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Kia Motors America, Inc. v. Autoworks Distributing: US District Court : TRADEMARK - no summary judgment in gray market/counterfeit repair parts for cars; but will be pre-trial rulings

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Kia Motors America, Inc., Civil No. 06-156 (DWF/JJG)
Plaintiff,
v. MEMORANDUM
OPINION AND ORDER
Autoworks Distributing; Applegate Supply;
Wayzata Nissan, LLC, a Minnesota corporation; and
Mark Saliterman, an individual d/b/a Wayzata
Nissan, LLC, MPA Autoworks, Autoworks
Distributing, and Applegate Supply,
Defendants.
________________________________________________________________________
David N. Makous, Esq., and Paula Greenspan, Esq., Lewis, Brisbois, Bisgaard & Smith
LLP; Michael A. Bondi, Esq., Dicke, Billig & Czaja, PLLC; Norman M. Abramson, Esq.,
and Kelly W. Hoversten, Esq., Gray, Plant, Mooty, Mooty & Bennett, P.A., counsel for
Plaintiff.
H. Kenneth Kudon, Esq., Kudon Law Firm; John T. Williams, Esq., and Laura S. McKay,
Esq., Hinkhouse Williams Walsh, LLP, and Gregory J. Johnson, Esq., and Daniel M.
Gallatin, Esq., Johnson, Provo-Peterson, LLP, counsel for Defendants.
___________________________________________________________________________
INTRODUCTION
The interest of the public in not being deceived is the basic policy of trademark
law. See 2 Thomas J. McCarthy, McCarthy on Trademarks and Unfair Competition
(hereinafter McCarthy), 2:1. Although this case is based on trademark law, the
parties have paid little attention to the publics interest. And, as Mark Twain once said,
The public is the only critic whose opinion is worth anything at all.
2
This case is about the sale of allegedly gray market and/or counterfeit auto parts to
dealers who then install those parts into Kia cars. There is nothing in the record
concerning whether the public knows that certain dealers may be installing gray market
and/or counterfeit parts into Kia cars or concerning the prices the public pays certain
dealers for auto parts that may have been purchased at below dealer net. Instead, Plaintiff
Kia Motor America, Inc. (KMA) asserts that an inquiry into Kia dealer practices would
amount to an attack on the dealers that would harm the symbiotic and perhaps
fiduciary relationship with the dealers. (1/27/09 Tr. at 30-31.) For their part,
Defendants Autoworks Distributing; Applegate Supply; Wayzata Nissan, LLC, a
Minnesota corporation; and Mark Saliterman, an individual d/b/a Wayzata Nissan, LLC,
MPA Autoworks, Autoworks Distributing, and Applegate Supply (collectively,
Defendants) respond that the broader publics interest is irrelevant because the relevant
consumer is the dealer, not the car owner. (See, e.g., Doc. No. 418 at 2.) But the Lanham
Act protects post-sale as well as point-of-sale confusion. See Insty*Bit, Inc. v. Poly-Tech
Indus., Inc., 95 F.3d 663, 672 (8th Cir. 1996). Therefore, the publics interest is indeed
relevant to this case. Luckily, the public will have access to this information at the trial in
this matter, which is set to commence on April 13, 2009.
Currently, this matter is before the Court pursuant to Defendants Third Motion for
Summary Judgment and KMAs Motion for Summary Judgment on Liability. For the
reasons set forth below, the Court denies both motions.
3
BACKGROUND
The background of this action is more fully discussed in the Courts numerous
prior orders in this matter. Briefly, Kia Motors Corp. (KMC), a Korean company,
distributes Kia products in 180 countries. KMC is the owner of three United States
trademarks: (1) KIA Design Logo (Registration No. 2351320); (2) KIA (Registration No.
1723608); and (3) KIA Design Logo (Registration No. 1955539). Collectively, these
three trademarks are referred to as the KIA Marks. KMC has a Distribution Agreement
with KMA, which is a wholly-owned subsidiary of KMC. Under that agreement, KMA
has the exclusive right to distribute Kia products in the United States and the
non-exclusive right to use the KIA Marks.
In the Spring of 2005, KMA discovered that Defendants were advertising and
offering for sale automobile parts under the KIA Marks that were below dealer net prices.
Defendants advertised these parts as being new and genuine Kia parts. KMA sought to
stop Defendants sale of these products and eventually commenced the present action.
KMA has one remaining count in its original Complaint, specifically a claim for false
designation of origin under 43(a) of the Lanham Act, 15 U.S.C. 1125(a).1 The parties
agree that this claim is directed at KMAs contention that Defendants are either selling
gray market or counterfeit goods.
