K MART CORP. v. CARTIER, INC.

Transcript: 

ORAL ARGUMENT OF LOUIS R. COHEN ON BEHALF OF PETITIONERS

Chief Justice William H. Rehnquist: Mr. Cohen, you may proceed whenever you are ready.

Mr. Cohen: Thank you, Mr. Chief Justice.

May it please the Court:

As this Court explained quite clearly in Prestonettes and again in Champion Spark Plug, a trademark owner has the right to prevent other people from applying his mark to their goods.

But he does not have any right, by virtue of the trademark, to restrict resales of his own goods after he has put them into commerce.

The Treasury Department has, we think, validly interpreted Section 526 of the Tariff Act in accordance with that basic distinction.

It is common ground between the parties that Section 526 protects a U.S. trademark owner against importation of goods bearing his trademark that were manufactured abroad by someone else.

Section 526 responded to the Second Circuit ruling in the Katzel case which had allowed the importation of such goods as non-infringing on the ground that they were genuine in the country they came from.

Unidentified Justice: Mr. Cohen, I am just curious.

Has a stay been entered in this case?

Mr. Cohen: No, Justice Blackmun, but there has been only a declaratory judgment.

There is no injunction in this case.

The Court of Appeals thought it would not be appropriate.

The question in this case is whether the statute also does something quite different: whether it gives an enterprise operating in more than one country a right, a continuing right by virtue of the trademark to stop its own goods at the U.S. border after it has sold them abroad.

Nothing in Katzel or the legislative history suggests, and I will argue that it is wholly implausible, that Congress intended any such fundamental change in the nature of a trademark.

And, so, Treasury has long interpreted the section as not barring importation where the U.S. owner itself placed the goods in foreign commerce or in certain functionally similar cases.

COPIAT, Respondents, argue that the plain words of the statute compel exclusion of the goods in those cases, too.

But it is altogether proper, we suggest to construe a statute as not encompassing every situation its words might literally reach when that would produce results Congress did not intend.

As the Court said a century ago, a statute making it a crime to hinder a mail carrier in the swift completion of his rounds is quite properly read as if it contained the words except when the mailman has just committed a felony or is about to deliver a bomb.

Unidentified Justice: Mr. Cohen, neither the brief of Government nor your argument thus far addresses the issue of proper jurisdiction in the case.

Do you intend to say anything about it?

Mr. Cohen: The Government's view is that the Court of Appeals was correct.

Section 1581, if read literally, might confer exclusive jurisdiction on the Court of International Trade, but we think the Court of Appeals was correct in understanding that what Congress was getting at there was actions arising under trade statutes of which this is not one.

The Court has often construed statutes more narrowly than the words alone might literally suggest in order to results that Congress did not intend.

I think it is quite implausible that the 1922 Congress intended to change a trademark from an identifying mark only into a partial permanent leash on the goods themselves.

It is implausible, first--

Unidentified Justice: Mr. Cohen, even under your theory, I think it gives more substance to the mark than just an identifier... even the Second Circuit litigation, the way this Court decided it, said it was more than an identifier.

Mr. Cohen: --I think what this Court said was that: If I am the U.S. owner of a trademark, the fact that someone else owns the same mark in France and, therefore, legally entitled to make and sell goods in France doesn't mean that those goods, which would otherwise be infringing goods in the United States, because he is not me, can come into the States.

Unidentified Justice: Yes, but they are made by the same party.

Weren't they the same source of goods in that case?

Mr. Cohen: No.

The goods that were made in France were not made by the U.S. trademark owner.

Unidentified Justice: No, but they were made by the goods the U.S. trademark owner sold, were also made by the same manufacturer; weren't they?

Mr. Cohen: Yes, he got them and he reprocessed them.

Unidentified Justice: So, they had a common source.

Mr. Cohen: And he reprocessed them.

But the case would have been, I suggest, exactly the same if what had happened was that the U.S. rights to manufacture had been bought by the plaintiff in that case and what you had were some goods manufactured in the United States by the plaintiff and some goods manufactured in France by the defendant.

