Manufacturer Must Show Substantially All of Its Sales Affected by Foreign Importation of Its Products

Case: Bourdeau Bros. Inc. , Sunova Implement Co., and OK Enterprises v. International Trade Commission and Deere & Company (Fed. Cir. 3/30/06 )

The One Sentence Summary: To prevent importation in the United States of products manufactured by an American company for sale in Europe, the manufacturer must show that all or substantially all of its product sales in the US were different from those in Europe.

What They Were Fighting About: Deere & Company manufactures forage harvester vehicles (used to harvest crops) that are sold in the United States and Europe. On January 8, 2003, Deere filed a complaint with the US International Trade Commission (ITC) alleging violations of 19 USC § 1337 (Section 1337). Section 1337 grants the ITC the power to prevent the importation of goods that, if sold in the U.S., would violate one of the provisions of the Lanham Act. Section 1337 states prohibits “[t]he importation in the United States, the sale for importation, or the sale within the United States after importation by the owner, importer or consignee, of articles that infringe a valid and enforceable United States trademark registered under the Trademark Act of 1946.” Section 1337(a)(1)(c). Many of the goods that are forbidden from importation under section 1337 are “gray market goods” i.e., products that were “produced by the owner of the United States trademark or with its consent, but not authorized for sale in the United States.”

Deere alleged that Appellants Bourdeau Bros., Inc. and Sunova Implement Co. were importing into the United States used European forage harvesters that were materially different from Deere’s forage harvester authorized for sale in the United States, thereby infringing on Deere’s US trademarks. The appellants responded to Deere's complaint by claiming that Deere had authorized the sale of its European harvesters in the U.S. and therefore, Deere failed to establish its prima facie case -- i.e., the existence of a material difference between the accused products and those authorized for sale in the US. Appellants also raised these arguments in the form of affirmative defenses to the complaint for estoppel and unclean hands. The Administrative law judge rejected the affirmative defense raised by Appellants but failed to consider Appellant's separate claim that Deere had failed to establish a prima facie case for Section 1337 violation. The ALJ did not determine whether Deere had established that sales of European harvesters in the US by its approved dealers were unauthorized, or that the sales were so small that substantially all of Deere's sales were of North American forage harvesters. The ALJ nonetheless found that Deere’s U.S. trademarks were infringed by the importation of the European harvesters. The ITC affirmed. The Federal Circuit reversed and remanded.

Federal Circuit Holdings:

• “[T]he importation and sale of a trademarked good of domestic manufacture, produced solely for sale abroad and not authorized by the owner of the trademark for sale in the United States, may violate section 1337 if the imported good is materially different from all or substantially all of those goods bearing the same trademark that are authorized for sale in the United States.”
• The ALJ properly determined that there were material differences between the European and American harvesters that a consumer would likely consider significant (e.g., safety features; lighting functions, warning labels, andhitch mechanisms).
• The ALJ erred in not ruling separately upon Appellants’ claim that Deere failed to establish a prima facie case based upon Deere's alleged authorization of European product sales in the U.S. by its approved dealers. If Appellants' allegations are true not all -- or substantially all -- of Deere's sales were accompanied by the asserted material differences, and its Section 1337 claim cannot prevail.
• The burden is on the manufacturer (Deere) to establish that all or substantially all of the sales were materially different from the alleged gray market goods.
• "To establish that all or substantially all of the authorized sales in the United States were of North American forage harvesters, the ITC must presume that sales by authorized dealers were in fact authorized by Deere. Deere may rebut this presumption but it bears the burden of proving that sales of European forage harvesters in the U.S. by Deere’s authorized dealers were unauthorized sales."
• "Even if Deere cannot establish that the European sales were unauthorized, it might still prevail if it can establish that the number of European forage harvester sales in the US was so small that substantially all of 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."