ROCKWELL AUTOMATION, INC. v. RADWELL INTERNATIONAL, INC.
Filing
551
OPINION. Signed by Judge Robert B. Kugler on 12/30/2019. (rtm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
__________________________________________ )
Rockwell Automation, Inc.
)
Plaintiffs,
)
Civil No. 15‐05246 (RBK/JS)
v.
)
)
Opinion
Radwell International, Inc.,
)
Defendants. )
__________________________________________ )
KUGLER, United States District Court Judge
Before the Court in this action concerning, among other things, trademark
infringement is a motion [“the motion”] (ECF Doc. 331) of defendant Radwell International,
Inc. [“Radwell”] against plaintiff Rockwell Automation [“Rockwell”] under Federal Rule of Civil
Procedure [“Fed. R. Civ. Proc.” or “Rule”] 56(a) for partial summary judgment on Counts I,1 III,2
and V3 of plaintiff’s second amended complaint [“the complaint”] (ECF Doc. 140). The motion
is based on the argument in ECF Doc. 331‐1 that recent United States Supreme Court authority
ends the judge‐made “material difference” theory of trademark infringement and therefore
these Counts fail.
The COURT HAVING REVIEWED the parties’ submissions without a hearing as
endorsed by Rule 78.1 (b), and for the reasons below, and for good cause shown,
The Court DENIES the motion for partial summary judgment as to Counts I, III, and V
of the complaint. An appropriate Order accompanies this Opinion.
1 Trademark Infringement under 15 U.S.C. §1114 (Lanham Act)
2 False Designation of Origin under 15 U.S.C. §1125(a)(1)(A) (Lanham Act)
3 Statutory Unfair Competition under N.J. Stat. Ann. §56:4‐1 et seq.
1.0
Background and Procedure
The parties already aware of the lengthy procedural history in this action, what follows
is an abridged version of that history which focuses on information relevant to the motion.
Plaintiff Rockwell classifies itself as the world’s largest firm that makes and sells a large
number of products for various uses in industrial automation systems. Complaint, ECF Doc.
140: ¶5. Safety and reliability of these products and their parts are of paramount importance
not only to customers, but to Rockwell as a manufacturer to minimize quality problems and/or
products liability claims. All of Rockwell’s products bear one or more of its U.S. registered
trademarks,4 which Rockwell asserts are source identifiers to its U.S. customers of its strict
warranty, quality control measures, and customer support for each product sold in the U.S. Id.:
¶23‐29. To preserve its warranty and quality control, Rockwell sells its trademarked goods
only through a contract‐delimited supply chain of authorized distributors. Id.: ¶24. To become
Rockwell‐authorized, a distributor must obligate itself via an executed agreement with
Rockwell NOT to sell Rockwell goods to “non‐value‐added resellers”. Id.: ¶28. Specifically,
Rockwell has created a closed and exclusive supply chain of its trademarked goods by
obligating a vertical supply network of authorized distributors to sell Rockwell trademarked
goods ONLY to those customers who will NOT re‐sell the goods on the gray market. Id. Thus,
only authorized distributors may sell Rockwell’s goods to only those purchasers who must
forego re‐sale in unauthorized markets.
On 6 July 2015, Rockwell initiated this action against defendant Radwell. On 16
4 Rockwell owns twelve trademarks at issue in this matter. All of which pertain to either its Allen‐Bradley or Rockwell
Automation, or other products and all are registered on the Principal Register of the U.S. Patent and Trademark Office.
2
February 2016, it filed a first amended complaint and on 28 March 2017 a second amended
complaint, which is the complaint that controls here. The complaint has the following claims
relevant to the motion: trademark infringement under 15 U.S.C. §1114 (Count I), false
designation of origin under 15 U.S.C. § 1125(a)(1)(A) (Count III), and statutory unfair
competition under N.J. Stat. Ann. §56:4‐1 et seq. (Count V). It alleges Radwell has been selling
in the United States certain products bearing Rockwell trademarks but which are unauthorized
and unlawful gray goods. Complaint, ECF Doc. 140: ¶¶185‐196. The complaint further alleges
Radwell is not an authorized dealer of Rockwell goods in the U.S. Consequently, those goods
Radwell has sold in the U.S. [“Radwell gray goods”] have been imported and/or sold in the U.S.
without Rockwell’s warranty, quality control and customer support and are therefore
materially different from Rockwell U.S. goods. As unauthorized gray goods bearing
Rockwell’s trademarks, Radwell goods appear identical to Rockwell U.S. goods. However,
Radwell gray goods lack the quality control, safety, warranty, and other quality benefits, which
Rockwell alleges make Radwell goods inferior. Id. at ¶¶147‐150. The complaint alleges the
Radwell gray goods confuse the public as to their source and quality and thereby infringe
Rockwell’s trademarks and are consequently unlawful. Id. at 196‐273.
