K Mart Corp. v. Cartier, Inc.

486 U.S. 281, 108 S. Ct. 1811, 100 L. Ed. 2d 313, 1988 U.S. LEXIS 2473, 56 U.S.L.W. 4478, 6 U.S.P.Q. 2d (BNA) 1897

Opinions

Justice Kennedy

announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I, II-A, and II-C, and an opinion with respect to Part II-B, in which White, J., joined.

A gray-market good is a foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder. These cases present the issue whether the Secretary of the Treasury’s regulation permitting the importation of certain gray-market goods, 19 CFR § 133.21 (1987), is a reasonable agency interpretation of § 526 of the Tariff Act of 1930 (1930 Tariff Act), 46 Stat. 741, as amended, 19 U. S. C. § 1526.

I

A

The gray market arises in any of three general contexts. The prototypical gray-market victim (case 1) is a domestic firm that purchases from an independent foreign firm the rights to register and use the latter’s trademark as a United States trademark and to sell its foreign-manufactured products here. Especially where the foreign firm has already registered the trademark in the United States or where the product has already earned a reputation for quality, the right to use that trademark can be very valuable. If the foreign manufacturer could import the trademarked goods and distribute them here, despite having sold the trademark to a domestic firm, the domestic firm would be forced into sharp intrabrand competition involving the very trademark it purchased. Similar intrabrand competition could arise if the foreign manufacturer markets its wares outside the United States, as is often the case, and a third party who purchases them abroad could legally import them. In either event, the parallel importation, if permitted to proceed, would create a gray market that could jeopardize the trademark holder’s investment.

The second context (case 2) is a situation in which a domestic firm registers the United States trademark for goods that are manufactured abroad by an affiliated manufacturer. In its most common variation (case 2a), a foreign firm wishes to control distribution of its wares in this country by incorporating a subsidiary here. The subsidiary then registers under its own name (or the manufacturer assigns to the subsidiary’s name) a United States trademark that is identical to its parent’s foreign trademark. The parallel importation by a third party who buys the goods abroad (or conceivably even by the affiliated foreign manufacturer itself) creates a gray market. Two other variations on this theme occur when an American-based firm establishes abroad a manufacturing subsidiary corporation (case 2b) or its own unincorporated manufacturing division (case 2c) to produce its United States trademarked goods, and then imports them for domestic distribution. If the trademark holder or its foreign subsidiary sells the trademarked goods abroad, the parallel importation of the goods competes on the gray market with the holder’s domestic sales.

In the third context (case 3), the domestic holder of a United States trademark authorizes an independent foreign manufacturer to use it. Usually the holder sells to the foreign manufacturer an exclusive right to use the trademark in a particular foreign location, but conditions the right on the foreign manufacturer’s promise not to import its trademarked goods into the United States. Once again, if the foreign manufacturer or a third party imports into the United States, the foreign-manufactured goods will compete on the gray market with the holder’s domestic goods.

B

Until 1922, the Federal Government did not regulate the importation of gray-market goods, not even to protect the investment of an independent purchaser of a foreign trademark, and not even in the extreme case where the independent foreign manufacturer breached its agreement to refrain from direct competition with the purchaser. That year, however, Congress was spurred to action by a Court of Appeals decision declining to enjoin the parallel importation of goods bearing a trademark that (as in case 1) a domestic company had purchased from an independent foreign manufacturer at a premium. See A. Bourjois & Co. v. Katzel, 275 F. 539 (CA2 1921), rev’d, 260 U. S. 689 (1923).

In an immediate response to Katzel, Congress enacted § 526 of the Tariff Act of 1922, 42 Stat. 975. That provision, later reenacted in identical form as § 526 of the 1930 Tariff Act, 19 U. S. C. § 1526, prohibits importing

“into the United States any merchandise of foreign manufacture if such merchandise . . . bears a trademark owned by a citizen of, or by a corporation or association created or organized within, the United States, and registered in the Patent and Trademark Office by a person domiciled in the United States . . . , unless written consent of the owner of such trademark is produced at the timé of making entry.” 19 U. S. C. § 1526(a).¹

