Iberia Foods Corp. v. Rolando Romeo, Jr. D/B/A Rol-Rom Foods Rolando Romeo, Jr., T/a Rol-Rom Foods

Citations: 150 F.3d 298; 47 U.S.P.Q. 2d (BNA) 1604; 1998 U.S. App. LEXIS 17249; 1998 WL 427234Docket: 97-5424

Court: Court of Appeals for the Third Circuit; July 30, 1998; Federal Appellate Court

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Iberia Foods Corp. initiated a trademark infringement lawsuit against Rolando Romeo, Jr. and Rol-Rom Foods, seeking to prevent Rol-Rom from selling household cleaning products under the Mistolin trademark, which Iberia owns. The district court ruled in favor of Iberia, granting summary judgment. However, the Third Circuit Court of Appeals reversed this decision, determining that the Mistolin products sold by Rol-Rom were "genuine" under Section 32 of the Lanham Act.

Iberia Foods, a distributor based in Brooklyn, holds the U.S. trademark for Mistolin, which includes various cleaning products sold in Puerto Rico and select U.S. metropolitan areas. The products are manufactured in Puerto Rico by Mistolin Caribe, Inc., which also sells directly to Puerto Rican distributors. Iberia and Caribe operate in distinct markets: Iberia in the continental U.S. and Caribe in Puerto Rico.

The trademark ownership stems from a 1988 agreement in which Iberia acquired the U.S. rights to Mistolin from Caribe's parent company, Mistolin Dominicana, C.A., in exchange for committing to purchase Mistolin exclusively from Caribe. Rol-Rom, based in New Jersey, purchases Mistolin products in Puerto Rico and sells them in New York and New Jersey, competing directly with Iberia by offering lower prices. 

In April 1993, Iberia filed a complaint against Rol-Rom, alleging trademark infringement under Section 32 of the Lanham Act. Rol-Rom denied the allegations, raised affirmative defenses, and filed counterclaims. After discovery, both parties sought summary judgment on the infringement claim.

Iberia asserted that Rol-Rom infringed its trademark by purchasing Mistolin in Puerto Rico and selling it in the continental U.S., arguing that a 1988 agreement granted Iberia trademark rights in the continental U.S. while allowing Caribe to retain rights in Puerto Rico. Iberia claimed this circumvention undermined its quality control measures, rendering Rol-Rom's product "not genuine" and harming Iberia's goodwill. In contrast, Rol-Rom argued that the agreement transferred all trademark rights, including Puerto Rico, to Iberia, and cited Iberia's failure to challenge Caribe’s sales as evidence of a "naked license" leading to abandonment of the trademark and implied consent to Caribe’s sales under the "first sale" doctrine.

On March 26, 1996, the district court denied Rol-Rom's summary judgment motion and granted Iberia's. The court found Rol-Rom's defenses without merit, establishing that the agreement intended to transfer rights only for the continental U.S. and that Iberia lacked control over Caribe’s Puerto Rican sales. The court ruled that the first sale and abandonment doctrines were inapplicable, as the Mistolin trademark remained significant in the continental U.S. The court then addressed Iberia's motion, highlighting evidence of Iberia's quality control measures and agreeing that the evidence warranted summary judgment for Iberia on its federal trademark infringement claim, although it did not explicitly detail why Rol-Rom's Mistolin was deemed "not genuine."

Litigation between Iberia and Rol-Rom regarding remaining claims and counterclaims concluded on June 4, 1997, with a final order and injunction from the district court. This order prohibited Rol-Rom from selling Mistolin products unless they were first distributed by Iberia, threatening contempt, fines, and attorney's fees for violations. Additionally, both parties withdrew their claims with prejudice, retaining the right to reinstate them if a prior court order were reversed. Rol-Rom subsequently filed a timely appeal. 

During the appeal process, the court applied plenary review to summary judgment, requiring all evidence to be viewed favorably for the non-moving party. The primary issue assessed was whether Iberia proved that the Mistolin sold by Rol-Rom was not "genuine" under Section 32 of the Lanham Act. The court determined that Iberia failed to meet this burden, leading to the conclusion that Rol-Rom was entitled to summary judgment and that the district court's order should be reversed. 

Iberia's federal trademark claim was based on Section 32 of the Lanham Act, which allows trademark owners to prevent the sale of products bearing their mark when those products are similar but not identical to theirs. This legal framework has been applied mainly in "gray goods" cases involving the sale of inferior imports but is also relevant in cases where products are sold under materially different conditions.

A trademark owner must demonstrate that an alleged infringer's products are "not genuine" under Section 32 to establish infringement. This determination hinges on identifying "material differences" between the products sold by the trademark owner and those by the alleged infringer. If no material differences exist, the products are deemed "genuine," and the infringement claim fails. The material differences test aims to assess potential harm to the trademark owner's goodwill, as confusion about quality may arise when similar marks are used on different products. Goods that tarnish the trademark's "commercial magnetism" can be classified as "non-genuine," leading to infringement.

