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Did The Sale of "Gray Goods" Mushrooms Infringe a Grower's Trademark?

February 14, 2014

Hokto USA is a subsidiary of Japan-based Hokuto Co. Ltd. Hokuto Co. grows non-organic mushrooms in Japan. Hokto USA produces the same mushroom varieties in the United States as Hokuto Co. does in Japan, but Hokto USA's products are certified organic. To earn organic certification, Hokto USA's plants are state of the art and employ robotic machines in temperature controlled environments, all of which are computer controlled. Unlike other growers, Hokto USA does not use manure in its fertilizers. It uses a "sterilized culture medium made of sawdust, corn cob pellets, vegetable protein and other nutrients."

For a time, Hokto USA imported mushrooms from Hokuto Co. These mushrooms were grown in Japan but in a controlled environment so as to meet the requirements for US organic produce. The packaging was in English and not Japanese. A small amount of goods, however, was not organic, but the packaging for those items was obviously different, and identified Hokto USA as a distributor of Hokuto Co.

After obtaining trademarks in Japan, Hokuto Co. sought US trademark registration for word and design marks.

For a number of years, Concord Farms imported Hokuto Co.'s non-organic mushrooms into the United States. Because the purchases were placed through intermediary companies, Hokuto Co. was unaware of Concord Farms. Hokto USA learned that Concord Farms was sometimes marketing the goods it imported from Hokuto Co. as organic and as "made in the USA" although it displayed a Japanese-language label displaying the name of Hokuto Co. Those mushrooms were neither organic nor made in the USA. Concord Farms refused to cease selling these mushrooms and Hokto USA filed suit. Among the arguments made by Concord Farms was that the mushrooms it sold were "gray goods" meaning, that the goods were manufactured by Hokuto Co., and the sale of those Hokuto Co. goods were the actual goods. Concord Farms also argued that because Hokto USA sold some non-organic goods, Concord Farms to do the same. Hokuto Co. prevailed before the trial court, and Concord Farms appealed.

The Ninth Circuit appellate court, in affirming, noted that these issues "implicate[] the set of trademark principles governing so-called 'gray-market goods': goods that are legitimately produced and sold abroad under a particular trademark, and then imported and sold in the United States in competition with the U.S. trademark holder's products." The court decided that Concord Farm's items were not true gray goods because they were not genuine goods. The court recited the general rule that "genuine goods" are excluded from trademark protection and may be sold by any party so long as they are genuine, meaning that they were properly obtained and sold without modification. The court found that the goods sold by Concord Farms were not "genuine goods" and were thus covered by the trademark laws. As such, Hokuto Co. was within its right to force Concord Farms to stop selling the infringing goods.

More broadly, "genuine goods" are defined as those goods bearing a trademark that do not differ in any material way from the goods sold by the trademark holder. These are often referred to as "gray goods." Gray goods can fall into this category because the goods sold in the US and the goods sold overseas are sometimes the same (but are many times not). If material differences are found, they cannot be deemed "genuine" and the sale of the gray goods may infringe on the trademark. This makes sense in the scheme of trademark law. The purpose of a trademark is to ensure that the public recognizes that a product or service meets a specific standard by associating the trademark with the product. The purchaser, recognizing the trademark, relies on the branded item to deliver the expected level of good or service. If the trademark is used by another, but delivers an inferior product or service, that trademark, improperly used, has been damaged as it no longer represents the standard expected by the consumer. The consumer may therefore no longer purchase the trademarked item.

Here, the court noted the rigorous rules and standards under which Hokto USA grew its organic mushrooms. It also noted the absence of any of those rules for Concord Farms' goods. Concord Farm's goods were not organic and carried labels identifying the goods as produced in Japan. In short, the Concord Farms mushrooms were not produced to be organic, were not maintained using the rigorous rules in place at Hokto USA's plants, and the labels were misleading. Therefore, the court found that consumers could be confused by Concord Farms' products and could believe that Concord Farms was selling actual Hokuto Co. or Hokto USA's goods. A bad experience by one buying Concord Farm's goods would negatively impact the goodwill and brand reputation of the trademark holder.

