RICHARD G. STEARNS, District Judge.
Heraeus Kulzer LLC (Heraeus America) brought this lawsuit against Omni Dental Supply (Omni) seeking damages and injunctive relief for trademark infringement and unfair competition in violation of the Lanham Act. The Complaint sets out four Counts: violation of Lanham Act sections 32(1)(a) and 43(a)(1), 15 U.S.C. §§ 1114(1)(a) and 1125(a)(1) (Count I); illegal importation of merchandise in violation of Lanham Act section 42, 15 U.S.C. § 1124 (Count II); violation of section 526(a) of the Tariff Act of 1930, 19 U.S.C. § 1526 (Count III); and unfair competition in violation of Mass. Gen. Laws ch. 93A (Count IV). Now before the court are the parties' cross-motions for summary judgment on all claims. A hearing on the motions was held on June 6, 2013.
Heraeus Holding GmbH (Heraeus Holding) is a precious metals and technology conglomerate headquartered in Hanau, Germany. Heraeus Kulzer GmbH (Heraeus Germany) is a wholly-owned subsidiary of Heraeus Holding (also located in Hanau), and is a member of Heraeus Holding's Dental Group, one of seven product groups comprising Heraeus Holding's international subsidiaries. Heraeus Germany is one of the world's leading manufacturers of dental products. It sells these products in various countries through its Dental Group affiliates. The distributor for Heraeus Germany's dental products in the United States and Canada is Heraeus America, a sister company of Heraeus Germany headquartered in South Bend, Indiana. Heraeus America does not itself manufacture dental products, but advertises the Heraeus Germany products which it, in turn, distributes to dentists through authorized retailers.
Omni is a high volume discount retailer of dental supplies based in Brooklyn, New York. Among the many products it sells are those bearing the trademarks of Heraeus Germany. Omni, however, does not have a relationship with Heraeus Germany and is not authorized to sell its products directly. Instead, Omni acquires the Heraeus dental products from wholesalers who procure them in markets outside of the United States, principally China. Omni then sells these products directly to dentists over the phone and through its website, at prices usually lower than those offered by Heraeus America's authorized retailers.
In response to the unauthorized sale of Heraeus products in the U.S. market, Heraeus America entered into a formal Distribution Agreement with Heraeus Germany in July of 2010. The Agreement makes Heraeus America the exclusive distributor of Heraeus Germany dental products in the United States. The Agreement also grants Heraeus America "an exclusive right and license to use trademarks, trade names and other marks owned and/or used by Heraeus [Germany]" in connection with the promotion and sale of its dental products in the United States.
Heraeus America alleges that Omni is infringing four United States trademarks registered by Heraeus Germany: DURAFILL (Reg. No. 1,212,910); GLUMA (Reg. No. 1,402,838); CHARISMA (Reg. No. 1,816,611); and iBOND (Reg. No. 2,816,440) (collectively, the Heraeus marks), all in violation of the Lanham Act. Omni makes two arguments in response: that Heraeus America lacks standing to enforce the trademarks, and even if Heraeus America has standing, the Heraeus Germany dental products that Omni sells are genuine and therefore not infringing.
Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). For a dispute to be "genuine," the "evidence relevant to the issue, viewed in the light most flattering to the party opposing the motion, must be sufficiently open-ended to permit a rational factfinder to resolve the issue in favor of either side." Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir. 1995) (citation omitted). "Trialworthiness requires not only a `genuine' issue but also an issue that involves a `material' fact." Id. A material fact is one which has the "potential to affect the outcome of the suit under applicable law." Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993). "[W]hen the facts support plausible but conflicting inferences on a pivotal issue in the case, the judge may not choose between those inferences at the summary judgment stage." Coyne v. Taber Partners I, 53 F.3d 454, 460 (1st Cir. 1995).
