ENF 4-02 RR:BSTC:IP H004273 CRS
Ronald G. Dove, Jr.
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2401
RE: Gray Market Protection; Zaxis®; TMK 06-00484; Common Control
Dear Mr. Dove:
This is in reply to your letters of November 27, 2006 and January 11, 2007, on behalf of John Deere Construction and Forestry Company (JDCFC), under cover of which you requested that the Zaxis® mark be accorded gray market protection. In support of this request you submitted a Trademark Assignment and License Agreement (the “Agreement”), dated September 14, 2005, between JDCFC, Hitachi Construction Machinery Co., Ltd. and Deere-Hitachi Construction Machinery Corporation, pursuant to which your client was assigned the rights to the mark in the United States. We regret the delay in responding.
As a preliminary matter, we note that while the Agreement would appear to constitute “commercial or financial information obtained from a person [that is] privileged or confidential,” we are unable to state without reservation that it is exempt in its entirety from disclosure under the Freedom of Information Act (FOIA; 5 U.S.C. § 552). Nevertheless, the Agreement will be marked “Confidential” and our files will be annotated to ensure that should a request for the record be made, the document will not be released without receiving all appropriate consideration under exemption (b)(4) of the FOIA.
FACTS:
The Zaxis® mark is registered with the U.S. Patent and Trademark Office (USPTO) (reg. no. 2,754,871) for power-operated shovels, hydraulic power-operated shovels, earth moving machines, namely loaders, road construction machinery, namely road rollers, mobile cranes, disintegrating machines, namely pneumatic hammers and mobile crushers, in class 7 of the international schedule of goods and services. The mark was recorded with U.S. Customs and Border Protection (CBP) as TMK 06-00484 on April 23, 2006.
JDCFC, a Delaware corporation, is a wholly-owned subsidiary of Deere & Company (Deere), an Illinois corporation that manufactures, distributes and/or sells agricultural equipment, commercial and consumer equipment, and construction and forestry equipment. Deere-Hitachi Construction Machinery Corporation (Deere-Hitachi), a Delaware corporation, is a joint venture between Deere and Hitachi Construction Machinery Co., Ltd. (Hitachi), a Japanese corporation and subsidiary of Hitachi Ltd. Deere and Hitachi each own fifty percent of the capital stock of Deere-Hitachi.
Deere-Hitachi assembles and distributes excavators, attachments, components and repair parts of the types designed by Deere in the U.S. and Hitachi in Japan. The company, which was created to implement operational efficiencies in the marketing of certain Deere and Hitachi products in the U.S. and elsewhere in the Americas, employs over 800 staff, maintains its own board of directors, president, Chief Financial Officer and senior management, and files its own state and federal tax returns. Its financial statements are not consolidated with those of Deere or Hitachi. Among other things, Deere-Hitachi imports Hitachi excavators manufactured abroad. The imported excavators bear the Zaxis® mark. Deere-Hitachi sells the imported excavators to JDCFC for further distribution to dealers and customers in the U.S.
Pursuant to the Agreement, Hitachi, the foreign owner of the mark, assigned the Zaxis® mark, and the goodwill associated therewith, to JDCFC [************************]. Under the terms of the Agreement, JDCFC’s use of the Zaxis® mark is restricted [*****************************************************************************************************************************************************]. JDCFC, in turn, [***********] granted Deere-Hitachi a [************************] license to use the Zaxis® mark in the U.S., such use to be limited [**************************************************************************************************************************************************************************************************************************************************************************************************************************************************************].
[*******************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************].
LAW AND ANALYSIS:
Gray market goods, or parallel imports, are defined generally as foreign-manufactured goods bearing a valid U.S. trademark, that are imported into the U.S. without the consent of the U.S. trademark owner. K Mart Corp. v. Cartier, 486 U.S. 281, 285 (1988). Customs provides limited protection to trademark owners against importations of certain gray market goods pursuant to section 526 of the Tariff Act of 1930, as amended, which provides in pertinent part:
Except as provided in subsection (d) of this section, it shall be unlawful to import into the United States, any merchandise of foreign manufacture, if such merchandise, or the label, sign, print, package, wrapper, or receptacle, bears a trademark owned by a citizen of, or by a corporation or association created or organized within, the United States, and registered in the Patent and Trademark Office by a person domiciled in the United States, under the provisions of sections 81 to 109 of Title 15, and if a copy is filed with the Secretary of the Treasury, in the manner provided in section 106 of said Title 15, unless written consent of the owner of such trademark is produced at the time of making entry.
