Following up on its ruling in Gamut, the U.S. Court of Appeals for the Federal Circuit clarified that "material differences" that are a predicate to a gray market trademark infringement case do not need to be physical. However, the trademark owner must establish that "all or substantially all" of its goods meet the claimed material differences to prevail. SKF USA Inc. v. U.S. International Trade Commission, Case No. 04-1460, 2005 U.S. App. LEXIS 19750 (Fed. Cir. Sept. 14, 2005) (Lourie, J.).
SKF manufactures ball bearings in the United States and imports other bearings manufactured by its overseas affiliates. It sells approximately 87 percent of these SKF-marked bearings to authorized distributors and provides post-sale support for them. It sells the remaining approximately 13 percent through alternate channels and does not support them post sale.
SKF brought a complaint against several companies before the U.S. International Trade Commission (ITC) alleging they had violated §337 of the Tariff Act of 1930 by importing SKF-marked bearings manufactured by SKF’s overseas affiliates. The respondents argued that because the bearings were physically identical to SKF’s, there was no violation. SKF countered the imported bearings were not entitled to post-sale support from SKF, making them materially different. The administrative law judge initially ruled in SKF’s favor, but on appeal, the full commission, in what was a case of first impression, reversed noting a significant portion of SKF’s bearings did come with the claimed material difference—post-sale support. SKF appealed.
The Federal Circuit noted the fundamental issue in a gray market goods case is whether there are material differences between the foreign goods and the domestic goods of the trademark owner. The threshold of materiality is low, requiring only that consumers would be likely to consider the differences significant when purchasing the goods. The Court said this standard supports the dual goals of trademark law: protecting the consumer and safeguarding the trademark owner’s goodwill. The Court, citing its 1999 Gamut decision, agreed with the commission and SKF that the material differences do not have to be physical to establish trademark infringement. The fact the imported bearings did not come with SKF support constituted a sufficient material difference.
However, the Court also adopted the commission’s holding that in order to prevail in a gray market goods case, a trademark owner must show "all or substantially all of its authorized goods are accompanied by each of the claimed material differences." Because SKF sold almost 13 percent of its own bearings without accompanying support, it could not show the material difference between its goods and the gray market goods accompanied "all or substantially all of its domestic marked goods." Therefore, the Court found there was no violation of §337.
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