was not reasonable. Allowing independent foreign manufacturers who were licensed to use the U.S. trademark to import goods undermines the statute’s core protection for U.S. trademark holders. This went beyond any reasonable statutory interpretation.
Conclusion:
The Supreme Court held that the common-control exception is valid, but the authorized-use exception is not. The Customs regulation was upheld in part and invalidated in part.
Lever Brother Co v United States
Facts:
Lever Brothers Co. (Lever US), an American company, and Lever Brothers Ltd. (Lever UK), its British affiliate, both manufacture products under identical trademarks—“Shield” (soap) and “Sunlight” (dishwashing liquid)—registered in their respective countries. Despite using the same trademarks, the products differ in formulation, packaging, scent, colorants, and performance, reflecting local preferences and regulations. British versions of these products were being imported into the U.S. without Lever US’s consent, creating consumer confusion and complaints.
The U.S. Customs Service allowed the imports under its “affiliate exception” (19 C.F.R. § 133.21(c)(2)), which permits goods from affiliated companies to bypass import restrictions, assuming the trademarks are “genuine” due to common ownership or control.
Issue:
Does Section 42 of the Lanham Act (15 U.S.C. § 1124) bar the importation of foreign goods that are physically and materially different from domestic products but bear identical trademarks owned by affiliated companies?
Rule:
Section 42 of the Lanham Act prohibits the importation of goods that “copy or simulate” a U.S. trademark, except for personal use. The statute is aimed at preventing consumer confusion and deceptive practices, regardless of the affiliation between the foreign and domestic producers.
Application:
The court rejected Customs’ argument that trademarks applied by affiliated foreign companies are inherently “genuine.” Instead, it found that physical/material differences in products carrying identical trademarks create consumer confusion, thus violating the Lanham Act. The court emphasized that affiliation does not eliminate the potential for deception when products differ in quality, formulation, or packaging.
The affiliate exception does not apply when the goods are materially different, even if produced by commonly owned entities. Since Customs failed to show that Congress or the administrative record supported such an exception, the regulation could not override the clear consumer protection goal of the statute.
Conclusion:
The importation of physically different goods bearing identical U.S. trademarks is barred under Section 42 of the Lanham Act, regardless of the foreign producer’s affiliation with the U.S. trademark holder. The court affirmed the district court’s ruling against the government.
What section of the Lanham Act did Lever US invoke to exclude gray-market goods?
§ 42 of the Lanham Act
What section of the Tariff Act of 1930 did Lever US decide not to invoke?
§ 526 of the Tariff Act of 1930
What are ‘restricted gray market articles’ defined as?
Foreign made articles bearing a genuine trademark or trade name identical with or substantially indistinguishable from one owned and recorded by a U.S. citizen or corporation and imported without authorization
What is one condition under which goods are classified as ‘restricted gray market goods’?
Applied by a licensee independent of the U.S. owner
What is the second condition for goods to be classified as ‘restricted gray market goods’?
Applied under the authority of a foreign trademark owner other than the U.S. owner
What is the ‘Lever-Rule’ in the context of restricted gray market goods?
Applied by the U.S. owner, a parent or subsidiary, to goods determined to be physically and materially different from those authorized for importation
What does the Customs Service require for goods that are physically and materially different from authorized products?
A conspicuous and legible label stating that the product is not authorized by the U.S. trademark owner
What must the label on physically and materially different goods state?
This product is not a product authorized by the United States trademark owner for importation and is physically and materially different from the authorized product
What happens to all restricted gray market goods imported into the United States?
They shall be denied entry and subject to detention
Quality King Distributors Inc
Facts:
L’anza, a U.S. company, manufactures and sells hair care products with copyrighted labels. It sells its products both domestically and internationally, with international sales priced significantly lower and lacking the extensive promotional efforts seen in the U.S. market. Products sold abroad were eventually reimported into the U.S. by Quality King Distributors and sold to unauthorized U.S. retailers. L’anza filed suit, claiming that this unauthorized importation and resale violated its exclusive distribution rights under §§ 106, 501, and 602 of the Copyright Act.
The central legal issue revolved around the “first sale doctrine” (§ 109(a)), which generally limits a copyright owner’s distribution rights after the first authorized sale of a copyrighted work. The lower courts held that the first sale doctrine did not apply to goods reimported into the U.S.
Issue:
Does the first sale doctrine under § 109(a) of the Copyright Act limit the importation right granted by § 602(a) when copyrighted goods are lawfully made and sold in the U.S., exported, and then reimported without authorization?
Rule:
§ 106(3) grants copyright holders the exclusive right to distribute copies of their works.
§ 109(a) (the first sale doctrine) states that the owner of a lawfully made copy may resell that copy without the copyright holder’s permission.
§ 602(a) prohibits the unauthorized importation of copies acquired abroad in violation of § 106(3)—but is still subject to § 109(a).
Application:
The Supreme Court held that § 602(a)’s importation right is not independent of § 106(3) and is limited by the first sale doctrine. Because the goods in question were lawfully made in the U.S., then sold abroad, and later reimported, the first sale had already exhausted L’anza’s exclusive distribution rights. Thus, Quality King, having lawfully acquired the products abroad, could resell them in the U.S. without infringing L’anza’s copyright.
Justice Stevens emphasized that § 602 does not create an absolute importation ban—it only creates infringement where importation violates § 106 rights, which themselves are limited by § 109(a).
Justice Ginsburg, concurring, noted that this ruling only applied to “round trip” goods (manufactured in the U.S., exported, and reimported), not to goods made abroad.
Conclusion:
The Supreme Court reversed the Court of Appeals, holding that the first sale doctrine applies to the reimportation of copyrighted goods lawfully made in the U.S. and sold abroad. Therefore, Quality King’s resale did not infringe L’anza’s rights under the Copyright Act.
KirtSaeng v John Wiley and Sons
Here’s a short and clear summary of Kirtsaeng v. John Wiley & Sons, Inc. (2013):
Case Summary: Kirtsaeng v. John Wiley & Sons, Inc.
Citation: 133 S. Ct. 1351 (2013)
Court: United States Supreme Court
Majority Opinion by: Justice Breyer
Facts:
Supap Kirtsaeng, a Thai student studying in the U.S., had his family buy cheaper foreign editions of textbooks in Thailand and ship them to him. He resold the books in the U.S. for profit. Some of the books were published by John Wiley & Sons, which included a notice prohibiting importation into the U.S.
Issue:
Can the “first sale” doctrine apply to copies of copyrighted works that were made and legally sold abroad?
Holding:
Yes. The Supreme Court held that the first sale doctrine applies to copies lawfully made abroad. Once a copyright owner consents to the sale of a copy, even outside the U.S., they cannot control further distribution of that copy under U.S. copyright law.
Reasoning:
- The phrase “lawfully made under this title” in §109(a) means made in compliance with U.S. copyright law, not necessarily physically made in the U.S.
- A geographical restriction would cause major problems for resale of books, art, software, etc.
- The Court emphasized simplicity, common law tradition, and avoiding harm to lawful commerce and consumers.
Decision:
The Court reversed the lower court’s decision. Kirtsaeng had the right to resell the books in the U.S. under the first sale doctrine.
Let me know if you want a quick comparison between this and Quality King or a short outline for a class or paper!