Rockwell also alleges that it sells only to authorized dealers or in a very limited way
directly to customers. Id. at least at ¶158. Further, Rockwell claims, in order to get around the
barrier that Radwell was not an authorized U.S. distributor of Rockwell goods, Radwell
committed fraud by creating a purchasing network of third party agents that bought Rockwell
goods from Rockwell authorized distributors and sold them to Radwell. Id. at ¶¶151 – 174;
¶¶188‐191. Thus, it is Rockwell’s contention that its authorized distributors, intending to meet
3
their contractual obligations to Rockwell, nonetheless sold goods they did not know were
intended for Radwell’s ultimate purchase. Id. at ¶¶129 and 161. Radwell in turn re‐sold the
goods in the U.S. without authorization from Rockwell.
Rockwell alleges Radwell has deceived its authorized distributors to breach their
distributorship agreements and/or received unauthorized Rockwell Products from
unauthorized sources (Id. at ¶¶ 113‐119, 205‐206). Rockwell further alleges Radwell was only
able to re‐sell these products through a deceptive marketing scheme, largely through an
internet site that advertises the products as “Radwell verified substitutes” for authorized
Rockwell products. Id. at ¶¶123‐127.
On 6 September 2017, Rockwell petitioned the International Trade Commission [“ITC”]
to institute an investigation of several respondents including Radwell pursuant to 19 U.S.C.
§1337 [“the investigation” or “§337 investigation”]5, In the ITC petition, Rockwell alleged the
same claims as in the complaint. On 10 October 2017, the ITC instituted an investigation into
Rockwell claims. On 21 November 2017, in response to Radwell’s motion to stay the litigation,
this Court ordered discovery in this matter stayed, pending the final resolution of the related
ITC proceedings. ECF Doc. 278:2.
On 12 July 2018, Radwell voluntarily entered into a consent order stipulation with the
ITC by which it agreed it would stop selling, importing, and selling for import any goods
bearing Rockwell marks. On 20 July 2018, the ITC Administrative Law Judge [“ALJ”] issued an
initial determination, which formally approved Radwell’s consent stipulation, and which
5 Such investigations aim to protect U.S. industry from harm by detecting and prohibiting the sale, the importation, or the
sale‐for‐import of unlawful, i.e., infringing, goods.
4
constituted an ITC consent order and formally terminated the investigation as to Radwell. On
15 August 2018, the ITC Commission in full accepted Radwell’s consent stipulation; the ITC
consent order became effective; and the stay of discovery (ECF Doc. 278:2) in this matter was
terminated.
On 12 March 2019, Radwell filed this summary judgement motion (ECF Doc. 331); the
opposition (ECF Doc. 350) and reply papers (ECF Doc. 369) were timely filed.
2.0
2.1
Parties Contentions
Defendant
Defendant Radwell’s foremost argument is that, after the Supreme Court’s ruling in
Lexmark,6 intellectual property [“IP”] rights have been held exhausted upon the first sale of the
items covered by those rights, whether domestic or international, unless there is an express
statutory exception to the contrary. Further, Radwell argues, since the first sale doctrine
applies to goods and services covered by registered trademarks and as the Lanham Act lacks
an express exception to the first sale doctrine, the IP rights in the Rockwell goods sold in
commerce inside or outside of the U.S. were necessarily exhausted under Lexmark upon
Radwell’s purchase of Rockwell‐marked goods. Moreover, lacking an express statutory
exception to the first‐sale doctrine, the Lanham Act can provide Rockwell no statutory basis to
sue Radwell for trademark infringement and the ancillary counts depending on that
infringement. ECF Doc. 369: 2.
6 Impression Products, Inc. v. Lexmark International, Inc., 137 S.Ct. 1523, 198 L.Ed.2d 1 (2017) (Roberts, CJ) [holding that
patentee had exhausted its patent rights on printer cartridges sold either domestically or internationally.