And the plaintiff saying,

"Those French goods are infringing when they come over here because they are not, they are not mine. "

The case would have been quite different, I suggest, and this Court would have decided it differently and Congress would have reacted differently if the U.S. manufacturer had established a French factory and then said,

"Because I am manufacturing these goods in France and I want to keep them there, my trademark will keep them out of the United States. "

I don't think either this Court or the Congress would have had the reaction that they did.

I was starting to say that I think I get some help from the very text of the statute which explicitly protects only U.S. owners of trademarks and protects them only against goods of foreign manufacture.

Those requirements, which are not found elsewhere in trademark law, make sense on our view that Congress was assuming that the U.S. trademark owner and the foreign manufacturer would be two different people and was seeking to protect the trademark owner from the foreign manufacturer's goods.

They make, I suggest, no sense those limitations on COPIAT's view that Congress was seeking to change the characteristics of a trademark, to make it broader to bar the flow of all goods bearing its mark, including its own, into the United States.

Unidentified Justice: Congress never writes a statute that does more than it was intended to do.

Is that the thesis?

Whenever a statute necessarily written in general language goes beyond the specific evils sought to be remedied, we should interpret it, despite its language so that it covers only the specific evils sought to be remedied?

Mr. Cohen: I think that you should interpret it in accordance with it intent as discerned from its language and its context and its history.

There are, here, two different possible general principles and I think--

Unidentified Justice: Well, I am talking about its language, not its intent.

The postman situation you give me is a situation in which you have a different statute that expresses a different policy which has to somehow be reconciled with the statute protecting the postman in the execution of his daily rounds.

And if there were another statute here that similarly indicated an intention that these goods should be admitted, then we would have a different problem.

But, as far as the explicit language of the statute is concerned, it covers this situation as well as the narrow situation that was immediately before the Congress.

Mr. Cohen: --I have in this case at least the general legal background of the trademark law as asserted by this Court I think in Katzel and the following year in Prestonettes which did not extend... which did not make one of the characteristics of a trademark a right to bar the sale of somebody else's goods.

The trademark law says that I can't make a car in my garage and sell it as a Chevrolet.

It doesn't say that I can't resell one of General Motors' Chevrolets anywhere I want to.

And it would have been quite startling for this statute to have changed the law that much, I think.

And I think some of the language that Congress used indicates that that is not what they were trying to do.

And, therefore, I think it is appropriate here as it was in Guerrera where the Court read the language of the Pregnancy Discrimination Act requiring pregnant women to be treated the same as other employees, as a floor and not as a ceiling, as the Court did in the Colorado Public Industry Research Group case where it read pollutants and radioactive materials not to include nuclear wastes as not reaching a case that there is evidence Congress didn't intend to reach.

Unidentified Justice: Mr. Cohen, would you just be... just so I am sure I have your point.

You said there are two principles that this 546 might have indicated.

Would you state the two principles?

Mr. Cohen: Yes.

We think what 526 and this Court's decision in Katzel did was to say that the mere fact that goods are genuine abroad does not mean that they do not infringe here if there is somebody else in the United States who owns the trademark.

I take it that COPIAT thinks that 526 means that the trademark owner in the United States has the right to say that goods to which it applied its own trademark in some foreign country are not trademarked in the United States.

I think that... let me say it a different way.

I think that 526 means that if I own the U.S. trademark and somebody else owns the French trademark for some goods, his goods are infringing here even though they are genuine in France.

I think it does not mean that if I owned both the U.S. trademark and the French trademark I am entitled to be treated as two different people.

I think that the limitations in the statute to U.S. owners and to goods of foreign manufacture make no sense on COPIAT's view.

If they intended to give all trademark owners such a right to stop their own goods at the border, there would be no reason to require Nikon to form a shell U.S. subsidiary to hold the trademark and, conversely, there would be no reason to require Kodak to build an offshore factory in order to get the protection of Section 526.