Omni challenges Heraeus America's standing to prosecute claims under the Lanham Act on behalf of Heraeus Germany, which Omni contends is the real party in interest, and thus an "indispensable" party under Fed. R. Civ. P. 19. According to Omni, because Heraeus America is not an assignee or exclusive licensee of the Heraeus marks, it is precluded from suing by the terms of the Lanham Act itself. The argument is flawed at the outset.
Heraeus America asserts claims under sections 32(1)(a), 42, and 43(a)(1) of the Lanham Act. A section 43(a)(1) claim may be prosecuted "by any person who believes that he or she is or is likely to be damaged" by another's false representation or false designation of origin of a trademark. 15 U.S.C. § 1125(a). "[O]ne who may suffer adverse consequences from a violation of section 1125(a) has standing to sue regardless of whether he is the registrant of the trademark." Quabaug Rubber Co. v. Fabiano Shoe Co., Inc., 567 F.2d 154, 160 (1st Cir. 1977). Thus, as a preliminary matter, Omni's contention that Heraeus America is not the owner of the Heraeus marks is relevant to only two of the three Lanham Act actions.
It is true that to bring claims against Omni for trademark violations under section 32(1)(a) and section 42, Heraeus America must demonstrate that it is the "owner, assignee, or `exclusive licensee'" of the Heraeus marks. Id. at 158. Although section 32(1)(a) provides that only the "registrant" of a trademark may seek relief, the First Circuit has construed the term "registrant" broadly to include assignees and exclusive licensees. Id. at 159 n.8. Within this broad category, standing is withheld only from nonexclusive licensees. Id. at 159. Omni contends that, despite the Distribution Agreement's grant of "an exclusive right and license" to Heraeus America to use the Heraeus marks, Heraeus America is actually a non exclusive licensee because the Agreement does not specifically give it the right to exclude Heraeus Germany itself from selling products directly in the United States, nor does the Agreement in so many words grant Heraeus America the specific power to prosecute infringement claims.
Any legal analysis of Heraeus America's status as a licensee must begin with the basic principle of contract law that unambiguous provisions of a contract are to be interpreted according to their plain language. See, e.g., Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 178 (1st Cir. 1995). It is true that merely terming a license agreement "exclusive" is "not conclusive as to its legal effect" if the actual rights granted under the agreement are inconsistent with the characterization. See Amgen, Inc. v. Chugai Pharm. Co., Ltd., 808 F.Supp. 894, 900 (D. Mass. 1992) (citation omitted). In the trademark context, an exclusive licensee is more often defined by what it is not, rather than what it is. It is clear that to earn the badge of exclusivity, a licensee must have the power to: (1) exclude importations and sales in its licensed territory by others, including the trademark owner; and (2) to enforce the licensed trademarks in court. See Quabaug Rubber, 567 F.2d at 159 (plaintiff was not an exclusive licensee where it lacked "the power to exclude importations and sales by [the trademark owner] and its foreign licensees in the United States."); id. at n.6 (in the patent arena, an "assignee [has] the right to sue infringers in [its] own name; but a `mere licensee' [has] no standing to bring an infringement suit."). While nothing in the Distribution Agreement gives Heraeus America the explicit right to forbid Heraeus Germany from selling dental products in the United States, there is also no language in the Agreement that would prevent it from doing so. In light of the silence of the Agreement on the issue, the court looks to the conduct of the parties to the Agreement for guidance. See Martino v. First Nat'l. Bank of Boston, 361 Mass. 325, 332 (1972). In this regard, it is telling that there is no evidence whatsoever that Heraeus Germany or any of its foreign affiliates have ever attempted to circumvent Heraeus America by selling dental products directly in the United States. In other words, Heraeus Germany has always behaved consistently with the understanding that Heraeus America has the "exclusive right and license" to use its marks in the United States. Thus, Heraeus America is an exclusive licensee of the Heraeus marks.