5
Radwell’s argument relies on what it regards as the necessary inference of Lexmark:
that the judge‐made exception of “material differences” between the marked item sold or
authorized by the mark owner and the gray good sold by a downstream marketer, even if
unauthorized, is now without legal support. In other words, Radwell contends Lexmark
abolished the doctrine that the sale of gray goods, even if “materially different” from the
goods authorized for sale in the U.S., necessarily creates consumer confusion as to the source
of those goods. It further contends that another Supreme Court case, Kirtsaeng,7 involving the
domestic and international exhaustion of copyrighted gray goods supports this interpretation.
The “material differences” doctrine, which is judge‐made law, has been an exception to
the doctrine that the first sale of a good covered by IP exhausts the IP owner rights in the good.
And it is this doctrine that Rockwell has relied on to base its trademark infringement and
ancillary claims. Radwell asserts that, since Lexmark, Rockwell cannot argue that its goods,
sold in its approved marketing chain and bearing certain warranties of quality and safety, are
“materially different” from the same Radwell goods, which lacked those warranties.
Radwell argues Lexmark did away with “the material differences” doctrine by asserting
the first sale doctrine trumps every sale unless there is a statutory exception. Therefore, the
quality and safety assurances of Rockwell to its U.S. purchasers cannot, without a statutory
exception in the Lanham Act, create a “materially different” good than a Radwell gray good,
which lacks those warranties. ECF Doc. 369:8. Radwell argues, regardless of who sold the
7 Kirtsaeng v. John Wiley & Sons, 568 U.S. 519,133 S.Ct. 135, 1185 L.Ed.2d 392 (2013) holding that the first sale doctrine, codified
in the Copyright Act, and which provides that an owner of a copy of a copyrighted work “lawfully made under this title” is
entitled, without authority of the copyright owner, to sell that copy, now also applies to copies lawfully made abroad and
abrogating Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008); Denbicare U.S.A. Inc. v. Toys “R” Us, Inc., 84 F.3d
1143 (9th Cir. 2013); and Columbia Broadcasting System, Inc. v. Scorpio Music Distributors, Inc., 569 F. Supp. 47 (E.D.PA 1983).
6
Rockwell marked good in the U.S. and regardless of whatever assurances were or not attached
to that good, the Rockwell’s rights in those goods were exhausted whenever or wherever first
sold, with or without the mark owner’s authorization. Ultimately, Radwell argues Lexmark held
an absolute exhaustion of IP rights after first sale applies, unless there is a statutory, not a
judge‐made, exception, which Radwell notes the Lanham Act lacks.
2.2
Plaintiff
Rockwell avers the Radwell gray goods were not authorized first sales that exhausted
Rockwell’s IP rights in the goods. This is because of Radwell’s fraud. Radwell lied to authorized
dealers in order to buy these goods and then sold them without the warranties of quality,
safety, and customer service that Rockwell required of its authorized distributors. ECF Doc.
350: 1 and ECF Doc. 350‐1:2.8 Rockwell therefore asserts the Radwell gray goods were not and
could never be authorized sales of Rockwell goods but were instead “materially different” in
their quality, safety, and replacement warranties, which Rockwell effected only for authorized
goods sold in the U.S. Put simply, having been bought outside of the U.S. for re‐sale within the
U.S., Radwell gray goods lacked Rockwell warranties.9 Nonetheless, the ultimate U.S.
purchaser would very likely not know the Radwell gray goods lacked the Rockwell warranties,
which would create consumer confusion as to the source of the goods, especially when it came
time for the U.S. purchaser to request Rockwell’s compliance with a warranty and was refused.
ECF Doc. 350: 1.
8 To be clear, authorized first sales are purchases of goods bearing Rockwell marks bought from authorized Rockwell
distributors; these sales do invoke the first sale doctrine and exhaust Rockwell’s IP rights in those goods.
9 Rockwell would not recognize or honor those warranties for those goods even though sold in the U.S.
7
Consequently, Rockwell argues the Radwell gray goods were “materially different”
from authorized U.S. goods in that being sold without Rockwell authorization in the U.S., they
lacked the warranties of authorized U.S. goods. Because of these material differences, the
Radwell gray goods cannot invoke the first sale doctrine, no matter how many times they were
sold and re‐sold in the United States. The “material differences” exception to the first sale
doctrine for marked gray goods is set forth in long‐standing judge‐made law, impelled by the
inevitable consumer confusion roused when gray goods materially differ from U.S. authorized
goods. Ultimately, such consumer confusion is the hallmark of trademark infringement. Id. at
8‐9.