Now, the other thing I will point to is one important episode in the brief legislative history.

It is the Senate discussion of the Pear's Soap hypothetical which suggests that everybody, whether for or against Section 526 was against giving foreign companies the right to restrict the flow of their own goods into the United States.

COPIAT is reduced to suggesting that the sponsors of 526 were wrong in claiming that 526 didn't do what COPIAT would like.

And the opponents were correct in fearing that it would do what neither they nor the sponsors wanted.

There isn't any reason why a statute that can be read perfectly straight forwardly to do what everyone agrees Congress intended, must also be wrote so literally as to do something no one in congress wanted.

This is also, it seems to us, an appropriate case for deference to the agency.

It is, I think, at the very least not clear from the text and the legislative history that Congress intended to permit a U.S. trademark owner to bar importation of its own goods.

COPIAT challenges Treasury's consistency, but the basic principle of the Treasury regulation that 526 doesn't give a trademark owner the right to bar its own goods sold abroad from being imported into the United States has been set forth in the regulations at all times since 1936 and very clearly and consistently since 1943.

Unidentified Justice: You are taking the position then that the Treasury has been consistent throughout the years and did not take a different position in the Second Circuit case in 1983?

Mr. Cohen: Yes, as to Treasury.

That brief was signed by the General Counsel of the Customs Service.

It was not authorized by Treasury and it should not have been filed.

Unidentified Justice: But at least, then, the Government has been inconsistent?

Mr. Cohen: To that extent... I was going to say the Government has also varied in its handling of a point that I don't think is at issue in this case and that is the extension of the general principle that I have been talking about to cases involving companies that are more distantly related.

There has been some adjustment in the articulation and probably in the policy, but this case is not and has never been about where the Treasury's line ought to be drawn.

This case as framed by COPIAT has always been about whether there can be an exception at all.

Mr. Chief Justice, I would like, if I may, to reserve the remainder of my time.

Chief Justice William H. Rehnquist: Thank you, Mr. Cohen.

We will hear now from you, Mr. Steele.

ORAL ARGUMENT OF ROBERT W. STEELE AS AMICUS CURIAE, SUPPORTING PETITIONERS

Robert W. Steele: Mr. Chief Justice, may it please the Court:

This Court has long recognized that considerable weight should be accorded to an executive department's interpretation and construction of a statute when that department has been entrusted with the administration of the statute.

This is an especially strong case for the application of that doctrine for three reasons.

First, the regulation in question has been in existence in one form or another since 1936.

Second, the regulation has been brought before Congress repeatedly in that time period and has been endorsed not by Congressional silence but by actual Congressional language in regard to specific legislation presented to the Congress.

And, third, and perhaps more important from the standpoint of my client, one of the intervenors in this case, during the 50 years that this statute has been interpreted by the Customs Service as it has been interpreted, a tremendous and substantial business has grown up in the United States among retailers based upon parallel imports, that everyone believes are lawful.

And everyone in the industry, the retail industry, believes to be lawful and believed for many years to be lawful.

My client is K Mart Corporation, a discount department store chain with 2,000 locations throughout the United States.

We are one of the intervenors.

47th Street Photo is the other intervenor who appears as a petitioner in this matter also selling merchandise and parallel imports included at discount prices.

The issue is important to the K Marts and the 47th Street Photos because of the difficulties that discounters have in obtaining trademark merchandise from time to time.

They provide price competition.

But more importantly than just the discount segment of the retail industry, the retailing industry generally handles some parallel imports.

Most retailers handle parallel imports.

They provide price competition with those imports.

They are a tool, an anti-monopoly tool.

And in this case, I must say that nothing in a brief filed in the Second Circuit was on the record to give notice to this industry that there had been a change in the views of any of the agencies in Washington, D.C. indeed, the language of the regulation in question has remained substantially the same during the time period with one exception.

In the 1950's, after the passage of the Lanham Act, the language was arguably broadened to permit more goods to be brought into the United States with a reference to the Lanham Act language for related companies dealing with affiliated companies and control.

