UNITED STATES OF AMERICA, ET AL., PETITIONERS V. COALITION TO PRESERVE THE INTEGRITY OF AMERICAN TRADEMARKS, ET AL No. 86-625 In the Supreme Court of the United States October Term, 1986 Petition for a Writ of Certiorari to the United States Court of Appeals for the District of Columbia Circuit The Solicitor General, on behalf of the United States, James A. Baker III, Secretary of the Treasury, and William von Raab, Commissioner of Customs, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the District of columbia Circuit in this case. PARTIES TO THE PROCEEDING The petitioners are the United States of America, James A. Baker III, Secretary of the Treasury, and William von Raab, Commissioner of Customs (defendant-appellees below). The respondents are: Coalition to Preserve the Integrity of American Trademarks (COPIAT), plaintiff-appellant; /1/ Cartier, Inc., plaintiff-appellant; Charles of the Ritz Group, Ltd. (a subsidiary of Squibb Corporation), plaintiff-appellant; K mart Corporation, intervening defendant-appellee; and 47th Street Photo, Inc., intervening defendant-appellee. TABLE OF CONTENTS Parties to the proceeding Opinions below Jurisdiction Statute and regulation involved Question presented Statement Reasons for granting the petition Conclusion Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-32a), is reported at 790 F.2d 903. The opinion of the district court (App., infra, 34a-48a), is reported at 598 F. Supp. 844. JURISDICTION The judgment of the court of appeals (App., infra, 51a-52a) was entered on May 6, 1986. Petitions for rehearing was denied on July 18, 1986 (App., infra, 53a). The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTE AND REGULATION INVOLVED Section 526(a) of the Tariff Act of 1930, 19 U.S.C. 1526(a), provides in pertinent part as follows: Except as provided in subsection (d) (governing importation of items for personal use), it shall be unlawful to import into the United States any merchandise or foreign manufacture if such merchandise, or the label, sign, print, package, wrapper, or receptacle, 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 * * *, unless written consent of the owner of such trademark is produced at the time of making entry. The relevant Customs Service regulations provide in pertinent part as follows (19 C.F.R. 133.21): * * * * * (b) Identical trademark. Foreign-made articles bearing a trademark identical with one owned and recorded by a citizen of the United States or a corporation or association created or organized within the United States are subject to seizure and forfeiture as prohibited importations. (c) Restrictions not applicable. The restrictions set forth in (paragraph (b)) of this section do not apply to imported articles when: (1) Both the foreign and the U.S. trademark or trade name are owned by the same person or business entity; (2) The foreign and domestic trademark or trade name owners are parent and subsidiary companies or are otherwise subject to common ownership or control (see Sections 133.2(d) and 133.12(d)); (3) The Articles of foreign manufacture bear a recorded trademark or trade name applied under authorization of the U.S. owner; * * * * * QUESTION PRESENTED Section 526 of the Tariff Act of 1930, U.S.C. 1526, restricts the unauthorized importation of foreign merchandise bearing a trademark that is registered in the United States Patent and Trademark Office and owned by a United States citizen, corporation, or association. The question presented in this case is whether a Customs Service Regulation is valid which permits the importation of foreign merchandise bearing a trademark identical to a U.S. registered trademark when (1) the foreign and U.S. trademark are owned by the same person; (2) the foreign and U.S. trademark owners are subject to common ownership or control; or (3) the trademark was applied under authorization of the U.S. Trademark owner. STATEMENT This case concerns the importation into the United States of goods manufactured abroad by affiliates of the U.S. trademark owners. Many foreign firms that manufacture and sell goods abroad have U.S. subsidiaries that register and own the U.S. trademarks and act as "authorized U.S. distributors" for their merchandise. Many U.S. firms that own U.S. trademarks have foreign affiliates that manufacture their goods, apply