1 KMA originally filed, and then later withdrew, a claim for trademark dilution
under 15 U.S.C. 1125(c). In addition, the Court previously dismissed for lack of
standing a claim for trademark infringement under 32 of the Lanham Act, 15 U.S.C.
(Footnote Continued on Next Page)
4
DISCUSSION
Summary judgment is proper if there are no disputed issues of material fact and the
moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The Court
must view the evidence, and the inferences that may be reasonably drawn from the
evidence, in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank
of Mo., 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated,
[s]ummary judgment procedure is properly regarded not as a disfavored procedural
shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed
to secure the just, speedy, and inexpensive determination of every action. Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).
The moving party bears the burden of showing that there is no genuine issue of
material fact and that it is entitled to judgment as a matter of law. Enter. Bank,
92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in
the record that create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953,
957 (8th Cir. 1995). A party opposing a properly supported motion for summary
judgment may not rest upon mere allegations or denials of his pleading, but must set
forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 256 (1986).
(Footnote Continued From Previous Page)
1114(a). See Doc. No. 279.
5
Defendants move for summary judgment based on four grounds, and KMA moves
for partial summary judgment on the issue of liability with respect to the gray market
goods claim. The Court will consider each in turn.
I. Standing
In connection with their second summary judgment motion, Defendants did not
dispute that KMA had standing to assert its 43(a) claim under either a
gray-market-goods theory or counterfeit-goods theory. (Doc. No. 279 at 9-10, n.5.)
Now, without citing any case law concerning standing, Defendants argue that KMA lacks
standing to pursue its 43(a) claim because KMA lacks the requisite belief required for
KMA to maintain an action under 43(a) of the Lanham Act. (Doc. No. 418 at 2.) The
basis of Defendants argument is that KMA has not demonstrated that it has a reasonable
belief that it is likely to be damaged, given (1) Defendants assertion that their parts and
KMAs parts are not materially different and (2) Defendants assertion that KMA has
failed to present sufficient evidence to support a claim of counterfeiting.2
Section 43(a) of the Lanham Act prohibits the use of false designations of origins
in connection with goods, services, or their containers that are likely to cause confusion,
to cause mistake, or to deceive as to the affiliation, connection, or association of [the
maker] with another person, as to the origin, sponsorship, or approval of his or her goods,
2 Defendants also assert that KMAs failure to notify KMC that KMA believed that
KMCs trademarks were being infringed, as required by the Distribution Agreement
between KMC and KMA, demonstrates that KMA lacks the requisite belief to maintain a
(Footnote Continued on Next Page)
6
services, or commercial activities. 15 U.S.C. 1125(a). As discussed in the Courts
prior Order, 43(a) permits any person who believes that he or she is likely to be
damaged by the proscribed conduct to bring a civil action. Id.; see also Silverstar Enters.,
Inc. v. Aday, 537 F. Supp. 236, 241 (S.D.N.Y. 1982) (explaining that because 1125(a) is
broader than 1114, users of trademarks who are not owners of the marks may have
standing to pursue a 43(a) claim). The Court finds Defendants standing argument to be
without merit. It will address Defendants arguments with respect to the gray market
goods and counterfeiting claims below.
II. Gray Market Goods
Defendants next move for summary judgment on KMAs gray-market-goods
claim, asserting that there are no material differences between KMAs parts and
Defendants parts. KMA cross moves for summary judgment on this claim, asserting that
it is entitled to partial summary judgment on the issue of liability because the material
difference between the parties parts creates a presumption of customer confusion that
Defendants have failed to rebut.
Gray market or the parallel import of goods refers to a fact pattern in which
someone other than the designated exclusive United States importer buys genuine
trademarked goods outside the U.S. and imports them for sale in the U.S. in competition
with the exclusive U.S. importer. 5 McCarthy 29:46. Consistent with the first-sale
(Footnote Continued From Previous Page)
43(a) claim. It is unclear how this argument supports any standing argument.
7
doctrine, which provides that once a mark owner sells or authorizes goods to be sold
bearing its mark it cannot prevent subsequent owners from reselling the goods with the
mark, see Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69 (1924), the sale of gray market
goods will not constitute infringement as long as the imported goods are the same quality
as those sold by the U.S. registrant and the U.S. registrant and foreign manufacturer are
related entities. See NEC Elec. v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th Cir.
1987). McCarthy explains, however:
If there are material differences between the gray market imports and the
authorized imports, then the gray market imports are not genuine goods
and can create a likelihood of confusion. Such material differences
evidence the fact that consumer expectation as to the nature of the goods
identified by the trademark is not being met.
5 McCarthy 29:51.75 (internal quotations and citations omitted). Therefore, a
material difference between goods simultaneously sold in the same market under the
same name creates a presumption of consumer confusion as a matter of law. Societe Des
Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 640 (1st Cir. 1992). In this
way,
the premise of the material differences rule is that the consumer in fact
does not get what she expects and does not get the genuine product . . . .
