U.S.-based owners who sell all or part of their overseas businesses may be restrained by courts from attempting to use their old trademarks, even in foreign markets. Within the past year, a federal judge in the Eastern District of California issued an injunction restraining sales in the Middle East by a company controlled by the former U.S. owner of the same marks. The decision in Seed Services, Inc. v. Winsor Grain, Inc., 2012 WL 1232320 (E.D. Cal. Apr. 11, 2012) is noteworthy for American businesses with significant export sales. Traditionally, the law of intellectual property – including trademarks, patents, and copyrights – has been strictly territorial, so that U.S. courts will often refuse to hear suits for infringements that occur outside the country. However, for sixty years, the U.S. Supreme Court has allowed courts to restrain overseas sales of goods under U.S. trademarks in very limited circumstances. Even so, where the other seller has a valid registration for the same trademark in the foreign country, U.S. courts will usually not intervene.
Less than six months before the Seed Services decision, a federal judge in the Central District of California had refused to take action against use of a Japanese mark that was identical to the U.S. mark in dispute. Pinkberry, Inc. v. JEC International Corp., 2011 WL 6101828 (C.D. Cal. Dec. 7, 2011). In that case, the judge found, among other things, that the pending dispute in the Japan Patent Office (JPO) would need to be resolved before any U.S. court would weigh in on the mark's use in Japan.
In Seed Services, a California company purchased various trademarks from a Minnesota company for seed. The Minnesota company also promised not to sell similar seed products to the Middle East. However, sometime after the sale, the California company found that the original owner of the Minnesota company had registered the same trademark in Australia through an Australian company he owned, and was making sales of similar seed under the same mark to customers in the Middle East. The federal judge in Seed Services granted the California company's request for an injunction restraining the former owner's sales to customers in the Middle East under the same mark.
U.S. businesses should be mindful that after selling their U.S. trademarks, they may be liable to the purchasers of those marks for the continued use of the same mark in other countries. This is particularly true where the mark is not actually registered in the country where goods are sold, and where the seller had agreed not to continue selling to customers in the overseas market. Companies concerned with managing the intellectual property rights and obligations relating to the products they sell should consider indemnification provisions in their sales contracts as well as other protections.