their marks, and sell the goods abroad. In either situation, the question arises whether an importer may, without the consent of the U.S. trademark owner, bring into the United States goods produced abroad by the foreign affiliate of the U.S. trademark owner and bearing a mark identical to the U.S. trademark. Domestic retailers have discovered that they can provide American consumers with genuine foreign-made goods at substantial savings (as compared with prices charged by retailers who have bought directly or indirectly from the U.S. trademark owner) by purchasing the goods from overseas sources and importing them. Genuine goods manufactured abroad and imported without the permission of the U.S. trademark owner have come to be called "gray market" goods, and the process of importing them has come to be called "parallel importation." Proponents of such importation contend that it is a response to price discrimination between foreign and U.S. markets. Opponents, the U.S. trademark owners, contend that such importation constitutes a misappropriation of the goodwill embodied by the trademark and thus violates their rights. The question in this case is whether Section 526 of the Tariff Act of 1930, 19 U.S.C. 1526, requires the Customs Service to block entry of gray market goods produced by a foreign affiliate of the U.S. trademark owner. 1. Section 526(a) of the Tariff Act of 1930 prohibits the unauthorized importation of "any merchandise of foreign manufacture if such merchandise * * * 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 * * *." 19 U.S.C. 1526(a). Section 526 plainly prohibits entry of foreign merchandise bearing a U.S. trademark if a foreign manufacturer has sold his interest in the U.S. trademark to an unaffiliated U.S. citizen or company. Indeed, Section 526 was enacted for the specific purpose of "protecting the property rights of American citizens who have purchased trade-marks from foreigners" (62 Cong. Rec. 11603 (1922) (Sen. Sutherland)). /2/ For over 50 years, the Customs Service has interpreted Section 526 to permit entry of foreign merchandise bearing a trademark identical to a U.S. registered trademark when there is a substantial identity between the foreign manufacturer and the U.S. trademark owner. /3/ The present regulation permits parallel importation when (1) the foreign and U.S. trademark are owned by the same person; (2) the foreign and U.S. trademark owners are subject to common ownership or control; or (3) the U.S. trademark was applied under authorization of the U.S. trademark owner. 19 C.F.R. 133.21. 2. The "Coalition to Preserve the Integrity of American Trademarks" (COPIAT), an association organized to represent the interests of U.S. trademark owners, brought suit against the United States, the Secretary of the Treasury, and the Commissioner of Customs challenging the Customs Service's longstanding regulation. /4/ COPIAT urged that the regulation is inconsistent with both Section 526 and Section 42 of the Lanham Act, which forbids the importation of goods bearing marks that "copy or simulate" U.S. trademarks (15 U.S.C. 1124). Two retailers of parallel imports, K mart Corporation and 47th Street Photo, Inc., intervened as defendants. The district court concluded that the regulation is valid (App., infra, 44a-48a). The court first addressed 47th Street Photo's motion to dismiss (id. at 36a). That party, relying on the Federal Circuit's decision in Vivitar Corp. v. United States, 761 F.2d 1552 (1985), cert. denied, No. 85-411 (Jan. 13, 1986), argued that the Court of International Trade has exclusive jurisdiction, pursuant to 28 U.S.C. 1581, over challenges to Customs Service regulations interpreting Section 526. It also argued that Section 42 of the Lanham Act does not apply in the present case because that provision forbids only the importation of counterfeit or spurious trademarks. The court rejected 47th Street Photo's jurisdictional contention but agreed that the Lanham Act claim should be dismissed (App., infra, 37a-39a). The court then addressed COPIAT's claim that the regulations are inconsistent with Section 526 (App., infra, 39a-48a). The court concluded that the regulations represent a "sufficiently reasonable" interpretation of the statute, "supported by the legislative history, judicial decision, legislative