A gray market item, also known as a "parallel-import," is a "foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder." K Mart Corp v. Cartier, Inc., 486 U.S. 281, 285 (1988). Almost a century ago in Bourjois v. Katzel, 260 U.S. 689 (1923), the Supreme Court adopted the "territoriality" principle of trademarks, which protects United States mark owners from the domestic sale of goods bearing authentic trademarks that are not intended to be sold in the United States. The protection is not absolute, however, as it is limited by the first sale doctrine. "Under the `first sale' doctrine, the trademark protections of the Lanham Act as to a particular item are exhausted after the trademark owner's first authorized sale of that individual product." Montblanc-Simplo GmbH v. Staples, Inc., 172 F.Supp.2d 231, 236 (D. Mass. 2001), vacated pursuant to settlement agreement, 175 F.Supp.2d 95 (D. Mass. 2001). This is true even if the second sale is without the mark owner's consent. Nexxus Prods. Co. v. CVS New York, Inc., 188 F.R.D. 11, 15 (D. Mass. 1999). The underlying rationale stems from the proposition that the resale of genuine products does not confuse consumers and therefore is not a concern of the Lanham Act. See John Paul Mitchell Sys. v. Pete-N-Larry's, Inc., 862 F.Supp. 1020, 1024 (W.D.N.Y. 1994).
However, gray market foreign goods that are "materially different" from those sold by an authorized domestic distributor are not deemed genuine and thus subject their seller to Lanham Act liability. Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 638 (1
Even assuming that Omni correctly interprets the Ninth and Third Circuit holdings, they are inconsistent with the First Circuit's holding in Nestle, which is binding on this court and generally considered to be the leading case defining Lanham Act liability in the gray goods arena. In Nestle, the plaintiff was the Puerto Rican affiliate of a foreign manufacturer with an exclusive distribution agreement to sell PERUGINA chocolates in Puerto Rico. The First Circuit found that the Venezuelan-made PERUGINA chocolates imported and sold by the defendant in Puerto Rico were materially different than those sold by Perugina's Puerto Rican distributor and therefore violated the trademark infringement and unfair competition provisions of the Lanham Act. It is clear from Nestle that the First Circuit does not recognize the "common control" exception to the Lanham Act on which Omni relies.
Moreover, in both of the cases from which Omni derives the purported exception, the foreign products at issue were identical to those authorized forsale in the United States and were thus non-infringing in the first place. See Weil, 878 F.2d at 668 n.11 ("[W]e premise our decision on the assumption that the porcelain imported by [defendant] was essentially identical to that imported by [plaintiff]."); see also Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 753 F.Supp. 1240, 1246-1247 (D.N.J. 1991), rev'd on other grounds, Ferrero U.S.A., Inc. v. Ozark Trading, Inc., 952 F.2d 44 (3d Cir. 1991) (concluding that Weil does not bar Lanham Act suits by domestic affiliates of foreign manufacturers if the competing goods materially differ).Because, as will be shown, there are material differences between the domestic product sold by Heraeus Americ a and the foreign products sold by Omni, the motion for summary judgment based on a "common control exception" will be denied.
To succeed on its Lanham Act claims, Heraeus America must establish that the Heraeus dental products Omni sells: (1) are not authorized for sale in the United States; and (2) are materially different from the authorized versions Heraeus America sells domestically. N estle, 982 F.2d at 638. Omni does not dispute that its sale of the trademarked products is unauthorized. Thus, the parties' cross-motions for summary judgment center on whether the Heraeus products sold by Omni differ materially from those sold by Heraeus America. "Whether the fulcrum of plaintiff['s] complaint is perceived as section 32(1)(a), section 42, or section 43(a), liability necessarily turns on the existence vel non of material differences between the products of a sort likely to create consumer confusion." Id. at 640. "In suing under any of the three Lanham Trade-Mark Act provisions, a plaintiff need only show that a likelihoodof confusion is in prospect; a showing of actual confusion is not required." Id. In gray goods cases, "a material difference between goods simultaneously sold in the same market under the same name creates a presumption of consumer confusion as a matter of law." Id. A material difference is "any difference between the registrant's product and the allegedly infringing gray good that cons umers would likely consider to be relevant when purchasing a product." Id.