Rockwell also contends Radwell is precluded under the doctrines of res judicata,
collateral estoppel, and law of the case from asserting the defense that the first sale doctrine
bars Rockwell’s trademark infringement claim. Rockwell states Radwell has already raised and
lost on this defense twice before. Id. at 6.
3.0
3.1
Legal Standards
Summary Judgment Generally
Summary judgment is appropriate “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c). An issue is “genuine” if the evidence is such that a
reasonable jury could return a verdict for the non‐moving party. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A factual dispute is “material” if it might affect the outcome of the
8
case under governing law. Id.
The movant bears the initial burden of proof to present those portions of the record it
believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett,
477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the movant makes this showing,
the burden shifts to the non‐moving party to offer evidence establishing the existence of a
genuine dispute that compels a trial. Id. at 324. Specifically, the non‐movant “must set forth
specific facts showing that there is a genuine issue for trial” ((Fed. R. Civ. P. 56(e); Celotex, 477
U.S. at 324)) through affidavits or otherwise as provided by Rule 56 and must “identify those
facts of record which would contradict the facts identified by the movant.” Port Auth. of N.Y.
and N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 233 (3d Cir. 2002). If the non‐movant fails to do
so, the Court must grant summary judgment. Big Apple BMW v. BMW of North America, 974
F.2d 1358, 1363 (3d Cir.1992). The evidence introduced to defeat or support a motion for
summary judgment must be capable of being admissible at trial. Callahan v. AEV, Inc., 182 F.3d
237, 252 n. 11 (3d Cir.1999) (citing Petruzzi's IGA Supermarkets, Inc. v. Darling‐Delaware Co., 998
F.2d 1224, 1234 n. 9 (3d Cir.1993)).
In evaluating whether there is a genuine dispute of material fact, the Court considers all
facts and ambiguities in the light most favorable to the non‐moving party (Anderson v. Liberty
Lobby, 477 U.S. 242, 255; Burton v. Teleflex Inc., 707 F.3d 417, 425 (3d Cir.2013)) and also draws
all reasonable inferences in their favor. (Burns v. Pa. Dep’t of Corr., 642 F.3d 163, 170 3d
Cir.2011)). However, the Court determines not “the truth of the matter,” but whether a
genuine dispute of material fact necessitates a trial. Anderson, 477 U.S. at 242; Petruzzi's IGA
Supermarkets, 998 F.2d at 1230. The Court therefore neither weighs the evidence nor makes
9
credibility determinations as these are tasks for the fact finder. Petruzzi's IGA Supermarkets,
998 F.2d at 1230.
A fact is material only if it can “affect the outcome of the suit under governing law”
(Kaucher v. Cty. of Bucks, 455 F.3d 418, 423 (3d Cir. 2006)). A material fact raises a genuine
dispute “if the evidence is such that a reasonable jury could return a verdict” for the non‐
moving party. Healy v. N.Y. Life Ins. Co., 860 F.2d 1209, 1219 n. 3 (3d Cir.1988). Speculation,
conclusory allegations, suspicions, or mere denials do not suffice to raise a genuine dispute of
material fact. Jutrowski v. Township of Riverdale, 904 F.3d 280, 288‐289 (3d Cir. 2018). Nor
does reliance on the pleadings suffice, rather the non‐moving party “must present affirmative
evidence … from which a jury might return a verdict in his favor.” Anderson, 477 U.S. at 256.
When contradictory, material facts are presented, a genuine dispute is raised, which
undercuts a decision for summary judgment. However, even with a presentation of
contradictory facts, there can be no genuine dispute when one party fails “to make a showing
sufficient to establish the existence of an element essential to that party's case, and on which
that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322–23. When the movant
has completely failed to show an essential element of its case, all other facts are immaterial. Id.
at 323; Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir.1992).
3.2
“Material Differences” Exception to Exhaustion of IP Rights after a First Sale
Although all Circuits that have considered the “material differences” exception in the
10
last twenty‐five or thirty years have adopted it,10 this discussion focuses on Third Circuit case
law and on Abbott Laboratories et al. v. Adelphia Supply USA et al., Civ. No. 15‐5826 and 17‐
6002, 2019 WL 5696148 (E.D.N.Y. 30 Sep 2019). The Court considers Abbott Labs because it is
the only federal case after Lexmark to offer a full exposition as why Lexmark in no way eroded
the “material differences” doctrine.