acquiescence, and the long-standing consistent policy of the Customs Service" (id. at 48a). The court added that "(t)he regulations clearly implement the limited purpose for which section 526 was enacted" (ibid.). The court of appeals affirmed the district court's jurisdictional determination (App., infra, 4a-8a) but reversed that court's determination that the regulations are valid (id. at 8a-31a). The court of appeals stated that "Section 526 does not, on its face, admit of any exceptions based upon the relationship of the American and foreign trademark owners or upon whether the American owner has authorized the use of the trademark abroad" (id. at 10a). Finding no ambiguity in the statutory language, the court refused to give deference to the Customs Service's regulatory interpretation. The court examined the purpose (id. at 11a-14a), legislative history (id. at 14a-21a), and judicial and administrative interpretations (id. at 21a-28a) of Section 526, concluding that "the Customs regulations cannot be upheld as a reasonable construction by the Customs Service of a statute it is charged with enforcing" (App., infra, 29a). The court of appeals also rejected the district court's conclusion that the history of the Customs Service regulations "reveals 'a pattern of legislative acquiescence'" (App., infra, 29a (quoting id. at 46a)) and the Federal Circuit's prior decision that the Customs Service regulations may be upheld "'as a reasonable exercise of administratively initiated enforcement'" (id. at 31a (quoting Vivitar Corp. v. United States, 761 F.2d at 1571)). The court of appeals nevertheless concluded that "injunctive relief is inappropriate at this juncture of the controversy" (App., infra, 32a) and remanded the case to the district court with instructions (ibid.) "to issue a declaratory judgment that the Customs regulations in question, 19 C.F.R. Section 133.21(c)(1)-(3) are contrary to Section 526 of the Tariff Act of 1930, 19 U.S.C. Section 1526, and hence unlawful." /5/ REASONS FOR GRANTING THE PETITION This case presents a question of great practical importance to manufacturers, distributors, retailers and consumers of merchandise produced abroad. The case is likewise important to the United States, the Department of the Treasury, and the Customs Service, which must administer the laws governing import restrictions. The decision of the court of appeals conflicts with decisions of the Federal and Second Circuits, which have upheld the validity of the Customs Service regulations. The practical result of that conflict is that a Customs Service decision either to exclude or to admit parallel imports can be successfully challenged. This Court's review is therefore plainly warranted. /6/ 1. The Customs Service regulations at issue in this case have major commercial importance. American consumers spend millions of dollars on foreign manufactured products-including cameras, watches, perfumes, fashions, and electronic equipment-that are available at discount prices through parallel importation. Domestic retailers such as 47th Street Photo and K mart, relying on the Customs Service's longstanding regulations, have established extensive business enterprises based on parallel importation. They maintain that "(p)arallel importation permits American consumers to buy foreign-manufactured goods at costs substantially below the artificially high prices fixed by the international enterprises and their 'authorized' American distributors, who know that a restricted American market will support higher prices than the open international market" (47th Street Photo C.A. Br. 3-4). The United States, the Department of the Treasury, and the Customs Service consider the Customs Service regulations an established element of the Nation's foreign trade policy. /7/ The regulations, which reflect the Customs Service's interpretation of a statute that Congress has charged it with administering, have been part of this country's international commercial policy for over 50 years. The court of appeals' decision, if left standing, would result in a serious disruption of established business practices and settled commercial expectations. 