Heraeus America alleges a number of differences between the Heraeus dental products that it sells domestically and those sold by Omni.
Heraeus America maintains that all of its domestic dental products use different resin than those manufactured for sale abroad and thus differ materially in their chemical composition. Heraeus America also argues that the syringe delivery mechanism in its domestic CHARISMA products differs from those in the same products intended for sale in other parts of the world. The only authority offered to support these assertions is the deposition of Heraeus America's president, Perry Holden. Holden, however, did not claim personal knowledge of either of these supposed differences. When asked how he knew that the resin of the foreign and domes tic products are made from different monomers, Holden responded: "Word of mouth." Because Heraeus America has not offered any admissible evidence to support its composition claims, the court will not factor them into its determination.
The Heraeus dental products sold by Heraeus America are imported directly from Heraeus Germany. Heraeus America tracks these products by item and batch number in the event a recall is ordered. Omni, on the other hand, receives its Heraeus products from wholesalers who have purchased them in foreign markets. Omni cannot verify where its wholesalers acquire the Hera eus products as they refuse to divulge their origins, claiming that the information is a trade secret. Accordingly, Omni is unable to track the dental products from their origin, does not know the conditions under which they were shipped and stored, or even whether the products were actually manufactured by Heraeus Germany. "[A] substantial variance in quality control . . . creates a presumption of consumer confusion as a matter of law." Nestle, 982 F.2d at 643; see also Montblanc-Simplo 172 F. Supp. 2d at 239-240 (serial numbers missing from foreign pens constituted a material difference because the trademark holder could not recall products in event of manufacturing error).
Heraeus America's boxes are labeled in English and contain vibrant colors and modern, graphic designs. Omni's boxes lack such color and designs (and in the case of iBond, a box entirely). Many of the Omni boxes display prominent Chinese characters near the label, which are abs ent from the packaging of the authorized domestic products. A stark contrast in product appearance creates a risk of consumer confusion as a matter of law. See Nestle, 982 F.2d at 643 (cosmetic diffe rences in packaging of chocolates); Original Appalachain Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68, 73 (2d Cir. 1987) (physically identical Cabbage Patch Kids dolls differed materially because imported dolls came with Spanish birth certificates and adoption papers, while dolls authorized for sale domestically included only English pedigrees).
Heraeus America offers a technical assistance department and includes a domestic customer service email and telephone number on the box of each of its products. Omni does not employ a customer service staff to answer questions about its Heraeus products. The packaging of the Omni products contains contact information only for Heraeus Germany. Heraeus America also offers warranty coverage on the products it sells to authorized retailers, but does not offer coverage on Heraeus products not intended for sale in the United States. These variations in customer support and warranty coverage contribute to a finding of material differences between the foreign and domestic products. See Nestle, 982 F.2d at 639 n.7 ("[D]ifferences in, say, warranty protection or service commitments [ ] may well render products non-identical in the relevant Lanham Trade-Mark Act sense."); Bose Corp. v. Ejaz, 2012 WL 4052861, at *9 (D. Mass. Sept. 13, 2012) (one year difference in warranty between domestic and foreign radio systems constituted material difference); Fender Musical Instruments Corp. v. Unlimited Music Ctr., Inc., 1995 WL 241990, at *3 (D. Conn. Feb. 16, 1995) (foreign Fender guitars not covered by Fender warranty likely to create consumer confusion because they did not come with "services and guarantees that usually accompany such a sale").
In sum, given the relatively relaxed standard established by the First Circuit, Heraeus America has carried its burden on the issue of material differences.
