Hokto Kinoko Company v. Concord Farms, Inc.
2013 WL 6768135, 738 F.3d 1085 (2013)
Rule of Law:
Gray-market goods are not 'genuine' and thus can infringe on a U.S. trademark holder's rights if they materially differ from the U.S. product in a way a consumer would find relevant. A close working relationship between a licensor and a wholly-owned subsidiary licensee may prevent a finding of trademark abandonment due to 'naked licensing' even without formal quality control provisions.
Facts:
- Hokuto Co., Ltd. (Hokuto Japan), a Japanese corporation, produces nonorganic maitake, white beech, and brown beech mushrooms in Japan for Japanese consumption, packaged in Japanese.
- In 2006, Hokuto Japan incorporated Hokto Kinoko Co. (Hokto USA) as a wholly-owned subsidiary to produce and market certified organic mushrooms in the United States.
- While Hokto USA's San Marcos, California facility was under construction, Hokto USA temporarily imported mushrooms from Hokuto Japan that were grown in special conditions to meet U.S. Certified Organic standards and were packaged in English/dual-language.
- Hokuto Japan acquired U.S. trademark registrations for the 'Hokto marks' (logo and cartoon characters), although its U.S. trademark attorney, Donald Hanson, applied for registrations covering a wide variety of goods (including live fish and bonsai trees) for which Hokuto Japan admitted it had no bona fide intent to use the marks.
- In 2008, Hokuto Japan granted Hokto USA an exclusive license for the 'Hokto marks' in the U.S.; in 2010, Hokuto Japan assigned all U.S. rights to Hokto USA.
- Since 2003, Concord Farms, Inc., a U.S. corporation, imported Hokuto Japan's nonorganic, Japanese-packaged mushrooms bearing the 'Hokto marks' from Japan and sold them in the United States.
- In July 2009, Hokto USA discovered Concord Farms's Japanese-packaged nonorganic mushrooms mixed with Hokto USA's mushrooms in a grocery store display under a sign advertising 'organic' and 'made in USA,' with the imported mushrooms showing signs of spoilage.
- Hokto USA requested that Concord Farms cease importing and selling Hokuto Japan's mushrooms, but Concord Farms refused.
Procedural Posture:
- Hokto Kinoko Co. (Hokto USA) filed a trademark infringement action against Concord Farms, Inc. in the United States District Court for the Central District of California.
- Concord Farms counterclaimed against Hokto USA and its parent company, Hokuto Co., Ltd. (Hokuto Japan), challenging the validity of the trademarks.
- All three parties filed cross-motions for summary judgment.
- The district court granted summary judgment in favor of Hokto USA and Hokuto Japan on all claims.
- The district court entered a permanent injunction against Concord Farms.
- Concord Farms timely appealed the district court's decision to the United States Court of Appeals for the Ninth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
1) Are foreign-produced nonorganic mushrooms bearing a U.S. trademark considered 'genuine goods' if they materially differ in production and packaging from the U.S. trademark holder's product? 2) Does marketing such foreign-produced mushrooms under identical marks create a likelihood of consumer confusion under the Lanham Act? 3) Can a trademark registration be cancelled for fraud on the USPTO if a false statement of bona fide intent was made by an attorney without evidence of the registrant's knowledge or intent to defraud? 4) Does a parent company's licensing of its trademarks to a wholly-owned subsidiary without formal quality control provisions constitute 'naked licensing' leading to trademark abandonment when a close working relationship and reliance on the subsidiary's quality efforts exist?
Opinions:
Majority - Wardlaw
No, the foreign-produced nonorganic mushrooms imported by Concord Farms were not 'genuine goods' because they materially differed from Hokto USA’s products. The court affirmed that trademark law extends to these imported mushrooms because they differed in their production (organic vs. nonorganic, specialized growing medium, rigorous quality control) and in their packaging (English/dual-language vs. Japanese-only, nutritional information, origin labeling). A 'material difference' is any difference a consumer is likely to consider relevant when purchasing a product, and here, differences in language, quality control, and packaging were deemed material. Yes, Concord Farms's marketing of these non-genuine goods created a likelihood of consumer confusion. Applying the Sleekcraft factors, the court found strong evidence of confusion due to the identical marks, the fanciful and strong nature of the marks, the relatedness of the goods (same variety of mushrooms), the identical marketing channels (grocery stores), the low degree of care purchasers exercise for low-cost goods, and Concord Farms's presumed intent to confuse by knowingly adopting an identical mark. No, Hokuto Japan's trademarks are not subject to cancellation for fraud on the USPTO or abandonment through 'naked licensing'. While a false representation of bona fide intent was made in the trademark applications, Concord Farms failed to provide evidence that Hokuto Japan knew of the misstatement or intended to defraud the USPTO, or that there was reliance or damages. Regarding naked licensing, despite the absence of formal quality control provisions in the licensing agreement between Hokuto Japan and its wholly-owned subsidiary Hokto USA, their close working relationship, joint development of quality control mechanisms, and Hokuto Japan’s monitoring of Hokto USA’s quality efforts ensured that the public would not be deceived, thus preventing abandonment of the marks.
Analysis:
This case clarifies the application of gray-market goods principles, emphasizing that even goods originating from a parent company can be deemed 'non-genuine' if they materially differ from the U.S. subsidiary's product, triggering trademark infringement liability. It reinforces that a low threshold for 'material difference' can be met through variations in production methods, quality control, and packaging, even if the core product is similar. The decision also provides important guidance on 'naked licensing', affirming that a close operational relationship between a licensor and licensee, especially in a parent-subsidiary context, can satisfy quality control requirements even without explicit contractual provisions, thus protecting trademark validity.