The unauthorized importer is using the trademark in such a way as to create
a likelihood of confusion, mistake and deception, thereby triggering a
violation of the Lanham Act.
5 McCarthy 29:51.75 (internal quotations and citations omitted). The material
differences rule applies to all Lanham Act claims, regardless of whether they involve
32 or 43(a). Id. The material difference between the authorized goods and the gray
8
goods need not be an enormous differencea single or small difference is sufficient to
trigger a Lanham Act violation. Id. (listing types of material differences, including
differences in aesthetics, labeling, and warranties).
The typical multi-factor likelihood-of-confusion tests used for trademark claims is
not useful in the context of gray market goods because such goods typically use the exact
same market, sold in the original packaging. Novartis Animal Health U.S., Inc. v.
Abbeyvet Export Ltd., 409 F. Supp. 2d 264, 266 (S.D.N.Y. 2005). Therefore, courts have
adopted a simpler, two-part test to determine if likelihood of confusion exists in a gray
market goods context: (1) were the goods not intended to be sold in the United States;
and (2) are they materially different from the goods typically sold in the United States?
Id. Once a plaintiff establishes a material difference, the burden shifts to the accused
infringer to establish by a preponderance of evidence that the difference is not the kind
that consumers, on average, would likely consider in purchasing a product. Societe Des
Produits Nestle, 982 F.2d at 641.
Here, there is no dispute that Defendants goods were not intended to be sold in the
United States. Previously, the Court rejected Defendants argument that there were no
material differences between the parties parts and denied Defendants second motion for
summary judgment on that issue.3 (Doc. No. 279 at 12-13.) Defendants again move for
3 In that same Order, the Court rejected Defendants argument that KMA could not
pursue its 43(a) claim because KMA was a wholly owned subsidiary of KMC. (Doc.
No. 279 at 9-12.)
9
summary judgment, asserting that there is no material difference between their parts and
KMAs parts because there are no material differences between Defendants parts return
policy and KMAs warranty. Specifically, Defendants contend that both parties offer
essentially the same type of parts return policies and they assert that a KMC, not a KMA,
warranty expressly covers all genuine Kia replacement parts, regardless of where or from
whom the dealer purchased the parts. KMA responds that it has established as a matter of
law a material difference between Defendants parts and KMAs parts because a plain
reading of KMAs warranties shows that they do not extend to parts sold by Defendants.
There is no dispute that the question of a warrantys coverage is a question of
contract interpretation for the Court to decide. See Swatch S.A. v. New City, Inc., 454 F.
Supp.2d 1245, 1250 (S.D. Fla 2006) (examining alleged differences in warranties and
explaining question of warranty coverage is a question of law for the court). Defendants
recently began offering a limited parts replacement warranty for their parts which are
damaged but have not yet placed in any automobiles. In contrast, KMA offers three types
of warranties with the cars and parts it sells: (1) a basic warranty, (2) a power-train
warranty; and (3) a genuine Kia replacement parts and accessories warranty. After
carefully reviewing the parties warranties, the Court concludes as a matter of law that the
KMA warranties are unambiguous. Specifically, the Court concludes that the KMA
warranties cover genuine Kia new or remanufactured replacement parts and Kia
Accessories purchased from KMA and sold by an Authorized Kia Dealer. (See Doc. 424,
Exs. A-F.) As explained earlier, a single or small difference is sufficient to trigger a
10
Lanham Act claim. 5 McCarthy 29:51.75. Based on the foregoing, the Court concludes
that KMA has met its burden of establishing that there is a material difference between
KMAs parts and Defendants parts, namely the material difference is that Defendants
parts lack KMAs warranty. Given this, the Court denies Defendants motion with
respect to the 43(a) gray-market-goods claim.
Now, the burden shifts to Defendants to establish by a preponderance of evidence
that the difference is not the kind that consumers, on average, would likely consider in
purchasing a product. Societe Des Produits Nestle, 982 F.2d at 641. KMA seeks partial
summary judgment on this issue, asserting that Defendants cannot meet their burden of
establishing that the differences in the parties warranties are not the kind that consumers,
on average, would likely consider in purchasing a product. Defendants respond that the
warranty difference is not relevant because dealers are not confused about the parties
differences in warranties because Defendants take explicit steps to ensure that dealers
know that they cannot receive warranty reimbursement or credit from KMA for parts
dealers purchase from Defendants. The crux of Defendants argument is that the dealers
are the only relevant consumers, not the end users or car owners, and that there is no
evidence in the record to show that there is any confusion by the dealers about the parties
warranties.
