Further to our January 23, 2012 post, on April 23, 2012, the International Trade Commission (the “Commission”) issued the public version of its opinion finding on remand that Respondents Bourdeau Bros., Inc., OK Enterprises, and Sunova Implement Co. (collectively, the “Bourdeau Respondents”) have violated Section 337 through gray market sales of self-propelled forage harvesters that infringe Complainant Deere & Co.’s (“Deere”) trademarks in Certain Agricultural Vehicles and Components Thereof (Inv. No. 337-TA-487). The Commission also reinstated a general exclusion order against the subject harvesters and cease and desist orders that had issued in the original investigation.
By way of background, the Commission instituted an investigation in February 2003 based on a complaint filed by Deere alleging that the Bourdeau Respondents and other Deere dealers had unlawfully imported and sold Deere’s European-version harvesters in the U.S. in violation of Section 337’s prohibition against importation of products “produced by the owner of the United States trademark or with its consent, but not authorized for sale in the United States,” often called “gray market goods.” In May 2004, the Commission determined that there were material differences between Deere’s North American-version and European-version harvesters, supporting a finding of trademark infringement and thus a general exclusion order.
In March 2006, the Federal Circuit vacated-in-part and remanded the Commission’s decision based on the additional requirement that Deere also show that “all or substantially all” of its authorized domestic products (North American version) are materially different from the accused gray market goods (European version). On remand, in December 2006, the ALJ issued an initial determination of infringement, finding that the original record showed that Deere did not authorize the sales of the European-version harvesters in the U.S., that new evidence of alleged Deere financing of the European version sold by its dealers did not show authorization, and that the number of sales the Bourdeau Respondents alleged were authorized was in any event so small that “substantially all” of Deere’s authorized U.S. sales were of the North American version.
In August 2008, the Commission reversed the ALJ, finding substantial evidence that Deere’s U.S. and European dealers had apparent authority to sell the European version, that Deere itself sold and/or facilitated the sale of the European version in the U.S., and that not “all or substantially all” of the authorized harvesters sold in the U.S. were the North American version. The Commission noted that since the total number of authorized sales of the North American version in the U.S. was approximately only 4400, the introduction of even a small number of the European version could cause substantial consumer confusion. The Commission then found such confusion based on its determination that at least 141 European version harvesters sold in the U.S. were sold by official Deere dealers. The Commission considered 141 to be a “substantial quantity” of nonconforming goods because it constituted 40 to 57% of the 247 to 347 European version harvesters sold in the U.S. by both official and independent (in some cases, accused) dealers. Importantly, the Commission did not use as its denominator the total number of authorized harvesters sold in the U.S., which would have been the number of authorized North American-version harvesters (4400) plus the number of authorized European-version harvesters (141), or 4541.
In May 2010, the Federal Circuit held that the Commission had misapplied the “all or substantially all” test, and that the denominator should have been the total authorized sales in the U.S. in accordance with the court’s remand instructions, not the total European-version sales in the U.S. Using the ratio dictated by its remand instructions as well as the Commission’s lower-end and upper-end findings, the court concluded that a total of 3.1 to 3.4% of the authorized harvesters sold in the U.S. were the European version, or conversely that 96.6 to 96.9% of the authorized harvesters sold in the U.S. were the North American version. The court observed that those figures may be insubstantial, but that that was for the Commission to determine on remand based on all of the relevant facts, noting that “[t]he cutoff as to what is to be considered ‘substantially all’ is a question of fact.” See our May 27, 2010 post for more details.
According to the April 23, 2012 opinion, the Commission determined on this second remand from the Federal Circuit that it was unnecessary to remand for any further proceedings before an ALJ, and ordered full briefing of the parties’ positions on final disposition.
In the briefing, Deere argued that the Federal Circuit had provided the figures that the Commission must use on remand in determining whether Deere had satisfied the “all or substantially all” test. Deere further argued that the “all or substantially all” test is designed to determine whether consumers will likely experience gray market product confusion caused by materially different goods, and that the small number of authorized sales of European-version harvesters in the U.S. was insufficient to remove the threat of gray market product confusion. According to Deere, if the 141 to 155 authorized sales of European-version harvesters were significant, then the average U.S. consumer would be accustomed to the differences between European-version and North American-version harvesters and would not expect to receive all of the features of a North American-version harvester when purchasing a European-version harvester. However, Deere contended that the evidence of record showed the opposite to be true.
The Bourdeau Respondents argued that the Federal Circuit had not definitively provided the figures that the Commission must use on remand in determining whether Deere had satisfied the “all or substantially all” test. According to the Bourdeau Respondents, the proper denominator for the “all or substantially all” test was only 1355 because only sales of new North American-version harvesters should be included—not sales of used North American-version harvesters. Thus, the Bourdeau Respondents argued that a range of ratios from 3.1% to 18.8% should be considered by the Commission. And, according to the Bourdeau Respondents, this range failed to demonstrate that “substantially all” of Deere’s authorized sales in the U.S. were sales of the North American-version harvesters. The Bourdeau Respondents additionally argued that Deere had failed to meet its alleged burden of proving a diminishment of value of its trademarks.
After examining the record of the investigation, including the parties’ submissions, the Commission determined that Deere had established that substantially all of the U.S. sales of the subject harvesters were of the North American version, and that Deere had therefore met its burden to prove on remand that it satisfied the “all or substantially all” test for gray market trademark infringement. The Commission agreed with Deere that the Federal Circuit had already adjudicated the numerical baseline to be used on remand in considering the “all or substantially all” test. The Commission then found that 96.6 percent to 96.9 percent constitutes “substantially all” on the record presented. In particular, the Commission found that if the number of authorized European-version harvesters sold in the U.S. were significant, then an ordinary U.S. consumer would be accustomed to the differences between European-version and North American-version harvesters. However, the Commission found that the evidence showed the opposite to be true—consumers have consistently been confused and frustrated by the differences between the two versions of harvesters. Accordingly, the small number of authorized sales of European-version harvesters in the U.S. was insufficient to prevent Deere from obtaining relief on its claim of gray-market trademark infringement. The Commission further found that, contrary to the Bourdeau Respondents’ assertions, the Federal Circuit’s remand instructions did not pose the additional question of whether Deere had established the diminishment in value of its trademarks.
With respect to remedy, the Commission found that given that the record of the investigation was unchanged, the scope of the Federal Circuit’s remand did not invite revisiting the original remedy determination, and there was no basis for doing so in any event. Accordingly, the Commission reinstated the general exclusion order and cease and desist orders with respect to European versions of the subject harvesters that had been issued by the Commission in the original investigation.