Concord Farms attempted to argue that the trademark itself was defective, either because it was overbroad, to cover items not sold by Hokto USA, or because Hokuto Co. did not properly supervise Hokto USA, so it could not argue that the trademark brand would be damages by a lesser quality product. The court rejected all of these arguments.

They issue of gray goods is interesting because the line separating permissible and impermissible goods is often "gray." A review of the goods' manufacturing, marketing and sales is necessary, while considering elements of trademark law, to determine whether infringement is a viable claim.

Hokto Kinoko Company v. Concord Farms, Inc. (9th Circuit 2013)

Trademark Claims for Gripe-Site Falls Flat

August 20, 2012

Despite the uniform reaction of courts, trademark holders insist on filing lawsuits over gripe-sites. As discussed here in the past, websites that are created for the sole reason of complaining about a service or product, and which incorporate a trademark in doing so, are not guilty of trademark infringement. In Devere Group GMBH v. Opinion Corp. d/b/a Pissedconsumer.com, pissedconsumer.com was sued by a Swiss consulting company because the site hosted a number of sub-domains that hosted public complaints about the company. The company sought damages for trademark infringement, among other claims.

Although the court determined that the consulting company had established its trademark, it had failed to establish any infringement by the gripe-site. The court agreed with the gripe-site that no reasonable consumer, "'even the dimmest Internet user'" would believe that the comments posted to the gripe-site were sponsored by the consulting company. This was especially true here, where the complaints could never be seen as an endorsement of the services protected by the trademark or endorsed by the company, and the gripe-site did not compete with the company's website for viewers.

For the most part, the court's outcome should be the same for a complaint website that was less obvious in identifying its purpose. The line is crossed, however, where the complaint website has a commercial purpose or seeks to benefit from the protected trademark. In that case, judges look at the relationship with a more critical eye, to understand the purpose of the complaint website, and are more reluctant to dismiss an infringement complaint.

Do the Names Potenza, Turanza and Milanza Confuse You?

May 5, 2012

An appellate decision from the Federal Circuit finds that the term Milanza is confusing when used in the same class of goods as Potenza and Turanza. Seemingly, these marks sound and feel similar.

Bridgestone Corporation, owns trademark registrations for the marks Potenza and Turanza and conclusively established that it used those marks in connection with popular and successful tires. Federal Corporation sought trademark registration for Milanza, and Bridgestone objected arguing that when used on tires, that mark was confusing. The United States Patent and Trademark Trial Appeal Board (the "TTAB"), finding no confusion between the marks despite Bridgestone's survey that consumers were confused, refused to block Federal's application. Bridgestone appealed.

In reversing and finding that market confusion existed sufficient to bar Federal's application, the court highlighted the standards that a party must meet to establish confusion with an ordinary registered trademark compared with the strength of a famous mark.

The court found that Bridgestone's trademarks were famous marks, meaning that they were marks that were heavily advertised and well known in their market, and therefore would be given deferential treatment in the face of a new application. While the TTAB conceded that Bridgestone's tires were commercially successful, it tied the reputation of the goods and trademarks to the fact that those marks were always used in conjunction with the Bridgestone name. Alone, the TTAB decided, those trademarks were not sufficiently famous or well known.

The appeals court refused to endorse the TTAB's finding that the marks alone, without the Bridgestone name attached, were not strong marks. The court found that the prolonged use of the Potenza and Turanza trademarks, and their commercial exposure, highlighted the strength of the marks standing alone.

Do You See Starbucks When You Read Charbucks?

February 9, 2012

In an ongoing litigation between Starbucks and an outfit called Black Bear Micro Brewery, the brewer of Mr. Charbucks and Charbucks Blend coffees, a New York Southern District judge found that notwithstanding the similarity in names and the fact that Charbucks was trying to capitalize on the Starbucks name, Charbucks did not violate trademark law.

One of the privileges provided by trademark law is a trademark holder's right to prevent another's use of a mark that, while not confusingly similar in a direct way, nevertheless "dilutes" the trademark holder's registered trademark. One way to dilute a mark is to "blur" it. Blurring is pretty much as it sounds: A competitor's use of mark that, in the court's words, "impairs the distinctiveness of the famous mark." When a mark is blurred, its "distinctiveness," that element of the mark by which it is known to the public, is weakened.