The regulations implementing §526 for the past 50 years have not applied the prohibition to all gray-market goods. The Customs Service regulation now in force provides generally that “[f ]oreign-made articles bearing a trademark identical with one owned and recorded by a citizen of the United States or a corporation or association created or organized within the United States are subject to seizure and forfeiture as prohibited importations.” 19 CFR § 133.21(b) (1987).² But the regulation furnishes a “common-control” exception from the ban, permitting the entry of gray-market goods manufactured abroad by the trademark owner or its affiliate:

“(c) Restrictions not applicable. The restrictions . . . do not apply to imported articles when:

“(1) Both the foreign and the U. S. trademark or trade name are owned by the same person or business entity; [or]

“(2) The foreign and domestic trademark or trade name owners are parent and subsidiary companies or are otherwise subject to common ownership or control. . .

The Customs Service regulation further provides an “authorized-use” exception, which permits importation of gray-market goods where

“(3) [t]he articles of foreign manufacture bear a recorded trademark or trade name applied under authorization of the U. S. owner . . . 19 CFR § 133.21(c) (1987).

Respondents, an association of United States trademark holders and two of its members, brought suit in Federal District Court in February 1984, seeking both a declaration that the Customs Service regulation, 19 CFR §§ 133.21(c)(1)-(3) (1987), is invalid and an injunction against its enforcement. Coalition to Preserve the Integrity of American Trademarks v. United States, 598 F. Supp. 844 (DC 1984). They asserted that the common-control and authorized-use exceptions are inconsistent with §526 of the 1930 Tariff Act.³ Petitioners K mart and 47th Street Photo intervened as defendants.

The District Court upheld the Customs Service regulation, 598 F. Supp., at 853, but the Court of Appeals reversed, Coalition to Preserve the Integrity of American Trademarks v. United States, 252 U. S. App. D. C. 342, 790 F. 2d 903 (1986) (hereinafter COPIAT), holding that the Customs Service regulation was an unreasonable administrative interpretation of § 526. We granted certiorari, 479 U. S. 1005 (1986), to resolve a conflict among the Courts of Appeals. Compare Vivitar Corp. v. United States, 761 F. 2d 1552, 1557-1560 (CA Fed. 1985), aff’g 593 F. Supp. 420 (Ct. Int’l Trade 1984), cert. denied, 474 U. S. 1055 (1986); and Olympus Corp. v. United States, 792 F. 2d 315, 317-319 (CA2 1986), aff’g 627 F. (EDNY 1985), cert. pending, No. 86-757, with COPIAT, supra, at 346-355, 790 F. 2d, at 907-916. In an earlier opinion, we affirmed the Court of Appeals’ conclusion that the District Court had jurisdiction, and set the cases for reargument on the merits. 485 U. S. 176 (1988).

A majority of this Court now holds that the common-control exception of the Customs Service regulation, 19 CFR §§ 133.21(c)(1)-(2) (1987), is consistent with § 526. See post, at 309-310 (opinion of Brennan, J.). A different majority, however, holds that the authorized-use exception,. 19 CFR § 133.21(c)(3) (1987), is inconsistent with § 526. See post, at 328-329 (opinion of Scalia, J.). We therefore affirm the Court of Appeals in part and reverse in part.

hH

In determining whether a challenged regulation is valid, a reviewing court must first determine if the regulation is consistent with the language of the statute. “If the statute is clear and unambiguous ‘that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’. . . The traditional deference courts pay to agency interpretation is not to be applied to alter the clearly expressed intent of Congress.” Board of Governors, FRS v. Dimension Financial Corp., 474 U. S. 361, 368 (1986), quoting Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842-843 (1984). See also Mills Music, Inc. v. Snyder, 469 U. S. 153, 164 (1985). In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole. Bethesda Hospital Assn. v. Bowen, 485 U. S. 399, 403-405 (1988); Offshore Logistics, Inc. v. Tallentire, 477 U. S. 207, 220-221 (1986). If the statute is silent or ambiguous with respect to the specific issue addressed by the regulation, the question becomes whether the agency regulation is a permissible construction of the statute. See Chevron, supra, at 843; Chemical Manufacturers Assn. v. Natural Resources Defense Council, Inc., 470 U. S. 116, 125 (1985). If the agency regulation is not in conflict with the plain language of the statute, a reviewing court must give deference to the agency’s interpretation of the statute. United States v. Boyle, 469 U. S. 241, 246, n. 4 (1985).