The existence of material differences between foreign and domestic Heraeus dental products creates only a presumption of consumer confusion. Omni may rebut this presumption by presenting evidence that no confusion, in fact, exists. See Nestle, 982 F.2d at 641. Omni makes two principal arguments to support its assertion that dentists purchasing its products do not confuse them with those sold by Heraeus America: (1) that Omni gives notice in connection with its sales that it is not authorized to sell Heraeus dental products; and (2) that dentists are in fact aware of the differences between the authorized and un-authorized products.
A seller of gray market goods may rebut a presumption of consumer confusion with evidence of an effective disclaimer. See Home Box Office, Inc. v. Showtime/The Movie Channel, Inc., 832 F.2d 1311, 1315 (2d Cir. 1987) (In a trademark infringement action, "the use of disclaimers [is] an adequate remedy when they are sufficient to avoid substantially the risk of consumer confusion."). "A disclaimer may be an appropriate remedy if it truthfully identifies the original manufacturer of a trademarked product while effectively disassociating the manufacturer/markholder from that product when used in a context that the markholder does not sponsor or approve." Montblanc-Simplo, 172 F. Supp. 2d at 245. "And in this context, disclaimers expressly declaring that the seller is `not affiliated' with the trademark owner have been found to prevent consumer confusion." Id. (citing cases); see also Home Box Office, 832 F.2d at 1315 ("In many circumstance a disclaimer can avoid the problem of objectionable infringement by significantly reducing or eliminating consumer confusion by making clear the source of a product.").
Omni's "About Us" section of its website contains a statement that "Omni Dental is not affiliated with or an authorized dealer of any dental manufacturer of which product it sells, and can therefore offer you lower prices."
Like a Lanham Act claim, "the essential element of [an] action under the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, §§ 2, 11, is that defendant's use of a mark caused confusion among customers as to the source of the plaintiff's product." R .J. Toomey Co. v. Toomey, 683 F.Supp. 873, 879 (D. Mass. 1988). A claim under Chapter 93A must meet the additional requirement that the "actions and transactions constituting the alleged unfair method of competition or the unfair or deceptive act or practice occurred primarily and substantially within the commonwealth." Mass. Gen. Laws ch. 93A, § 11. The defendant, however, bears the burden of proving that the "center of gravity of the circumstances that give rise to the claim" resides outside the Commonwealth. Kuwaiti Danish Computer Co. v. Digital Equp. Corp., 438 Mass. 459, 470 (2003). Although Omni asserts in passing that its business has no connection to Boston, it has not addressed the issue in a Chapter 93A context. Consequently, Omni's motion for summary judgment on the Chapter 93A claim will be denied.
The Tariff Act provides that "it shall be unlawful to import into the United States any merchandise of foreign manufacture if such merchandise [or packaging] . . . 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 . . . and if a copy of the certificate of registration of such trademark is filed with the Secretary of the Treasury. . . ." 19 U.S.C. § 1526(a) (emphasis added). Heraeus America argues that it has proved Omni imported trademarked Heraeus dental products and that "nothing more is required to establish liability under the Tariff Act." This is not accurate as a matter of law. The Act plainly states that the trademark must first be registered with the Secretary of Treasury. To comply with this requirement, a trademark owner seeking protection must record its marks with the U.S. Customs Service. See 19 C.F.R. § 133.0; see also Shaw v. Rolex Watch U.S.A., Inc., 776 F.Supp. 128, 129 (S.D.N.Y. 1991) ("To employ Section 1526, the trademark owner must record the trademark with Customs."). The trademark owner's application must describe with particularity "any physical and material difference between the specific articles authorized for importation in the United States and those not so authorized" and provide evidence to support the claim. 19 C.F.R. § 133.2(e). Having failed to comply with these requirements, Heraeus America cannot now claim protection under the Tariff Act. Omni's motion for summary judgment on the Tariff Act claim will therefore be allowed.
For the foregoing reasons, Heraeus America's motion for summary judgment on Counts I and II is
SO ORDERED.