19 U.S.C. § 1526(a). In respect of recordation, Section 1124, Title 15, provides that in order to aid the officers of the customs in enforcing the prohibitions of the statute, any domestic or foreign manufacturer or trader entitled to the advantages afforded by law, e.g., the owner of a federally registered trademark, may require his trademark to be recorded with the Department of the Treasury under such regulations as the Secretary shall prescribe. 15 U.S.C. § 1124.
The regulations implementing the gray market statute, 19 U.S.C. § 1526(a), are set forth at section 133.23, CBP Regulations. They provide in pertinent part:
(a) Restricted gray market articles defined. “Restricted gray market articles” are foreign-made articles bearing a genuine trademark or trade name identical with or substantially indistinguishable from one owned and recorded by a citizen of the United States or a corporation or association created or organized within the United States and imported without the authorization of the U.S. owner. “Restricted gray market goods” include those bearing a genuine trademark or trade name which is:
* * * *
(2) Foreign owner. Applied under the authority of a foreign trademark or trade name owner other than the U.S. owner, a parent or subsidiary of the U.S. owner, or a party otherwise subject to common ownership or control with the U.S. owner . . . from whom the U.S. owner acquired the domestic title, or to whom the U.S. owner sold the foreign title(s). . . .
* * * *
(c) Denial of entry. All restricted gray market goods imported into the United States shall be denied entry and subject to detention as provided in § 133.25, except as provided in paragraph (b) of this section.
19 C.F.R. § 133.23 (2008). The term “common ownership” means individual or aggregate ownership of the business entity,” while the term “common control” means “effective control in policy and operations and is not necessarily synonymous with common ownership.” 19 C.F.R. § 133.2(d)(1)-(2). Consequently, if an identical or similar mark is applied to imported merchandise by a foreign owner that is subject to common ownership and control with the U.S. owner, CBP will not confer gray market protection to the mark.
Pursuant to the regulations implementing section 1526(a), CBP and its predecessor agencies have a longstanding regulatory position of denying gray market protection where the foreign and U.S. trademark owners are under common ownership or control, as illustrated by a review of the pertinent regulations. For example, in 1936, section 518(b) of the Customs Regulations was amended to deny gray market protection where the foreign and U.S. trademarks were “owned by the same person, partnership, association, or corporation.” T.D. 48537 (1936).
In 1953, the gray market provisions of the Customs Regulations were amended in order, among other things, to incorporate the Lanham Act definition of the term “related company.” As amended, the regulation provided in pertinent part:
However, merchandise manufactured or sold in a foreign country under a trade-mark . . . which trade-mark is registered and recorded . . . shall not be deemed to copy or simulate such United States trade-mark . . . if such foreign trade-mark . . . and such United States trade-mark . . . are owned by the same person, partnership, association, or corporation, or by a related company as defined in section 45 of the Trade-Mark Act of 1946.
T.D. 53399, dated December 17, 1953; 19 CFR § 11.14(b) (1954). As originally enacted, section 45 of the Lanham Act (15 U.S.C. § 1127) defined the term “related company” as meaning “any person who legitimately controls or is controlled by the registrant or applicant for registration in respect to the nature and quality of the goods or services in connection with which the mark is used.” See 60 Stat. 443. The reference to section 45 was removed from the regulations in 1959, and the language of the “common control” or “affiliate” exception reverted to the status quo ante, although Customs continued to apply the common control exception as if the related company language was present. K Mart v. Cartier, 486 U.S. at 311 (citing, inter alia, a letter from Deputy Customs Commissioner Flinn to Felix Levitan (Mar. 15, 1963) to the effect that section 526 is inapplicable where merchandise is manufactured or sold by the foreign parent or subsidiary of an American owner). See also Vivitar Corp. v. United States, 593 F. Supp 420, 430-431 (Ct. Int’l Trade 1984), aff’d 761 F. 2d 1552 (Fed. Cir. 1985), (quoting additional Bureau letters cited therein affirming the agency’s longstanding position).