2. The court of appeals' decision is in direct conflict with decisions of other courts of appeals affirming the validity of the Customs Service regulations. The Federal Circuit, prior to the COPIAT decision, had upheld the Customs Service regulations as an appropriate exercise of enforcement discretion. Vivitar Corp. v. United States, 761 F.2d at 1571. That court did not agree with the government's interpretation of Section 526 but did acknowledge that the statute may contain "implied limitations." 761 F.2d at 1570. See also id. at 1572 (Davis, J., concurring). The D.C. Circuit specifically rejected the Federal Circuit's reasoning (App., infra, 31a). The Second Circuit has since refused to follow the COPIAT decision. Olympus Corp. v. United States, 792 F.2d 315 (1986). That court, facing a similar challenge to the Customs Service regulations, concluded that "congressional acquiescence in the longstanding administrative interpretation of the statute legitimates that interpretation as an exercise of Customs' enforcement discretion" (id. at 320). The Second Circuit expressly addressed the D.C. Circuit's decision, stating (id. at 321 n.1): We disagree with that court's conclusion that "the Customs Service's interpretation of Section 526 does not display the necessary 'thoroughness, validity, and consistency' to merit judicial acceptance," (App., infra, 28a, quoting Federal Election Comm'n v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 37 (1981)), at least in the face of congressional acquiescence in that interpretation. The D.C. Circuit's decision thus presents a square conflict with two other courts of appeals. The conflict between the Federal Circuit and the D.C. Circuit is particularly serious because those courts disagree on both the jurisdictional and the merits issues involved in this dispute. As previously noted (see pages 5-6, 7 note 6, supra), the Federal Circuit ruled in Vivitar that the Court of International Trade has exclusive jurisdiction over disputes arising from the Customs Service's enforcement of Section 526, while the D.C. Circuit ruled in COPIAT that the district courts can exercise jurisdiction over third party challenges to the admission of trademarked goods. Thus, an importer, relying on the Federal Circuit's Vivitar decision, can invoke the jurisdiction of the Court of International Trade and successfully challenge a Customs Service decision to exclude parallel imports, while the owner of the U.S. trademark, relying on the D.C. Circuit's COPIAT decision, can invoke the jurisdiction of the United States District Court for the District of Columbia and successfully enjoin admission of those goods. An administrative stymie exists as long as both decisions remain in force. Under these circumstances, this Court's review is plainly warranted. /8/ 3. On the merits, we submit that the court of appeals should have upheld the Customs Service regulations essentially for the reasons explained in our brief in opposition to Vivitar Corporation's petition for a writ of certiorari to the Federal Circuit. See U.S. Br. in Opp., Vivitar Corp. v. United States, cert. denied, No. 85-411 (Jan. 13, 1986). As we stated there, Section 526 was apparently enacted for the limited purpose of protecting American companies that purchase trademarks from independent foreign manufacturers (U.S. Br. in Opp. at 7-12). The Customs Service-an expert agency charged with administration of the provisions-has consistently interpreted Section 526 as intended to reach a class of cases narrower than the full range of cases it might literally be read to cover (U.S. Br. in Opp. at 9-11), and Congress has never overruled that interpretation, despite a number of opportunities to do so (id. at 11). The Customs Service regulations have been in place, largely unchanged and (until recently) unchallenged, for over 50 years. Domestic distributors and retailers, in turn, have relied on the longstanding Customs Service policy, narrowing the reach of the statute, in structuring their business operations. Under these circumstances, the Customs Service regulations should remain in force until Congress or the implementing agency acts to change them. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. CHARLES FRIED Solicitor General RICHARD K. WILLARD Assistant Attorney General LOUIS R. COHEN Deputy Solicitor General JAMES M. SPEARS Deputy Assistant Attorney General JEFFREY P. MINEAR Assistant to the Solicitor General ROBERT V. ZENER Attorney ROBERT M. KIMMITT General Counsel Department of the Treasury MICHAEL SCHMITZ Chief Counsel United States Customs Service OCTOBER 1986 /1/ COPIAT is a non-profit organization composed of the following members: AC & R Advertising, Inc.; Advertising to Women, Inc.; Alfin Fragrances, Inc.; American Cyanamid Co./Jacqueline Cochran, Inc.; Elizabeth Arden, Inc.; Baccarat, Inc.; Sinar Bron, Inc.; Cartier, Inc.; Citizen Watch Company of America, Inc.; Charles of the Ritz Group, Ltd.; Cosmair, Inc.; Coty/Division of Pfizer; G.M.I. Photographic, Inc.; Halston Fragrances, Inc.; Victor Hasselblad, Inc.; E. Leitz, Inc.; Maier & Berkele; Michelin Tire Corp.; Minolta Corp.; Nikon, Inc.; North American Watch Corp.; Paco Rabanne Parfums; Parfums Stern, Inc.; Parfums Worth Corp.; Redken Laboratories, Inc.; Revlon, Inc.; Robertet, Inc.; Schneider Corp. of America; Seiko Corp. of America; Tokina Optical Corp.; Warner Cosmetics Inc.; Waterford Crystal, Inc.; Carl Zeiss, Inc.; American Watch Ass'n; Electronics Industry Association-Consumer Electronics Group; and Jewelers of America, Inc. /2/ This issue came to prominence in A. Bourjois & Co. v. Katzel, 274 F. 856 (S.D.N.Y. 1920), rev'd, 275 F. 539 (2d Cir. 1921), rev'd, 260 U.S. 689 (1923), a case involving importation of "Poudre Java," a French face powder. A. Bourjois & Co. (Bourjois), a U.S. company, acquired from Wertheimer & Cie., a French partnership, the French company's U.S. cosmetics business, including the U.S. trademark and exclusive domestic right to repackage and sell Poudre Java, an internationally recognized product. Eight years later, Bourjois brought a trademark infringement action against another domestic party-Katzel-that purchased that product overseas and sold it in the original French packaging, marked "Poudre de Riz de Java." The district court entered a preliminary injunction enjoining Katzel's parallel importation. 274 F. at 860. The Second Circuit reversed, concluding that "(i)f the goods sold are the genuine goods covered by the trade-mark, the rights of the owner of the trade-mark are not infringed." 275 F. at 543. In response to this decision, Congress enacted Section 526 of the Tariff Act of 1922, which restricted the importation of foreign-made merchandise bearing a domestic trademark by persons other than the owner of the U.S. trademark (42 Stat. 975). The Supreme Court, in a brief opinion by Justice Holmes, reversed the Katzel decision shortly after enactment of the Tariff Act of 1922. 260 U.S. 689 (1923). Congress later reenacted Section 526, in substantially identical form, in the Tariff Act of 1930, ch. 497, 46 Stat. 741. /3/ See 19 C.F.R. 133.21 (1979); 19 C.F.R. 133.21 (1973); 19 C.F.R. 11.14 (1960); 19 C.F.R. 11.14 (1953); 19 C.F.R. 11.14 (1947); 19 C.F.R. 11.14 (1943); T.D. 48,537, 70 Treas. Dec. Int. Rev. 336 (1936). /4/ Two members of COPIAT - Cartier, Inc. and Charles of the Ritz Group, Ltd. - were also named plaintiffs. All three plaintiffs are collectively described as "COPIAT." A full list of COPIAT's members is set out under "Parties to the Proceeding." /5/ The Court did not address the Lanham Act claim (App., infra, 9a). Following its decision, the court of appeals issued a stay of the mandate until September 30, 1986 (id. at 33a). /6/ We believe that the court of appeals correctly rejected the Federal Circuit's determination in Vivitar (761 F.2d at 1560) that the Court of International Trade has exclusive jurisdiction over challenges to the government's enforcement of Section 526. See App., infra, 8a. We therefore limit our petition for a writ of certiorari to the question whether the Customs regulations are valid. /7/ The Administration is nevertheless studying the present policy implications of parallel importation. See 49 Fed. Reg. 21453 (1984); id. at 29509. The Customs Service recently requested public comment on the feasibility of imposing labeling or demarking requirements on parallel imported goods. See 51 Fed. Reg. 22005 (1986); id. at 30024. /8/ The plaintiff in Olympus Corp. has indicated that it will file a petition for a writ of certiorari and requested an extension of time from this Court, to and including November 6, 1986, in which to file its petition. See Olympus Corp. v. United States, No. A-147 (Aug. 23, 1986). Justice Marshall granted that request on August 27, 1986. Appendix