Now, that language stayed in the regulation until 1959.

It didn't narrow it, as the Respondents would contend it should.

It broadened it.

It is not a real inconsistency in the sense that it supports the position which has been taken by the Respondents in this case.

During that same time period, this general understanding of the statute has been presented to Congress a number of times.

Now, as Mr. Cohen has pointed out, Section 526 was passed very clearly to remedy a perceived defect in a ruling under the 1902 trademark law.

And that ruling arose in the case of Bourjois & Co. v. Katzel.

And that is what caused 526 to be passed.

In 1936, Treasury interpreted the rule to provide and to allow for parallel imports.

But, more importantly, when the trademark act was amended with the Lanham Act in 1946, extensive reports were made to Congress before the passage of the Lanham Act.

And in passing the Lanham Act, Congress was told repeatedly that this regulation is on the books.

And under the trademark law and under 526, it was not envisioned that when one company, a multi-national company is manufacturing overseas and has a U.S. subsidiary, it is not envisioned that that U.S. subsidiary will be able to keep those imports out.

Congress was told that.

They put nothing in the Lanham Act--

Unidentified Justice: Mr. Steele, I am sorry.

Can I interrupt?

Robert W. Steele: --Yes.

Unidentified Justice: I have a problem... I am afraid I'm going to hear no argument to it from your side unless I hear something from you on it.

And that is the point on whether this matter should have been brought to the Trade Court or to the Court of Appeals here.

Robert W. Steele: Mr. Justice--

Unidentified Justice: I realize that financially this particular case is enormously important, but from the point of view... the merits of the case are enormously important.

But from the point of view of confusion in future cases for the Federal courts, the jurisdictional issue may well be the more significant.

And I would like to know what interpretation of the language of the statute you propose that will prevent jurisdictional disputes into the endless future.

What is the clear line of jurisdiction the Trade Court and the other Federal courts?

Robert W. Steele: --I do not believe that there is a clear line.

We did not raise the point of objection of jurisdiction originally when we intervened in the case.

K Mart Corporation took the position at the time that we felt that it should be litigated in the District Court in this particular proceeding.

So, we have not briefed the issue of jurisdiction.

And our position on the matter is that a number of cases have been brought and without undercutting the positions validly raised by 47th Street Photo, we have not addressed those intervening for the primary purpose of dealing with the substantive issue pertaining to the imports.

If I may turn very briefly to--

Unidentified Justice: It is true, is it not, though, that one of the respondents does still maintain there is no jurisdiction.

Robert W. Steele: --47th Street does address the question of jurisdiction.

Unidentified Justice: And the United States does.

Robert W. Steele: The United States has not address the question of jurisdiction, as I understand it.

Unidentified Justice: No.

It is sort of a one-sided argument we have here.

No one else even seems to want a day to discus the point.

Robert W. Steele: Turning back to the contentions I wish to make, in whatever court the issue arises, it has been our belief that there is ample legislative background to endorse the view that Congress has seen this interpretation for many years and has chosen not to disturb it.

The Lanham Act is one example and equally critical example and more up to date arises in 1984 when the Lanham Act was amended by the so-called Counterfeiting Act of 1984.

That Counterfeiting Act when it came in originally covered a number of different subjects and was the subject of extensive consideration by the Senate Judiciary Committee.

And the Senate judiciary Committee when it referred out the legislation ultimately passed, it said the Act did not include within its coverage so-called gray market goods, i.e., authentic trademark goods that have been obtained from overseas markets.

The importation of such goods is legal under certain circumstances.

For example, the Treasury Department has long interpreted Section 526 to permit the importation of such goods.

Now, at this point, before the Court, we have an interpretation which is clearly not Congressional silence sanctioning the Treasury Department, but express language from Congress.

Equally important is a recent situation in which Congress was called upon to look at the situation arising from a liquor importation question wherein specific legislation was proposed which would change the trademark... the trademark regulations and the regulations of the Customs Service.