Following the 1959 amendment, the regulations remained unchanged until 1972, when the regulations were amended to require that applicants identify foreign concerns under common ownership and control that used the trademark. 37 Fed. Reg. 20,678 (1972), 19 CFR § 133.2 (1972); see also Notice of Proposed Rule Making, 35 Fed. Reg. 19,269 (1970). This revision to the regulations introduced the definitions of “common ownership” and “common control” that currently appear in 19 CFR § 133.2 (2008). In promulgating the revised regulations, Customs once more codified its fifty-year practice in respect of the common control exception. K Mart v. Cartier, 486 U.S. at 312.
The most recent change to CBP’s gray market regulations occurred in 1999. In the final rule document announcing the 1999 amendments to the agency’s gray market regulations – reflecting the results of the court’s decision in Lever Bros. Co. v. United States, 981 F.2d 1330 (D.C. Cir. 1993) – we noted in pertinent part:
Section 42 of the Lanham Act, 15 U.S.C. 1124, protects against consumer deception or confusion concerning an article’s origin or sponsorship by restricting the importation under certain circumstances. When an article is the domestic product of the U.S. trademark owner, that owner exercises control over the use of the trademark and the resulting goodwill. Similarly, Customs has taken the position that an article bearing an identical trademark and produced abroad by the U.S. trademark owner, a parent or subsidiary of the U.S. trademark owner, or a party subject to common ownership or control with the U.S. trademark owner, would be under the constructive control of either the U.S. trademark owner or a party who owned or controlled the U.S. trademark owner.
Customs has long taken the position that enforcement of the distribution rights of a gray market article produced abroad by a party related to the U.S. trademark holder was a matter to be addressed through private remedies. This is known as the affiliate exception” to Customs enforcement of restrictions under section 42 of the Lanham Act against the importation of gray market goods. Thus, Customs Regulations do not provide for restrictions on the importation of such gray market articles.
64 Fed. Reg. 9058 (1999) (emphasis added).
While the Lever-rule regulations represent an exception to the common control provision of the gray market regulations, they nevertheless continue to reflect CBP’s view that border enforcement of the trademark laws should not work to the detriment of consumer choice and price competition. Thus, in the proposed rule document announcing the Lever rule restrictions we stated:
The Customs Service believes that the proposed rule extends the appropriate protection under the trademark laws to owners of a U.S. trademark while not permitting those laws to be used as a shield against competition. In eliminating the risk of consumer confusion, the interest of the consumer in product choice and price competition in the marketplace should be considered along with the interest of the U.S. trademark owner in protecting its goodwill and reputation. The Customs Service believes that the right of the mark owner is limited to protection that addresses the potential damage to the mark owner. The identity and reputation of the domestic mark owner can be preserved and the public interest served by effectuating open and informed competition.
63 Fed. Reg. 14662, 14664 (1998).
Finally, we emphasize once again while the reference to the Lanham Act definition is no longer explicitly incorporated in the regulations, “Treasury and the Customs Service continued to apply the provision as if the related-company language had still been there, permitting the importation of gray market goods where ‘the foreign producer is the parent or subsidiary of the American [trademark] owner or the firms are under a common control.’ T.D. 69-12(2), 3 Cust. Bull. 17 (1969).” K Mart v. Cartier, 486 U.S. at 312. Thus, it is unambiguous that the common control exception of the regulations reflects the Lanham Act definition of the term “related company.”
The original “related company” definition, viz., one “who legitimately controls or is controlled by the registrant or the applicant in respect to the nature and quality of the goods or services in connection with which the mark is used,” proved unsatisfactory, however. Among other things, there was confusion “about whether a related company could control the registrant or applicant as to the nature and quality of goods or services.” Accordingly, the definition was amended by the Trademark Law Revision Act of 1988, P.L. 100-667. S. Rep. No. 100-515, 100th Cong., 2d Sess. 7, reprinted in 1988 U.S.S.C.A.N. 5606-5607. As amended, the term “related company” is defined to mean “any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services on or in connection with which the mark is used.” 15 U.S.C 1127 (2008) (emphasis added). Thus, given CBP’s longstanding practice of interpreting the common control provision in light of the statutory definition, we construe the term “common control” for purposes of 19 CFR § 133.23 to mean ownership of, or control of policy or operations in relation to the use of, the mark, as well as ownership or control of policy or operations generally.