Iberia Foods Corp. v. Romeo, 150 F.3d 298 (3d Cir. 1998) is the Third Circuit’s defining
case on the exception to the first sale doctrine because of “material differences” of
unauthorized gray goods. The relevant procedural history in Iberia is that Iberia owned the
valid, U.S. registered mark, Mistolin®, and sold Mistolin® products in the U.S. Id. at 300. Iberia
had the Mistolin® goods manufactured under license by Caribe, a Puerto Rican entity. Id. at
301. Since Iberia was the sole distributor of Mistolin® products in the U.S., Caribe sent to Iberia
the Mistolin® products it had made in Puerto Rico. Id.
Defendant Rol‐Rom11 bought products bearing the Mistolin® mark on the open market
in Puerto Rico and sold them in New Jersey and New York in direct competition with Iberia. Id.
at 300. Iberia sued for, among other things, trademark infringement, arguing Rol‐Rom’s sales
of its gray goods in the U.S. market circumvented Iberia’s quality control measures and that
Rol‐Rom’s good were therefore not “genuine” Mistolin® products and injured the good will
invested in the Mistolin® mark. Id.
Rol‐Rom pushed back in a summary judgement motion, contending Puerto Rico is a
United States territory and therefore the goods it sold were not gray goods as a U.S.
10 See Plaintiff’s listing of case law from almost all Circuits that espouse the material differences exception to first sale
exhaustion of trademark rights for illegally imported or unauthorized gray goods. ECF Doc. 35:9.
11 a New Jersey based distributor of household cleaning products
11
registration grants federal IP rights in U.S. territories. Id. Importantly for the present
discussion, Rol‐Rom also argued the first sale doctrine exhausted Iberia’s IP rights because
Iberia had not restricted Caribe’s license to sales only to Iberia as mark owner. Id. at 301. Rol‐
Rom averred Iberia had granted Caribe a “naked license”, which was unrestricted and which in
effect gave Caribe the right to sell to any downstream entity regardless where the Mistolin®
products were eventually marketed to the consumer. Id. Rol‐Rom claimed the Mistolin®
products it purchased from Caribe exhausted Iberia’s IP rights in the products Rol‐Rom
imported and sold in the U.S.
The district court found summary judgement in favor of Iberia, holding that Rol‐Rom’s
products were not “genuine” because they never passed through Iberia’s post‐manufacture
quality controls; Rol‐Rom appealed. Id. The Third Circuit reversed, finding Rol‐Rom’s products
did not “materially differ” from Iberia’s. Id. at 302. The Court declared the primary question
on appeal was the “genuineness” of Rol‐Rom’s Mistolin® gray goods and then clarified
throughout the rest of the opinion how a mark owner’s imposition of quality control measures
over the marked goods may or not create “material differences” as compared with allegedly
infringing gray goods. Id.
The Third Circuit’s reasoning is instructive here. It set forth that the “material
differences” doctrine aims to determine whether the marked goods are non‐genuine and
therefore infringing and likely to injure the good will developed by the trademark owner in its
goods. Id. at 302. “The test for whether an alleged infringer’s products are genuine asks
whether there are ‘material differences’ between the products sold by the trademark owner
and those sold by the alleged infringer.” Id. at 301‐302 citing See Société des Produits Nestlé,
12
S.A. v. Casa Helvetia, Inc., 982 F.2d. 633, 638 (1st Cir. 1992); Martin’s Herend Imports, Inc. v.
Diamond & Gem Trucking USA, 112 F.3d 1296, 1303 (5th Cir.1997). If there are no “material
differences” between the owner’s products and those of the alleged infringer, then the alleged
infringer’s are genuine and there is no trademark infringement under §32 of the Lanham Act.
Id. at 302. When a mark owner licenses another firm to make and mark its product, the mark
owner may impose quality and inspection requirements on the licensed product in order to
shore up and maintain consumer goodwill associated with its mark. Id. Since such quality
control requirements may create only subtle differences that may be difficult to measure, the
test whether these quality demands imposed by the mark owner create “material differences”
is whether they “are likely to result in differences between the products such that the
consumer confusion regarding the sponsorship of the products could injure the trademark
owner’s goodwill. See Warner‐Lambert Co. v. Northside Dev. Corp., 86 F.3d 3,6 (2d Cir. 1996).”