It was rejected.

Thank you.

Chief Justice William H. Rehnquist: Thank you, Mr. Steele.

We will hear now from you, Mr. Allen.

ORAL ARGUMENT OF WILLIAM H. ALLEN ON BEHALF OF RESPONDENTS

Mr. Allen: Mr. Chief Justice, and may it please the Court:

At the risk of making an argument even more one-sided, I will say a word or two about the question of jurisdiction.

The District Courts have jurisdiction of actions relating to trademark.

And that is conferred by Section 1338 of Title 28 and by a provision of the Lanham Act.

The District Court here had and exercised that jurisdiction.

It had the traditional District Court trademark jurisdiction because nothing, I submit, in Section 1581 of Title 28 which deals with the jurisdiction of the Court of International Trade, makes an exception to the traditional trademark jurisdiction of the District Courts for this kind of case.

Certainly, nothing in Section 1581 says in terms that the Court of International Trade has jurisdiction over any trademark matters.

I have to acknowledge, however, that jurisdiction has been found to reside in the Court of International Trade by that court and it was affirmed in this respect by the Federal Circuit in the Vivitar case, which is a similar case.

That finding was based, that finding was based on provisions of subsection (i) of Section 1581 and, in particular, paragraph 3.

That is at page 9A of our brief.

The paragraph gives the Court of International Trade jurisdiction of any civil action against the government, an agency, or government official, arising out of a Federal statute providing for and, now, I quote:

Embargoes or other quantitative restrictions on the importation of merchandise for reasons other than the protection of public health or safety.

The argument is that Section 526 makes the importation of some goods bearing a United States trademark unlawful and, therefore, imposes an embargo on such goods.

Now, there are reasons set forth on the Court of Appeals opinions in our brief what that is not a tenable view.

I want to focus on just one of them.

What Section 526 really does is to enable the owner of a United States trademark to invoke governmental processes to bar those goods bearing his trademark that he wants to bar and conversely, if he gives consent, to allow those same goods that may be quite identical to enter the country.

The Customs Service is simply directed to enforce a private right to exclude some goods and admit others that may be quite indistinguishable.

And I submit that that sort of enforcement of private rights is not within the common understanding or, indeed, any reasonable understanding of an embargo.

That very point was made during the debate that preceded the re-enactment of Section 526 in 1930.

The Senate debated a proposal to delete from Section 526 the consent clause, the provision that allows the trademark owner to consent to the importation of goods bearing his trademark.

Senator George was one of the opponents of that proposal and he said that if it were adopted, if it were adopted, that would change... that would change Section 526 into an embargo kind of statute, but it wasn't.

It was not an embargo statute as it then stood.

There are plenty of embargo statutes on the books for this provision of Section 1581 to apply to.

There are some statutes that directly bar imports of certain goods or certain goods from some countries.

More commonly, there are statutes like the Trading with the Enemy Act, the Trade Expansion Act, the International Economic Powers Act that empower the President to bar those--

Unidentified Justice: The response to that, Mr. Allen, I presume is that the Senate realized that and taking that into account didn't just say embargo.

It said embargo or other quantitative restrictions.

Mr. Allen: --I do not see how this is a quantitative restriction, even less a quantitative restriction.

That is the typical kind of thing where you have a quota on goods.

I would have though, Your Honor.

Unidentified Justice: I would have thought it was meant to distinguish it from a restriction that consists of a high tariff.

There is no quantitative restriction, but the restriction is the dis-incentive caused by the tariff.

Mr. Allen: Well, I just really would have thought that embargo then or other quantitative restrictions, that it has to do with a measure that keeps out so many goods of this sort and not others.

Unidentified Justice: Well, it is important... to my mind, it is important to have some clear line because we are going to be struggling with this problem in many more contexts than we are going to be struggling with the merits problem that you seek to have before us.

The line you would draw is if the admission of the goods is dependent upon the voluntary agreement of a private party, it does not constitute an embargo or quantitative restriction.

Mr. Allen: That is the position.

