K Mart Corp. v. Cartier, Inc., et al.
486 U.S. 281 (1988)
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Rule of Law:
A federal agency's regulation interpreting a statute is valid where the statute is ambiguous and the interpretation is reasonable. Section 526 of the Tariff Act of 1930 is ambiguous as to whether its importation ban applies to goods made by firms affiliated with the U.S. trademark holder, but it unambiguously applies to goods made by an independent foreign manufacturer who was authorized to use the trademark.
Facts:
- Gray-market goods are genuine products, bearing a valid U.S. trademark, that are manufactured abroad and imported into the U.S. without the consent of the U.S. trademark holder.
- One scenario for gray-market goods involves a U.S. company that is affiliated with the foreign manufacturer, such as being its parent company, subsidiary, or part of the same corporate structure.
- Another scenario involves a U.S. trademark holder who authorizes an independent foreign manufacturer to use its trademark in a specific foreign country, but that manufacturer or a third party then imports the goods into the U.S.
- The Coalition to Preserve the Integrity of American Trademarks (COPIAT), an association of U.S. trademark holders, objects to Customs Service regulations that permit the importation of gray-market goods in both the affiliated-company and authorized-use scenarios.
- K mart and 47th Street Photo are retailers who import and sell such gray-market goods, often at a discount compared to goods sold through authorized U.S. distribution channels.
Procedural Posture:
- The Coalition to Preserve the Integrity of American Trademarks (COPIAT) sued the United States in the U.S. District Court for the District of Columbia.
- COPIAT sought a declaratory judgment that the Customs Service's regulation, 19 CFR §§ 133.21(c)(1)-(3), was invalid and requested an injunction against its enforcement.
- K mart Corp. and 47th Street Photo intervened in the suit as defendants.
- The District Court, a court of first instance, granted summary judgment in favor of the government and upheld the regulation.
- COPIAT, as appellant, appealed to the U.S. Court of Appeals for the D.C. Circuit.
- The Court of Appeals, an intermediate appellate court, reversed the District Court's decision, holding the regulation was inconsistent with the statute.
- K mart Corp., 47th Street Photo, and the United States petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.
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Issue:
Is the Customs Service regulation, 19 CFR § 133.21(c), which creates 'common-control' and 'authorized-use' exceptions to the statutory ban on importing gray-market goods, a valid and permissible interpretation of § 526 of the Tariff Act of 1930?
Opinions:
Majority - Justice Kennedy
Yes, in part, and No, in part. The Customs Service's 'common-control' exceptions are a permissible construction of an ambiguous statute, but the 'authorized-use' exception is contrary to the statute's unambiguous language. For the common-control exceptions (§§ 133.21(c)(1)-(2)), the statutory terms 'owned by' and 'merchandise of foreign manufacture' are ambiguous in the context of affiliated multinational corporations. For instance, when a U.S. subsidiary is wholly owned by a foreign parent, it is ambiguous which entity truly 'owns' the trademark. Likewise, 'merchandise of foreign manufacture' could mean goods made in a foreign country or goods made by a foreign company, creating ambiguity for goods made abroad by a division of a U.S. company. Under the Chevron doctrine, when a statute is ambiguous, a court must defer to an agency's reasonable interpretation. However, for the authorized-use exception (§ 133.21(c)(3)), the statute is clear. Goods made in a foreign country by an independent foreign manufacturer unambiguously fall under the statute's importation ban. The agency cannot create a regulation that contradicts the plain language of the statute.
Concurring-in-part-and-dissenting-in-part - Justice Brennan
Yes, the regulation is a valid interpretation in its entirety. I agree that the 'common-control' exceptions are valid, but my reasoning rests on the statute's legislative history and purpose, which show Congress intended only to protect independent U.S. firms from competition from the foreign entities that sold them their trademark rights, not to insulate divisions of a single international enterprise from their own competition. I dissent from the Court's invalidation of the 'authorized-use' exception. The statutory term 'owned by' was ambiguous at the time of the statute's enactment, as the prevailing view in 1922 was that licensing a trademark to another party resulted in an abandonment of ownership. Given this historical context, Congress would not have considered the U.S. licensor to be the 'owner' for purposes of the statute's protection, making the agency's long-standing regulation excluding such goods a reasonable interpretation that deserves deference.
Concurring-in-part-and-dissenting-in-part - Justice Scalia
No, the exceptions are not a valid interpretation of the statute. I agree with the majority that the 'authorized-use' exception is invalid because the statutory language is plain. However, I dissent from the holding that upholds the 'common-control' exceptions, because the statute is unambiguous in those situations as well. The phrase 'merchandise of foreign manufacture' clearly means manufactured abroad, not manufactured by a foreigner; to suggest otherwise is to create an inconceivable interpretation. The term 'owned by' is also clear when a U.S. parent company owns the trademark used by its foreign subsidiary. The statute's text is unambiguous and covers all the scenarios the regulation purports to exclude, making the entire regulation an invalid attempt by an agency to rewrite a clear congressional command.
Analysis:
This case is a landmark application of the Chevron deference doctrine, illustrating the pivotal role of statutory ambiguity in determining the validity of agency regulations. The fractured opinions demonstrate that determining whether a statute is 'ambiguous' (Chevron Step One) is often the key point of judicial disagreement. The decision solidified the legality of the 'common-control' exception, preserving a significant stream of commerce for gray-market retailers, while simultaneously strengthening trademark protections for U.S. firms that license their marks to independent foreign producers by striking down the 'authorized-use' exception.
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