Id. at 304.
For the Third Circuit, the test to determine “material differences” especially as to
quality control measures and procedures boils down to whether the quality differences of the
allegedly infringing goods confuses consumers as to the source of the goods such that the
good will in the mark is diminished. Id. Importantly, the Iberia Court looked to the First,
Fifth, and Second Circuits for guidance in distinguishing “genuine” products and particularly,
to the Second Circuit in defining “material differences” as a function of the diminishment of
the owner’s mark. The Iberia Court cited Warner‐Lambert, 86 F.3d at 6 (2nd Cir. 1996) as
support that the “trademark holder must show that it uses substantial and nonpretextual
quality control procedures such that nonconforming sales will diminish the value of the mark”.
13
Id.
There is currently no Third Circuit case directly on point for whether the Supreme
Court’s holdings in Lexmark and Kirtsaeng end the “material differences” judge‐made doctrine
for trademarks. Nonetheless, Abbott Laboratories v. Adelphia Supply USA, Civ. Nos. 15‐5826
and 17‐6002, 2019 WL 5696148 (E.D.N.Y. 30 Sep 2019) is the single, post‐Lexmark case that
squarely decides this Supreme Court authority does not disturb the doctrine. Abbott is
instructive here because the Third Circuit has in the past relied on Second Circuit guidance to
shape its own “material differences” jurisprudence. See Iberia, 150 F.3d at 304.
In answering whether Lexmark and Kirtsaeng even considered the trademark
infringement of gray goods, the Abbott court said, in a word, no. It was “not persuaded that
the principles enunciated in Kirtsaeng and Impression Products [Lexmark] disturb this Circuit’s
law on trademark infringement with respect to gray goods”. Abbott, 2019 WL 5696148, at *5.
In Abbott, plaintiff Abbott Labs made and sold FreeStyle® and FreeStyle Lite® blood
glucose strips used worldwide by diabetics to monitor their blood sugar level. Id. at *2. The
strips sold domestically were identical to those sold internationally, except for pricing and
packaging. Id. The pricing disparity, in particular, fostered price arbitraging by downstream
companies, which purchased the cheaper international strips abroad and imported them into
the U.S as gray goods for sale at a higher price. Id. at *3. Abbott Labs had instituted several
and distinct quality control measures for those blood glucose strips intended for sale in the
U.S., which the international strips lacked. Abbott Labs controlled these measures12 strictly,
12 These included: 1) the domestic package bore an NDC number on the front and bottom of the box, which the international
packages lacked. Thus, the domestic package could be easily identified in a recall. 2) the domestic package contained several
warnings and instructions about using the strip; the international box contained instructions that the U.S. Food and Drug
14
diligently, persistently, and unequivocally. Id.
While recognizing “the first sale doctrine is deeply rooted in common law” with
“applications in copyright, patent, and trademark law”, the Abbott Court reasoned that
different IP applications serve different public interest purposes. Id. at *5. It revisited relevant
“material differences” case law from different Circuits to work through whether Kirtsaeng on
copyright exhaustion and Lexmark on patent exhaustion now control or could control on
trademark infringement of gray goods. Id. at *4‐5. From this review, the Abbott Court
formulated the singular proposition that a trademark is not about giving a duration‐limited IP
right, such as a copyright and a patent (Id. at *5) but kept returning to the uniqueness of
trademarks as a source identifier and brand creator that consumers can count on for as long as
the mark is used in commerce. Id.
Its case law review revealed to the Abbott Court the fundamental proposition that
“materially different” goods not intended for domestic sale may give rise to Lanham Act
liability because they are not considered “genuine, under the so‐called ‘first‐sale doctrine’
[citations omitted]”. Id. This formulation arose especially from the Abbott Court’s reliance on
the bedrock case, Société des Produits Nestlé, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 638 (1st
Cir. 1992), from which much of the “material differences” law of the Circuits, including the
Third’s, flows. Id.
The Abbott Court characterized Société des Produits Nestlé as standing for the
following:
“ the maxim that trademark law does not prohibit ‘the sale of genuine goods
Administration had explicitly rejected; 3) the domestic package listed a U.S. toll‐free customer‐help phone number, while the
international packages listed international numbers. Abbott, 2019 WL 5696148, at *3.