That is correct, Your Honor.

Unidentified Justice: It doesn't provide for an embargo, it provides that a private party may impose a total restriction.

That is not providing for an embargo.

Mr. Allen: I understand that is the issue, Your Honor, and I simply say: No, the Customs Service is not directed to keep goods out except at the instance of a private trademark owner enforcing his trademark right.

Unidentified Justice: Enforcing its embargo.

It doesn't provide for... okay.

Mr. Allen: Now, let me turn, let me turn to the merits.

And I want to inquire first whether, as has been argued here this afternoon, I think, whether Section 526 as it is in fact worded can be made to sustain a meaning that is consistent with the Customs Services regulations interpreting it.

If it cannot, if it can't, then I think my clients win.

In every case that I am aware of where, in the eyes of some, this Court has strained a statute, it has thought itself bound to justify what it has done by reference to the text, the statutory words.

Church of the Holy Trinity and perhaps one or two other cases may be exceptions, but this is clearly not the case where statutory words taken at face value yields some sort of absurd result that has to be avoided.

You take any of the cases: Bob Jones, Guerrera, WMATA v. Johnson, the California Coastal Zone case, all of them... all of them, the interpretation of the statute however influenced by context, by secondary sources of illumination like legislative history was ultimately related to statutory text.

On the other hand, in not one of the District Court cases in which Section 526 has been held to have a limited meaning approximating that of the Customs Service regulations has a court engaged in any textual analysis.

I suggest that this inability to swear statute and regulation textually, may be why the Circuit judges of the Federal Circuit in Vivitar, the Second Circuit in Olympus, as well as the judges of the court below, were unwilling to accept the regulations as correctly interpreting the statute.

You cannot find, you certainly cannot find the exceptions that are expressed in the Customs regulations in the words of the statute.

They are not there explicitly.

The question is whether they lurk there or some justification for them lurks in the statutory words.

One suggestion offered this morning... offered this afternoon refers to the term of the statute that requires that trademark be owned by a corporation created within the United States, a citizen or a corporation created within the United States.

The requirement was added in conference, apparently because of questions raised in the Senate debate, and the part of the Senate debate to which Mr. Cohen referred... and I commend that part of the debate to Your Honors.

The lesson I draw from it and the lesson that the court below drew from it is quite different from the lesson that Mr. Cohen would draw.

But, in any event, that owned provision of the statute was added in the conference committee, presumably in the light of that part of the debate.

It has been suggested that a trademark is not owned by the United States subsidiary, that is the distributor for a foreign manufacturing parent, but is instead owned by the parent.

At least I assume that is the... spell it out fully what is suggested.

But the fact is, the fact is that the United States subsidiary distributor is recognized in law as the owner of the United States trademark.

Unidentified Justice: And the subsidiary register it here?

Mr. Allen: Yes.

Unidentified Justice: It is the one who did the registry?

Mr. Allen: A trademark can be registered only by the owner and these people, the subsidiary distributors have the registration certificates.

They are the ones whom the Patent and Trademark Office recognize as the owner.

There is no occasion in Federal law, as a general matter, for going into the corporate family tree of the apparent owner and registrants.

There was a simple way, there was a simple way for the conference committee to limit the class of corporate trademark owners that qualify for the protection of Section 526 if it had wanted to do that.

That would have been to require both the corporation be created in the United States as is done by Section 526 and that some specified proportion of the voting stock and some proportion of directors be United States citizens.

That is done in some other Federal statutes, which we referred to in our brief.

But not in Section 526.

But in any event, if you attribute to Congress the meaning of the word, 526 that is unknown to trademark law, you don't solve the problem of shoe-horning the Customs Service regulations into the text of Section 526.

The regulations deny the benefits of the statute to American manufacturing companies that manufacture trademark goods overseas themselves or have affiliates or licensees that do.

Examples of Duracell, the automobile manufacturers, Proctor & Gamble, some of them which don't even import any of the goods they make overseas.