Conversely, if the differences between the products are so minor that consumers receive exactly what they expect, the goods are considered "genuine," regardless of the trademark owner's economic harm, leaving Section 32 without a remedy for the owner. The types of material differences are not exhaustively defined, as they vary based on consumer perceptions; any difference likely to harm the trademark owner's goodwill can be considered material. Examples illustrate this principle, contrasting cases with different product acceptance criteria and storage specifications.

Iberia asserts that significant differences exist between Mistolin products sold by Rol-Rom and those it sells, attributing this to its quality control inspections of every shipment received from Caribe. Iberia inspects each box and rejects substandard products, claiming this process enhances the quality of its Mistolin, making it materially different from the uninspected goods offered by Rol-Rom. Legal precedents support the idea that a trademark owner's rigorous quality control can create a material difference in products, as uneven manufacturing quality can impact consumer perception and goodwill. Courts do not require trademark owners to demonstrate a measurable quality difference, but they must establish that their quality control is substantial and non-pretextual enough to prevent consumer confusion regarding product sponsorship, which could harm the trademark's value.

Iberia's inspection process involves checking for external problems, including packaging condition, and taking random samples for evaluation. If issues are detected, the goods are destroyed, and Iberia receives credit from Caribe. However, the criteria for determining when a sample is "wrong" are vague, relying on subjective assessments of appearance and smell. Although the chairman indicated that laboratory inspections could occur for problematic shipments, he could not recall any instances in the past decade where this had taken place.

Iberia's inspection of Mistolin products is limited to identifying obvious defects due to its lack of knowledge about the manufacturing processes or ingredients used by Caribe since acquiring the trademark in 1988. Iberia relies solely on Caribe for product content, merely ordering Mistolin products and assuming they contain the appropriate cleaner. Iberia's involvement has been restricted to assisting with U.S. label design in response to federal requirements, while all product specifications, including ingredients and barcodes, are determined by Caribe. Consequently, Iberia's quality control process focuses only on detecting damage during shipment and assessing whether random samples appear acceptable. 

This limited inspection method is deemed insufficient to create a material difference between the Mistolin products sold by Iberia and those sold by Rol-Rom, as it only filters out unsellable items, which are unlikely to reach consumers anyway. Distributors and retailers typically identify and reject blatantly defective products before they reach shelves. The case contrasts with other instances where a trademark owner's rigorous quality control measures effectively ensured product quality, such as in El Greco and Casa Helvetia, where systematic inspections and strict standards were maintained to differentiate products.

Inspection by the trademark owner is crucial for maintaining product quality and protecting consumer goodwill, as established in El Greco and Casa Helvetia. In this case, Iberia's minimal quality control, which relies heavily on Caribe's judgment, is inadequate to ensure product standards, resulting in no material difference between Mistolin products sold by Iberia and those by Rol-Rom. Consequently, Mistolin sold by Rol-Rom is deemed "genuine," and Iberia's attempt to invoke Section 32 of the Lanham Act to prevent Rol-Rom's sales is unsuccessful. The goodwill associated with Mistolin is not compromised by Rol-Rom's sales. The court reverses the district court's judgment in favor of Iberia on the federal trademark infringement count and directs that judgment be entered for Rol-Rom. The remaining claims against Rol-Rom include common law trademark and service mark infringement, unfair competition, and New Jersey statutory unfair competition. While Rol-Rom's abandonment argument is treated as a counterclaim, it is better classified as an affirmative defense. The "first sale" doctrine indicates that a trademark owner's initial authorized sale relinquishes control over subsequent sales. The court concurs with the district court's finding that the 1988 agreement limited Iberia's trademark rights to the continental U.S., confirming that Caribe retains rights in Puerto Rico and deeming Rol-Rom's abandonment and first sale defenses without merit. The relevant statute outlines liability for unauthorized use of a registered trademark that causes consumer confusion.

In Original Appalachian Artworks, Inc. v. Granada Electronics Inc., 816 F.2d 68 (2d Cir. 1987), the Second Circuit issued an injunction against the importation of Cabbage Patch Kids dolls from Spain, which were similar but lacked key features that contributed to the original dolls' popularity in the U.S. The court found that the domestic trademark owner's goodwill was harmed due to consumer confusion with the inferior Spanish dolls, justifying the injunction.

In a related matter, Iberia referenced Rol-Rom's sale of Mistolin products, specifically Mistolin All Purpose Cleaner, which Iberia had ceased selling. However, the record does not substantiate Iberia's claim of a material difference between its and Rol-Rom's products, as both companies had discontinued the cleaner.

Additionally, in a 1993 incident, Iberia rejected a shipment of Mistolin from Caribe due to a defect that was not immediately visible. The defect was discovered post-shipment, although Garcia acknowledged it had not been identified during Iberia's quality control inspection.