K Mart Corp. v. Cartier, Inc.
486 U.S. 281 (1988)

Annotate this Case

U.S. Supreme Court

K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988)

K Mart Corp. v. Cartier, Inc.

No. 86-495

Argued October 6, 1987

Reargued April 26, 1988

Decided May 31, 1988

486 U.S. 281

Syllabus

A gray-market good is a foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder. The gray market arises in three general contexts. In case 1, despite a domestic firm's having purchased from an independent foreign firm the rights to register and use the latter's trademark as a United States trademark and to sell its foreign-manufactured products here, the foreign firm imports the trademarked goods and distributes them here, or sells them abroad to a third party who imports them here. In case 2, after the United States trademark for goods manufactured abroad is registered by a domestic firm that is a subsidiary of (case 2a), the parent of (case 2b), or the same as (case 2c), the foreign manufacturer, goods bearing a trademark that is identical to the United States trademark are imported. In case 3, the domestic holder of a United States trademark authorizes an independent foreign manufacturer to use that trademark in a particular foreign location. Again, the foreign manufacturer or a third party imports and distributes the foreign made goods. Section 526 of the Tariff Act of 1930 prohibits the importation of "any merchandise of foreign manufacture" bearing a trademark "owned by" a citizen of, or by

"a corporation . . . organized within, the United States, and registered in the Patent and Trademark Office by a person domiciled in the United States,"

unless written consent of the trademark owner is produced at the time of entry. The Customs Service's implementing regulation permits the entry of goods manufactured abroad by the "same person" who holds the United States trademark or by a person who is "subject to common control" with the United States trademark holder, 19 CFR §§ 133.21(c)(1), (2), and permits importation where the foreign manufacturer has received the United States trademark owner's authorization to use its trademark, 19 CFR § 133.21(c)(3). Respondent Coalition to Preserve the Integrity of

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American Trademarks and two of its members filed suit against the Government seeking injunctive and declaratory relief, asserting that the regulation is inconsistent with § 526, and therefore invalid. The Federal District Court upheld the regulation, but the Court of Appeals reversed, ruling that the regulation was an unreasonable administrative interpretation of § 526.

Held: The judgment is affirmed in part and reversed in part.

252 U.S.App.D.C. 342, 790 F.2d 903, affirmed in part and reversed in part.

JUSTICE KENNEDY delivered the opinion of the Court as to Parts I, II-A, and II-C, concluding that:

1. In determining whether a challenged regulation is consistent with the statute it implements, courts must ascertain the statute's plain meaning by looking to the particular language at issue and the language and design of the statute as a whole. If the statute is clear and unambiguous, courts must give effect to Congress' unambiguously expressed intent, and cannot pay deference to a contrary agency interpretation. However, if the statute is silent or ambiguous with respect to the specific issue addressed by the regulation, a reviewing court must give deference to the agency's interpretation if it does not conflict with the statute's plain meaning. Pp. 486 U. S. 291-292.

2. Allowing the importation of foreign made goods where the United States trademark owner has authorized the use of the mark, 19 CFR § 133.21(c)(3), is in conflict with the unequivocal language of § 526, and cannot stand. The regulation denies a domestic trademark holder statutory protection in the case 3 context. Under no reasonable construction of the statutory language can goods made in a foreign country by an independent foreign manufacturer be removed from the purview of the statute. However, the regulation subsection is severable, since its severance and invalidation will not impair the function of the statute as a whole and there is no indication that the regulation would not have been passed but for its inclusion. Pp. 486 U. S. 293-294.

JUSTICE KENNEDY, joined by JUSTICE WHITE, concluded in Part II-B that the regulation's allowance of imports from companies under common control, 19 CFR §§ 133.21(c)(1), (2), is consistent with § 526, and is therefore valid because it is a permissible construction designed to resolve statutory ambiguities. The statutory phrase "owned by" is sufficiently ambiguous to permit parallel importation in the case 2a foreign-parent, domestic-subsidiary context, since the phrase does not reveal which of the affiliated entities can be said to "own" the United States trademark if the domestic subsidiary is wholly owned by its foreign parent. Similarly, the ambiguity contained in the statutory phrase "merchandise of

Page 486 U. S. 283

foreign manufacture" suffices to sustain the regulation as it applies to cases 2b and 2c. It is possible to interpret the phrase to mean goods manufactured (1) in a foreign country, (2) by a foreign company, or (3) in a foreign country by a foreign company. Thus, the agency is entitled to choose any reasonable definition and to say that goods manufactured by a foreign subsidiary or division of a domestic company are not goods "of foreign manufacture." Pp. 486 U. S. 292-293.