15
bearing a true mark even though such sale is without the mark owner’s consent’ is
inapplicable ‘when genuine, but unauthorized, imports differ materially from
authentic goods authorized for sale in the domestic market’—rather, ‘an
unauthorized importation may well turn an otherwise genuine product into a
counterfeit one.’ ” Abbott, 2019 WL 5696148, at *5 [emphasis added].
In essence, the Abbott Court’s reliance stems from:
“ the unauthorized importation and sale of materially different merchandise
violates Lanham Trade–Mark Act section 32 because a difference in products
bearing the same name confuses consumers and impinges on the local trademark
holder's goodwill”. Société des Produits Nestlé, 982 F.2d at 638.
To the point, the Nestlé Court had specified that unauthorized importation occurs not
because of “the registrant's consent to a third party's use of the mark abroad but [because of]
the registrant's consent (or lack thereof) to the defendant's sale of the gray good in the
domestic market. See Original Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68,
73 (2d Cir.), cert. denied, 484 U.S. 847, 108 S.Ct. 143, 98 L.Ed.2d 99 (1987)” [emphasis added].
Abbott, 2019 WL 5696148, at *5.
In summary, the Abbott Court found support neither from the Lexmark/Kirtsaeng
holdings nor from the application of them to the judge‐made law of the Second, or any other,
Circuit for an abolition of the “material differences” doctrine of marked, gray goods.
Because of the thorough‐going reviews of the “material differences” exception to the
first sale doctrine in Iberia and Abbott and given that neither Lexmark nor Kirtsaeng raised or
had reason to even consider the “material exception” doctrine as applied to trademarks, this
Court relies on Third Circuit reasoning in Iberia and on the relevant considerations in Abbott for
the continued relevance and applicability of the “material differences” doctrine to the motion
here.
16
As a parting thought whether Lexmark/Kirtsaeng holdings could ever vitiate “material
differences” jurisprudence, this Court finds informative and controlling the Supreme Court’s
recent characterization of a trademark’s purpose:
“ A trademark ‘designate[s] the goods as the product of a particular trader’ and
‘protect[s] his good will against the sale of another's product as his.’ United Drug Co.
v. Theodore Rectanus Co., 248 U.S. 90, 97, 39 S.Ct. 48, 63 L.Ed. 141 (1918); see also
Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 412–413, 36 S.Ct. 357, 60 L.Ed. 713
(1916). It helps consumers identify goods and services that they wish to purchase,
as well as those they want to avoid. See Wal–Mart Stores, supra, at 212–213, 120
S.Ct. 1339; Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 198, 105 S.Ct. 658,
83 L.Ed.2d 582 (1985) ”. Matal v. Tam,582 U.S.___, 137 S.Ct. 1744,198 L.Ed.2d 366
(2017).
As the Abbott Court observed, “the Supreme Court has long recognized the ‘historic kinship
between patent law and copyright law’, but the Supreme Court itself has “consistently
rejected the proposition that a similar kinship exists between copyright law and trademark
law. Sony Corp. of Am.v. Universal City Studios, Inc., 464 U.S. 417, 439 & n. 19 (1984)”.
Abbott, 2019 WL 5696148, at *5. And, based on the Supreme Court’s recent comments in
Tam above, this Court likewise rejects the proposition that a similar kinship exists between
patent law and trademark law.
4.0
4.1
Discussion
Jurisdiction and Venue
The Court has subject matter jurisdiction over this action pursuant to the federal statute
governing trademarks at 15 U.S.C. §1121 as well as general personal jurisdiction because
defendant Radwell’s headquarters are in New Jersey. Pursuant to 28 U.S.C. §1391(b)(1), venue is
also proper based on the location of Radwell headquarters.
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4.2
Application of the “Material Differences” Doctrine to the Facts Asserted Here
Radwell does not seek a ruling regarding whether the facts are in dispute here. In fact,
Radwell does not dispute it sold gray goods into the United States that bore identical marks as
those on Rockwell’s machines and machine parts authorized for sale in the United States. Nor
does it dispute its gray goods lacked the same warranties of quality, safety and replacement as
Rockwell’s U.S. authorized goods. What Radwell does dispute is the application of the first
sale doctrine to gray goods. Specifically, Radwell seeks this Court’s death knell to the
“material differences” judge‐made exception that exhaustion of rights is inapplicable to the
first sale of unauthorized gray goods. In arguing its interpretation of how a recent Supreme
Court case involving patented goods changed the law on trademark infringement, Radwell
seeks a new, unprecedented application of the first sale doctrine for gray goods covered by
trademarks.