Prior to the assignment of the Zaxis® mark to JDCFC, it is unambiguous that the mark was ineligible for gray market protection inasmuch as Hitachi owned the mark in the U.S. and abroad. Following the assignment, your client, the U.S. trademark owner, seeks protection from the importation of excavators bearing the Zaxis® mark. Merchandise bearing the Zaxis® mark is produced abroad by the foreign trademark owner and imported into the U.S. by Deere-Hitachi pursuant to a license from JDCFC. Hitachi is neither the parent nor the subsidiary of JDCFC and there is no common ownership between JDCFC and Hitachi. Notwithstanding, we find that Hitachi is “a party otherwise subject to common ownership or control with the U.S. owner” such that imported excavators bearing the Zaxis® mark do not constitute restricted gray market articles for purposes of 19 CFR § 133.23.
For example, although Hitachi assigned JDCFC the rights to the Zaxis® mark in the U.S., JDCFC’s use of the mark is limited [*********************************************************************************************]. Contemporaneously with the assignment, JDCFC granted Deere-Hitachi a [********************************************************] license to use the mark in the United States. [**]. Deere-Hitachi’s use of the Zaxis® mark is similarly restricted [**************************************************************************************************************************************************************************]. JDCFC’s rights in the mark are restricted in that [****************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************]. The effect of these provisions is to ensure that Hitachi retains the use of the mark in relation to the nature and quality of goods bearing the Zaxis® mark.
Accordingly, it is our position that JDCFC’s use of the Zaxis® mark is constrained by the Agreement, pursuant to which Hitachi continues to exert control over the use of the mark. In this respect, we find that the provisions of the Agreement amount to something more than the ties that bind two entities in a profitable business relationship. Indeed, to the extent that JDCFC wishes to use the mark, the Agreement gives Hitachi “common control” over the Zaxis® mark akin to that which a parent company might exercise over a subsidiary’s use of a mark, or that a common owner might exercise over related organizations’ use of a mark. In contrast, JDCFC has only limited rights in respect of the mark, which it [********************************************************************************************************************************************************************************************************************************]. In sum, Hitachi has as much control over the importation process and the use of the Zaxis® mark as it would have had were it still the U.S. owner of the mark.
In this respect, we consider Justice Brennan’s language in K Mart v. Cartier to be relevant to the circumstances of the instant case.
The barriers that Congress erected seem calculated to serve no other purpose other than to reserve exclusively to domestic, not foreign, interests the extraordinary protection that § 526 provides. But they are fragile barriers indeed if a foreign manufacturer might bypass them by the simple device of incorporating a shell domestic subsidiary and transferring to it a single asset – the United States trademark. Such a reading of § 526 seems entirely at odds with the protectionist sentiment that inspired the provision. If a foreign manufacturer could insulate itself so easily from the competition of parallel imports, much of § 526’s limiting language would be pointless.
486 U.S. at 297-298 (Brennan, J., concurring that the common control exception is consistent with section 526).
While JDCFC is not a shell domestic subsidiary, constructive control of the mark remains with Hitachi. It is clear that if Hitachi or a U.S. subsidiary owned the Zaxis® mark, the mark would be ineligible for gray market protection. It is equally clear that Hitachi has assigned the ownership of the mark to JDCFC and that had it done so without retaining control over the use of the mark, the mark would be eligible for gray market protection. However, the terms of the Agreement amount to more than the ties that bind two entities in a profitable business relationship. United States v. Eight-Three Rolex Watches, 992 F.2d 508, 516 (5th Cir. 1993). Rather, they are structured to enable Hitachi to retain control over the use of the mark. Accordingly, in the particular circumstances of this case we find that Hitachi is “a party otherwise subject to common ownership or control with the U.S. owner in that Hitachi controls the use of the Zaxis® mark with respect to the nature and quality of the goods on which the mark is used. 15 U.S.C. § 1127; 19 CFR § 133.23(a)(2).
HOLDING:
In conformity with the foregoing, the Zaxis® mark is not eligible for gray market protection and imported goods bearing the Zaxis® mark recorded as TMK 06-00484 do not constitute “gray market restricted articles” for purposes of 19 CFR § 133.23.
Sincerely,
George F. McCray, Chief
Intellectual Property Rights Branch
Regulations and Rulings
Office of International Trade