Imported mushrooms bearing same mark as US-grown mushrooms likely to cause confusion
In Hokto Kinoko Co v Concord Farms Inc (Case No 11-56461, December 24 2013), addressing the issue of whether an importer of non-organic mushrooms from a Japanese producer infringed a trademark owned by the US subsidiary of the Japanese producer, the US Court of Appeals for the Ninth Circuit has upheld summary judgment in favour of the US subsidiary because the imported non-organic mushrooms were materially different from the US grown organic mushrooms, but bore the same mark and were thus likely to cause consumer confusion.
Hokto USA, a wholly-owned subsidiary of Hokuto Japan, cultivates US-certified organic mushrooms in its state-of-the-art US facility. Before the facility was completed in 2009, Hokto USA imported mushrooms from Hokuto Japan which grew and packaged its mushrooms to suit US consumer preferences, and in growing conditions that met US Certified Organic Standards (COS). The defendants’, Concord Farms, imports non-organic mushrooms from Hokuto Japan that do not satisfy the COS.
Hokto USA sued Concord Farms for trademark infringement after discovering Hokuto Japan’s Japanese-made non-organic mushrooms mixed in with Hokto USA’s US-made organic mushrooms displayed side-by-side in a grocery store under a sign that said “organic” and “made in the USA”. The district court granted summary judgment and issued a permanent injunction in Hokto USA’s favour. Concord Farms appealed.
Concord Farms’ imported Hokuto Japan mushrooms were “grey-market goods” because they were legitimately produced abroad under a valid US trademark. A “grey-market good” infringes a trademark if there is a likelihood of consumer confusion unless the imported goods were “genuine”. The Ninth Circuit found that Concord Farms imported Hokuto Japan mushrooms that were not “genuine” Hokto USA mushrooms because of material differences in quality control, language and packaging. For example, Hokto USA mushrooms were organic, produced and packaged under controlled conditions for an American market (eg, in English). Indeed, when it imported organic mushrooms from Hokuto Japan (before its US facility was operational), Hokuto Japan used conditions that met US COS. Concord Farms, on the other hand, imported Hokuto Japan mushrooms produced for Japanese consumption (eg, in Japanese) and made under conditions that did not meet US COS.
After finding that the Concord Farms’ mushrooms were not “genuine” Hokto USA mushrooms, the Ninth Circuit analysed infringement under the traditional Sleekcraft factors. Despite no evidence of actual confusion, the Ninth Circuit found the importation of Hokuto Japan mushrooms was likely to confuse consumers into thinking they were Hokto USA mushrooms, noting that:
- the marks were identical and strong;
- the two products are related, sold in similar marketing channels and in direct competition; and
- mushrooms were a low-cost good commanding less scrutiny from consumers.
Finally, because Hokuto Japan and Hokto USA had a “close working relationship” to control the quality of the mushrooms distributed by the latter, the Ninth Circuit was not persuaded by the argument that Hokuto Japan had issued Hokto USA a “naked licence” that lacked an explicit mechanism for quality control.
The decision shows that, simply because a producer makes quality goods for one distributor, this does not mean it will do so for another.
Teri HP Nguyen, McDermott Will & Emery LLP, Silicon Valley
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