Following this analysis, I conclude that subsections (c)(1) and (c)(2) of the Customs Service regulation, 19 CFR §§ 133.21 (c)(1) and (c)(2) (1987), are permissible constructions designed to resolve statutory ambiguities. All Members of the Court are in agreement that the agency may interpret the statute to bar importation of gray-market goods in what we have denoted case 1 and to permit the imports under case 2a. See post, at 296, 298-299 (opinion of Brennan, J.); post, at 318 (opinion of Scalia, J.). As these writings state, “owned by” is sufficiently ambiguous, in the context of the statute, that it applies to situations involving a foreign parent, which is case 2a. This ambiguity arises from the inability to discern, from the statutory language, which of the two entities involved in case 2a can be said to “own” the United States trademark if, as in some instances, the domestic subsidiary is wholly owned by its foreign parent.

A further statutory ambiguity contained in the phrase “merchandise of foreign manufacture,” suffices to sustain the regulations as they apply to cases 2b and 2c. This ambiguity parallels that of “owned by,” which sustained case 2a, because it is possible to interpret “merchandise of foreign manufacture” to mean (1) goods manufactured in a foreign country, (2) goods manufactured by a foreign company, or (3) goods manufactured in a foreign country by a foreign company. Given the imprecision in the statute, the agency is entitled to choose any reasonable definition and to interpret the statute to say that goods manufactured by a foreign subsidiary or division of a domestic company are not goods “of foreign manufacture.”⁴

C

(1)

Subsection (c)(3), 19 CFR § 133.21(c)(3) (1987), of the regulation, however, cannot stand. The ambiguous statutory phrases that we have already discussed, “owned by” and “merchandise of foreign manufacture,” are irrelevant to the proscription contained in subsection (3) of the regulation. This subsection of the regulation denies a domestic trademark holder the power to prohibit the importation of goods made by an independent foreign manufacturer where the domestic trademark holder has authorized the foreign manufacturer to use the trademark. Under no reasonable construetion of the statutory language can goods made in a foreign country by an independent foreign manufacturer be removed from the purview of the statute.

(2)

The design of the regulation is such that the subsection of the regulation dealing with case 3, § 133.21(c)(3), is sever-able. Cf. Board of Governors, FRS v. Dimension Financial Corp., 474 U. S., at 368 (invalidating a Federal Reserve Board definition of “bank” in 12 CFR § 225.2(a)(1) (1985), but leaving intact the remaining parts of the regulation). The severance and invalidation of this subsection will not impair the function of the statute as a whole, and there is no indication that the regulation would not have been passed but for its inclusion. Accordingly, subsection (c)(3) of § 133.21 must be invalidated for its conflict with the unequivocal language of the statute.

Ill

We hold that the Customs Service regulation is consistent with §526 insofar as it exempts from the importation ban goods that are manufactured abroad by the “same person” who holds the United States trademark, 19 CFR § 133.21(c) (1) (1987), or by a person who is “subject to common . . . control” -with the United States trademark holder, § 133.21(c)(2). Because the authorized-use exception of the regulation, § 133.21(c)(3), is in conflict with the plain language of the statute, that provision cannot stand. The judgment of the Court of Appeals is therefore reversed insofar as it invalidated §§ 133.21(c)(1) and (c)(2), but affirmed with respect to § 133.21(c)(3).

It is so ordered.

1 The full text of § 526(a), as codified, 19 U. S. C. § 1526(a), is as follows: “(a) Importation prohibited

“Except as provided in subsection (d) of this section [an exception added in 1978 for the importation of articles for personal use], it shall be unlawful to import into the United States any merchandise of foreign manufacture if such merchandise, or the label, sign, print, package, wrapper, or receptacle, bears a trademark owned by a citizen of, or by a corporation or association created or organized within, the United States, and registered in the Patent and Trademark Office by a person domiciled in the United States, under the provisions of sections 81 to 109 of title 15, and if a copy of the certificate of registration of such trademark is filed with the Secretary of the Treasury, in the manner provided in section 106 of said title 15, unless written consent of the owner of such trademark is produced at the time of making entry.”