JUSTICE BRENNAN, joined by JUSTICE MARSHALL and JUSTICE STEVENS, agreeing that the common control exception is consistent with § 526, concluded that:

1. Section 526's language does not clearly cover affiliates of foreign manufacturers. Pp. 486 U. S. 297-299.

(a) The section's protectionist language and structure bespeak a congressional intent to extend protection only to domestic interests, and not to affiliates of foreign manufacturers. Much of the limiting language would be pointless if a foreign manufacturer could insulate itself by the simple device of incorporating a shell domestic subsidiary and transferring to it a single asset -- the United States trademark. Pp. 486 U. S. 297-298.

(b) The undefined statutory phrase "owned by" is ambiguous when applied in the case 2a context, because it cannot be confidently discerned which of the entities involved owns the trademark. Whereas the trademark must be "owned by" a domestic firm to fall within § 526's ban, it is the foreign parent corporation -- not the domestic subsidiary whose every decision it controls -- that better fits the bill as the true owner of any property that the subsidiary nominally possesses. Similarly, § 526 does not unambiguously cover cases 2b and 2c, because it is unclear whether merchandise manufactured abroad by a division or a subsidiary of a domestic firm is "merchandise of foreign manufacture." If that phrase is interpreted to mean "merchandise manufactured in a foreign country," § 526's ban would apply. However, if the phrase is construed to mean "merchandise manufactured by a foreigner," § 526's coverage is not as clear. A domestic firm that establishes a manufacturing division abroad (case 2c) cannot be said to be a foreigner, and it is at the very least reasonable to view as "American" the foreign subsidiary of a domestic firm (case 2b). Pp. 486 U. S. 298-299.

2. The common control exception is consistent with § 526's purpose and legislative history, which confirm that, if Congress had any intent as to the section's application to affiliates of foreign manufacturers, it was that they ought not enjoy § 526's protection. The major stimulus for the enactment of § 526 was the congressionally perceived inequity of A. Bourjois & Co. v. Katzel, 275 F. 539, which declined to protect a case 1 trademark holder. However, the profound differences between the equities presented in the case 1 and case 2 contexts -- which result

Page 486 U. S. 284

from the fact that the case 1 trademark holder has a much greater investment at stake, but much less control over parallel importation and foreign sales to third parties, than its case 2 counterpart -- furnish perfectly rational reasons for Congress' distinguishing between the two situations. Pp. 486 U. S. 300-309.

3. The deference owed longstanding administrative interpretations further buttresses the conclusion that the common control exception is consistent with § 526. While the precise language of the importation bar has varied over the years, the Customs Service has for 50 years adhered to the exception's basic premise that § 526 does not require exclusion of all gray-market goods in the context of affiliated entities. Such a longstanding administrative practice should not be lightly overturned, particularly where, as here, an immense domestic retail industry has developed in reliance upon it. Pp. 486 U. S. 309-312.

KENNEDY, J., announced the judgment of the Court and delivered an opinion of the Court with respect to Parts I and II-A, in which REHNQUIST, C.J., and WHITE, BLACKMUN, O'CONNOR, and SCALIA, JJ., joined, an opinion of the Court with respect to Part II-C, in which REHNQUIST, C.J., and BLACKMUN, O'CONNOR, and SCALIA, JJ., joined, and an opinion with respect to Part II-B, in which WHITE, J., joined. BRENNAN, J., filed an opinion concurring in part and dissenting in part, in which MARSHALL and STEVENS, JJ., joined, and in Part IV of which WHITE, J., joined, post, p. 486 U. S. 295. SCALIA, J., filed an opinion concurring in part and dissenting in part, in which REHNQUIST, C.J., and BLACKMUN and O'CONNOR, JJ., joined, post, p. 486 U. S. 318.

Page 486 U. S. 285

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