All of which have described their gray market problems in amicus briefs in these courts.

If those companies are to be excluded from the protection of Section 526, it surely can't be on the ground that they don't own their United States trademarks.

And what has been belatedly suggested is that the case of these American manufacturing companies is covered by another term of the statute.

We have to go... that one didn't work, so, we turn to another provision.

The requirement that goods be of foreign manufacture.

Now, that, I submit, is just too far-fetched.

Congress is supposed to have intended by this argument quite ordinary words that on their face deal with where goods are manufactured in order to refer to something wholly different, i.e., who manufactures the goods.

And if I can depart for a moment from the purely textual argument, the of foreign manufacture amendment was introduced in response to a question that had been marked by Senator Lenroot about a person who went over into Canada and bought there a sack of the fine American product, Wonder Flour, that had been imported into Canada and now was going to bring it back.

He said, he was going to have his flour confiscated just because he was patriotic and wanted to buy American flour instead of Canadian flour.

He said, he said: buys that merchandise, suppose the American citizen purchased and brought back to this country a product of foreign manufacture with a foreign trademark and paid the duty on it in the regular way.

He distinguished the case of foreign manufacture from the case of American manufacture.

He was talking about where the Wonder Flour was made.

Furthermore, furthermore, the idea that of foreign manufacture means manufacture by a non-U.

S. company can't possibly, can't possibly be reconciled with the debate that preceded the re-enactment of the Section 526 as part of the Smoot Hawley Tariff Act in 1930.

The whole subject of that debate was goods manufactured abroad by American companies.

The Senate Finance Committee proposed deleting the clause at the end of Section 526 that permits such companies to consent to the importation of their goods.

The idea was then Ford Motor Company and these other companies that the Senators were complaining of weren't going to establish overseas plants and deprive Americans of jobs.

Whatever else that debate implies for the meaning of Section 526 and Mr. Cohen and I have debated the issue in our briefs, I think it is on the whole, that the debate can't possibly be reconciled with the Customs Service regulations.

But even leaving aside that debate in its whole breadth, surely, surely as to this matter, if even one Senator... if even one Senator had understood that the words, "of foreign manufacture", meant let us say manufactured by a foreign company that has no ownership or licensing ties to an American company, he would have said so.

He would have said,

"Look here. "

"We have to do something more than just delete this consent provision. "

"Because that statute as we enacted doesn't have anything to do with this case we are talking about. "

"If we just adopt the Finance Committee's amendment, we're going to wake up and find that we have accomplished nothing, nothing in the way of saving American jobs. "

Now, that brings me... that brings me to a second point.

I think my clients win on the text.

It can't... the text of Section 526 can't be made to fit the regulations.

But I don't lose.

I don't lose I don't think even if somebody finds some way of, by heroic efforts, of making the fit.

Because what we want to know finally is not what meaning the statute might be made to sustain, but what in fact Congress meant when it enacted the statute in 1922 and re-enacted it in 1930.

Now, a good index to what Congress meant is how what it said was immediately understood.

And I have already suggested that a particularly good index is the understanding that Senators in 1929 debating the re-enactment of Section 526 had, of what they had done back in 1922, absolutely nothing to suggest that any of them thought that it meant what the present Customs Service regulations say it means.

And a lot, a lot to indicate the contrary.

But that's not all.

Those who wrote the regulations for the old Customs Bureau on the heels of the enactment of the Tariff Act of 1922 had to be keenly attuned to what had just happened in Congress.

You would expect that if they had laid the emphasis on the debate in the Senate, the five or six columns of Congressional Record to record that debate that is now laid on it at this late date, they might have said something like this:

"Section 526 is written in seemingly broad terms, but in fact Congress meant only to overrule a decision of a Court of Appeals on its narrowest facts. "

Unidentified Justice: We would also expect, though, Mr. Allen, that if your clients had thought that this regulation was as contrary to the statute as you now tell us it is, they would have challenged it many, many years ago.

Mr. Allen: My clients don't move until they are hurt, I suppose is the answer to that, Your Honor.