Viewing the evidence in the light most favorable to Defendants, the Court
concludes that there are genuine issues of material fact with respect to whether
Defendants have met their burden. Defendants arguments assume, without supporting
11
case law, that the only relevant consumers are the dealers. End-users or car owners,
however, may very likely find the differences in the parties warranties to be relevant
when they are purchasing replacement parts. See, e.g., Hyundai Constr. Equip. U.S.A.,
Inc. v. Chris Johnson Equip., Inc., No. 06 C 3238, 2008 WL 4210785, at *3 (N.D. Ill.
Sept. 10, 2008) (granting summary judgment in favor of plaintiff by explaining that
defendants warning to his customers about the products would not protect subsequent
customers who may purchase the equipment from the defendants customers). Given this,
the Court denies KMAs motion with respect to the 43(a) gray-market-goods claim.
III. Counterfeit Goods
Asserting that additional facts have been discovered since Defendants second
summary judgment motion in which the Court denied Defendants motion for summary
judgment on KMAs counterfeit-goods claim, Defendants now contend that they are
entitled to summary judgment on KMAs 43(a) counterfeit-goods claim because
KMAs evidence at this stage of the case is too thin and vague to create a genuine
issue of material fact concerning whether Defendants goods are counterfeit. (Doc.
No. 418 at 20-22.) KMA responds that it has produced such evidence to survive a
summary judgment motion and that Defendants third summary judgment motion on this
issue is merely a motion to reconsider in disguise. KMA explains that Defendants
argument is based on the faulty premise that KMAs failure to test the exemplars
somehow raises a presumption that Defendants parts are genuine. The parties then
12
rehash arguments concerning the exemplars and evidentiary ramifications that flow from
the testing or lack of testing of the exemplars.4
The Court has thoroughly reviewed all evidence and arguments submitted in
connection with this motion. Viewing the evidence in the light most favorable to KMA
and noting the absence of new evidence since the second summary judgment motion, the
Court concludes that genuine issues of material fact remain with respect to whether
Defendants goods are counterfeit and therefore violate 43(a) of the Lanham Act.
Given this, the Court denies Defendants motion with respect to KMAs 43(a)
counterfeit-goods claim. The Court, however, strongly reiterates its admonition to KMA
that this conclusion does not equate to a victory at trial or rule out a subsequent Rule 50
motion. See Fed. R. Civ. P. 50. To succeed at trial, KMA will have the burden of
establishing all of the elements of its 43(a) counterfeit-goods claim. On the record
before the Court, that will likely prove to be a difficult task for KMA. In advance of the
pretrial conference and the trial, KMA should consider how best to streamline and present
its evidence to the jury on the counterfeiting claim.
4 In connection with these arguments, Defendants and KMA filed several objections
and/or motions to strike documents and declarations that were submitted in connection
with the summary judgment motions. As the Court noted at the motion hearing, the
arguments submitted in connection with the objections would more properly be presented
as motions in limine at the pretrial conference. For this reason, the Court will deny all
objections/motions to strike without prejudice.
13
IV. Disgorgement of Profits
Defendants seek partial summary judgment on the issue of disgorgement of profits
because they assert that KMA has failed to put forth any computation, as required by
Federal Rule of Civil Procedure 26(a), of Defendants sales on which it will base its claim
for profits. In the alternative, Defendants seek a ruling from the Court that KMA only be
allowed to seek profits realized after July 6, 2005, the date KMA commenced this
lawsuit, because KMA has not produced evidence prior to that date that the Kia parts or
packaging were marked with the Kia Marks. KMA responds that it is relying on
documents produced by Defendants to support its claim for profits and that if Defendants
believe that those documents are incomplete, it is Defendants fault, not KMAs fault.
KMA does not specifically respond to Defendants argument about whether the Kia parts
were marked with the Kia Marks prior to July 6, 2005. As the Court discussed at the
motion hearing, this issue is more properly addressed at the pretrial conference when the
Court will make rulings that will likely have serious dispositive evidentiary ramifications
for both parties.5 Accordingly, the Court denies at this time Defendants summary
judgment motion with respect to the disgorgement of profits.
5 At the trial, the Court anticipates that it will also make rulings that will have
serious dispositive evidentiary ramifications on both sides positions with respect to the
gray-market-goods and counterfeiting claims. The Court hopes that the parties consider
these ramifications both in preparing for trial and in any settlement discussions they may
be having.
14
CONCLUSION
Accordingly, IT IS HEREBY ORDERED that:
1. Defendants Third Motion for Partial Summary Judgment (Doc. No. 417) is
DENIED.
2. KMAs Motion for Summary Judgment on Liability (Doc. No. 421) is
DENIED.
Dated: February 26, 2009 s/Donovan W. Frank
DONOVAN W. FRANK
Judge of United States District Court
 

 
 
 

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