In a summary judgement motion, that’s a tall order. The Court notes Radwell’s
recurring argumentation13,14 that exhaustion based on the first sale doctrine is an absolute
defense to trademark infringement. Those arguments would hold true, if not for the “material
differences” jurisprudence that excludes unauthorized gray goods from the first sale doctrine,
which this Court expressly holds is alive and well as discussed in the previous section. Said
13 In its motion to dismiss [“MTD”] brief under FRCP 12(b)(6) [ECF Doc. 72‐2:15‐23], Radwell asserted Rockwell had
insufficiently pleaded the Rockwell goods were materially different from the Radwell gray goods.
14 In Motion Docket No. 1074‐017 in a 337 proceeding before the International Trade Commission at Certain Industrial
Automation Systems, USITC Inv. No. 337‐TA‐1074, Radwell also presented a similar argument as made here that Lexmark
vitiated the material differences exception to the exhaustion doctrine. The ITC Administrative Law Judge declined to accept
the argument, stating “Radwell has not demonstrated that these decisions [referring expressly to Lexmark and Kirtsaeng v.
John Wiley & Sons, Inc., 568 U.S. 519, 538 (2013)] defeat Rockwell’s gray market allegations as a matter of law”. She also
noted the ITC legal “[s]taff says that the first sale bar applies under trademark law but that the judicial exception for material
differences is well‐established in the circuits, including in the Federal Circuit” [which governs appeals of ITC decisions]. Certain
Industrial Automation Systems, USITC Order No. 27, Inv. No. 337‐TA‐107 (30 May 2018).
18
directly, this Court finds Radwell’s claim that Lexmark exerts an all‐inclusive command over the
exhaustion of the first sale of goods covered by IP to be just wrong. This Court confirms with
the Abbott Court that the “material differences” jurisprudence was not disturbed by Lexmark
or Kirtsaeng.
With the confirmation that the “material differences” judge‐made law persists to
except unauthorized gray goods from the first sale doctrine, what remains in this motion is a
check of whether material facts are in genuine dispute. The Court finds two material facts
disputed in the parties’ arguments.
First, Radwell asserts there can be no “material differences” between the gray goods it
sells in the U.S. and Rockwell’s U.S. goods because that judge‐made exception is legally dead.
Rockwell counters Radwell’s goods in the U.S. are in fact “materially different” from Rockwell’s
U.S. goods and for that reason, Radwell infringed Rockwell’s marks. Second, the “material
differences” of Radwell’s goods arises from its selling those goods as an unauthorized Rockwell
distributor in the U.S. Radwell neither admits nor denies its status as an authorized distributor,
whereas Rockwell asserts Radwell is not authorized.
Given the continued good health of the “material differences” doctrine, whether
Radwell is an authorized distributor of Rockwell goods sold in the U.S. is a question at the heart
of the trademark infringement and ancillary counts. Under Third Circuit standards, these
disputed facts must be reserved for the fact finder, which means on balance Radwell’s motion
fails.
Finally, the Court acknowledges Rockwell’s contentions that Radwell’s arguments
regarding the “material differences” exception are barred by legal estoppel given that Radwell
19
has pursued these before and they have been settled in a manner as here, that is, by sustaining
the vigor of the “material differences” exception.15 A discussion of the legal estoppel arising
from Radwell’s other instances would involve explaining the difference between the MTD and
the summary judgment standard as well as the difference in standards before this Court and an
administrative agency.16 The Court foregoes such a discussion as beyond the needs of
resolving this motion but appreciates Rockwell’s alert. Moreover, the Court hopes its
reasoning above is sufficiently clear to leave Radwell persuaded not to call forth again its
incorrect reading of Lexmark and Kirtsaeng.
For the reasons discussed above, the motion for summary judgment is DENIED.
Dated: 30 December 2019
s/ Robert B. Kugler
ROBERT B. KUGLER
United States District Court Judge
15
See supra notes 10 and 11 for how Radwell previously argued this point before this Court and the ITC.
16 which may well involve explaining the application of the Administrative Procedure Act
20
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