In this case, the Southern District court was faced with deciding whether the marks "Mr. Charbucks" and "Charbucks Blend" diluted the Starbucks trademark. To reach a conclusion, the court had to review six factors that, while not exclusive, provided guidance in determining dilution: "(i) [t]he degree of similarity between the mark or trade name and the famous mark; (ii) [t]he degree of inherent or acquired distinctiveness of the famous mark; (iii) [t]he extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark; (iv) [t]he degree of recognition of the famous mark; (v) [w]hether the user of the mark or trade name intended to create an association with the famous mark; [and] (vi) [a]ny actual association between the mark or trade name and the famous mark." Because these elements are suggested but not exclusive, the overarching consideration is whether the blurring makes the distinctive registered mark less distinctive.

Despite conceding that Starbucks' claims satisfied the distinctiveness, exclusivity and recognition elements, and also agreed that Black Bear attempted to create an association between its product and Starbucks', the court refused to find dilution because the way that the respective marks were used were not similar and easily distinguished by the consumer. For example, the court noted that Charbucks was always preceded by "Mr."or "Mister," or in conjunction with "Blend" and its logo was very different that what Starbucks used. Presumably, though, had the mark "Charbucks" been used alone, Starbucks would have made out its dilution claim.

The court expressed its concern that preventing the use of the Charbucks mark would give Starbucks too broad a right to exclude any mark that troubled Starbucks, something not provided for under law, even where defendant intended to associate its coffee with Starbucks'.

This case highlights that while some surface confusion between marks may appear, a deeper examination is required before confusion becomes a concern. Succeeding on a dilution claim against a small competitor without a meaningful market presence is made more difficult with this decision, notwithstanding the change in law designed to avoid this type of outcome, which was enacted subsequent to the United States Supreme Court's decision in the seminal Victoria's Secret case. Seemingly, where a small competitor tries to piggy-back off the recognition of a large and well know company's trademark, a dilution claim seems to not always be enough to obtain an injunction.

For some tongue-in-cheek thoughts on this issue, take a look at a post by Ron Coleman, Esq.

Naked Licensing, Trademarks and a Consumer's Right to "High Quality"

June 15, 2011

In the recent case of Eva's Bridal Ltd. v. Halanick Enterprises, Inc., Judge Easterbrook of the Seventh Circuit highlights the importance of managing a license of a registered trademark.

One of the reasons that one applies for and obtains a trademark registration is to show ownership---instant identity---of a good or service. When one sees or hears the mark coca-cola, the company Coca-Cola comes instantly to mind. That's the point. To ensure the continuity of that association, Coca-Cola must monitor the use of its trademark to ensure that no one is using it without right. Why? Well, Coke wants to make sure it gets paid for the use of its valuable trademark. But it also wants to make sure that Coke products are of good quality. If it licensed its trademark to a producer of poor quality soda, the consumer might associate bad soda with Coke and avoid Coke products in the future. Also, on some level, the consumer has an expectation that buying a Coke product will yield a Coke-quality product. Therefore, Coke will make sure that any company producing Coke products will do so under its strict rules to ensure consistent quality.

Sometimes, though, trademark holders are happy enough to pocket their licensing or royalty fees, but ignore their obligation (yes, obligation) to maintain a role in the production of the goods being sold under the trademark. That's called naked licensing. And its a good way for a trademark holder to lose its trademark registration.

In his decision, Judge Easterbrook refused to accept the theory that naked licensing is 939846_mallorca_034.jpgOK if the licensee is a "high quality" business and a trusted partner to the trademark owner who licensed the trademark. Because the reputation of the trademark owner (the licensor) is "at stake in every outlet," the consumer has a right to expect that the goods purchased under the trademark is reviewed for the quality and delivery that the consumer expects.

So, while a trademark is often seen as protecting its owner's business, preventing unauthorized use by competitors, ultimately, that is done to ensure that the consumer receives goods or services consistent with what it comes to expect from the trademark holder. If I buy a Coke, I should expect to get a Coke.