K Mart Corp. v. Cartier, Inc.

1988-05-31

Headline: Customs rule partly upheld: Court allows certain gray-market imports when U.S. trademark holders and foreign makers are the same or commonly controlled, but blocks imports authorized only by independent foreign manufacturers, affecting trademark owners and retailers.

Holding: The Court upheld the Treasury rule allowing imports when the U.S. trademark holder and foreign manufacturer are the same or under common control, but invalidated the regulation’s exception permitting imports based only on authorized use.

Real World Impact:

Allows imports made by foreign affiliates or common-control manufacturers.
Prevents trademark owners from blocking imports merely authorized to independent foreign makers.
Sustains long-standing Customs practice for many retailers and importers.

Topics: gray market imports, trademark law, customs regulation, international trade, consumer goods

Summary

Background

An association of United States trademark holders and two of its members sued the Treasury Department and Customs Service over a Customs regulation, 19 CFR § 133.21, that governs so-called gray-market goods — foreign-made items bearing valid U.S. trademarks imported without the U.S. trademark owner’s consent. Retailers and importers including K Mart and 47th Street Photo intervened as defendants. Lower courts split: the District Court upheld the regulation, but the Court of Appeals struck parts of it down, prompting Supreme Court review about the meaning of § 526 of the Tariff Act of 1930.

Reasoning

The central question was whether the Customs regulation reasonably interprets § 526, which bars importation of merchandise “of foreign manufacture” bearing a U.S. trademark owned and registered in the United States without the owner’s written consent. The Court found ambiguity in phrases like "owned by" and "merchandise of foreign manufacture," which allowed deference to the agency on some points. The Justices upheld the regulation’s common-control exceptions, §§ 133.21(c)(1)-(2), permitting imports when the U.S. trademark holder and the foreign maker are the same person or under common ownership or control. But the Court concluded subsection (c)(3) — allowing imports when a U.S. owner merely authorized a foreign independent manufacturer to use the mark — conflicts with the plain statutory language and must be invalidated.

Real world impact

Practically, the decision preserves Customs’ long-standing practice of admitting goods made by a trademark owner’s affiliates while denying a blanket right to block imports whenever a U.S. owner has merely authorized use abroad. The Court reversed the appeals court in part and affirmed in part, leaving the common-control rule intact and severing the authorized-use exception. Businesses, trademark holders, and Customs enforcement will apply these distinctions going forward.

Dissents or concurrances

Justice Brennan (joined by Marshall and Stevens) would have upheld the authorized-use exception as reasonable; Justice Scalia (joined by the Chief Justice, Blackmun, and O’Connor) would have invalidated the common-control exceptions as inconsistent with § 526.