2 The Customs Service regulation provides:

Ҥ 133.21. Restrictions on importations of articles bearing recorded trademarks and trade names.

“(a) Copying or simulating marks or names. Articles of foreign or domestic manufacture bearing a mark or name copying or simulating a recorded trademark or trade name shall be denied entry and are subject to forfeiture as prohibited importations. A ‘copying or simulating’ mark or name is an actual counterfeit of the recorded mark or name or is one which so resembles it as to be likely to cause the public to associate the copying or simulating mark with the recorded mark or name.

“(b) Identical trademark. Foreign-made articles beaming a trademark identical with one owned and recorded by a citizen of the United States or a corporation or association created or organized within the United States are subject to seizure and forfeiture as prohibited importations.

“(c) Restrictions not applicable. The restrictions set forth in paragraphs (a) and (b) of this section do not apply to imported articles when:

“(1) Both the foreign and the U. S. trademark or trade name are owned by the same person or business entity;

“(2) The foreign and domestic trademark or trade name owners are parent and subsidiary companies or are. otherwise subject to common ownership or control (see §§ 133.2(d) [defining “common ownership and common control”] and 133.12(d) [providing that application to record trademark must report identity of any affiliate that uses same trade name abroad]);

“(3) The articles of foreign manufacture bear a recorded trademark or trade name applied under authorization of the U. S. owner;

“(4) The objectionable mark is removed or obliterated prior to importation in such a manner as to be illegible and incapable of being reconstituted, for example by:

“(i) Grinding off imprinted trademarks wherever they appear;

“(ii) Removing and disposing of plates bearing a trademark or trade name;

“(5) The merchandise is imported by the recordant of the trademark or trade name or his designate;

“(6) The recordant gives written consent to an importation of articles otherwise subject to the restrictions set forth in paragraphs (a) and (b) of this section, and such consent is furnished to appropriate Customs officials; or

“(7) The articles of foreign manufacture bear a recorded trademark and the personal exemption is claimed and allowed under § 148.55 of this chapter.” 19 CFR §§ 133.21(a), (b), (c) (1987).

3 Respondents sued the United States, the Secretary of the Treasury-, and the Commissioner of Customs. They also asserted that the Customs Service regulation was inconsistent with § 42 of the Lanham Trade-Mark Act, 15 U. S. C. § 1124, which prohibits the importation of goods bearing marks that “copy or simulate” United States trademarks. That issue is not before us.

4 I disagree with Justice Scalia’s reasons for declining to recognize this ambiguity. See post, at 319-323. First, the threshold question in ascertaining the correct interpretation of a statute is whether the language of the statute is clear or arguably ambiguous. The purported gloss any party gives to the statute, or any reference to legislative history, is in the first instance irrelevant. Further, I decline to assign any binding or authoritative effect to the particular verbiage Justice Scalia highlights. The quoted phrases are simply the Government’s explanation of the practical effect the current regulation has in applying the statute, and come from the statement-of-the-case portion of its petition for a writ of certiorari.

Additionally, I believe that agency regulations may give a varying interpretation of the same phrase when that phrase appears in different statutes and different statutory contexts. There may well be variances in purpose or circumstance that have led the agency to adopt and apply dissimilar interpretations of the phrase “of foreign manufacture” in other regulations implementing different statutes.

I also disagree that our disposition necessarily will engender either enforcement problems for the Customs Service or problems we are unaware of arising out of our commercial treaty commitments to foreign countries. Initially, it is reasonable to think that any such problems or objections would have arisen before now since it is the current interpretation of the regulations we are sustaining. Second. I believe that the regulation speaks to the hypothetical situation Justice Scalia poses, and that the firm with the United States trademark could keep out “gray-market imports manufactured abroad by the other American firms," post, at 320, because the regulation allows a company justifiably invoking the protection of the statute to bar the importation of goods of foreign or domestic manufacture. 19 CFR § 133.21(a) (1987). In this instance, the domestic firm with the United States trademark could invoke the protection of the statute (ease 1) and bar the importation of the other domestic firm’s product manufactured abroad even though our interpretation of the phrase “of foreign manufacture" would characterize these latter goods to be of domestic manufacture.