And my clients did not move into court quickly even after they had been hurt.

There is a good deal of efforts at the Treasury Department, at the Customs Service that preceded this lawsuit.

And the fact is that the gray market, as a phenomenon, has bloomed in recent years.

And, indeed, if you go back to 1972 rulemaking, you will find... and this is in the record... that a number, a number of companies, a number of entities did say,

"Customs Service, you are, you are interpreting the statute wrong. "

"Section 133.21(c) regulations are not in accord with Section 526. "

Unidentified Justice: Well, I must say that is admirable restraint.

I wish more prospective litigants would emulate it.

[Laughter]

I am just interested in exploring that a little more.

If the answer to the absence of litigation challenging the regulation, and surely the AMOCO brief indicates it is a pretty important problem to a lot of people, is because the problem bloomed lately, the gray market problem bloomed lately, would that no suggest that it was not a problem Congress gave any thought to?

Mr. Allen: It is quite possible that... I mean you could infer that, but I have to look at what Senators Lenroot and Edge and McCumber were debating at the end of the 1922 debate in Congress and it concerned this very kind of thing: what about the Pear's Soap Company that establishes an agent in the United States and he registers this trademark.

I mean this... at least the concept of what became the gray market, what we now call the gray market issue was in Congress' mind.

Yes, yes.

In any event, those regulation writers didn't say that.

They didn't say anything like that.

They, in 1923... and it is a fortunate thing.

There were regulations that were written in 1923 right after the Tariff Act of 1922.

They simply paraphrased the statute.

Unidentified Justice: They just parroted the statute.

Mr. Allen: Just the same way in 1931, the regulation writers who were called upon to flesh out the Smoot Hawley Tariff Act gave subsection 526 its full apparent sweep.

And then you had the Court of Appeals for the Second Circuit deciding a case about this time.

And that court, of course, had to be acutely aware of Section 526, one of two blows suffered by its Katzel decision: reversal by this Court and overruling by Congress.

And were not just acutely aware of it, but perhaps not very hospitable to it.

But the argument was made to that Court that Section 526 should be limited according to its Katzel parentage so as not... so as not to bring in goods that were not imported for commercial purposes.

In that case, a luxury automobile.

Judge Hand, Judge Augustus Hand wrote the opinion for the Court.

He said that, of course, our Katzel decision brought about the legislation, but that fact does not settle the scope of the act.

And he called it this "drastic", "this drastic statute".

The narrow reading, the narrow reading of Section 526 that is now advocated was put to several contemporaneous tests and it flunked.

It flunked every one of them.

You have to move all the way ahead to 1936 where the first positive evidence that can be pointed to of someone understanding that Section 526 doesn't mean all it says.

And, if you look closely at the supposed evidence from 1936, it evaporates.

It evaporates.

The evidence is a provision of the Customs Service regulations that were amended in that year.

The second sentence of the amended Article 518(b).

It is at page 28 of the joint appendix.

On its face, on its face, the amended Article 518(b) is a belated recognition of one of this Court's decisions.

This Court held in 1923, after the Katzel decision that a section of the Trademark Act that forbids the importation of goods with a trademark that copies or simulates a United States' trademark applied to genuine goods with a trademark identical to a United States trademark.

The amended Article 518(b) cites that case from this Court in the margin.

Marginal notation: A. Bourjois Co. v. Aldredge.

And in keeping with the cited Aldredge decision, the first sentence of the amended Article 518(b) says that a genuine identical trademark shall be deemed to copy or simulate.

Those are the words, exact words, a United States trademark.

In that respect and others that are stated in our brief, the amended Article 518(b) was written solely in terms of the pertinent section of the Trademark Act and not at all in terms of Section 526.

Second sentence, Article 518(b) begins with the same, with the word, "However".

It is written in the same Trademark Act terms and says that if the foreign trademark... the United States trademark are owned by the same person, partnership, association or a corporation, the foreign trademark shall not be deemed to copy or simulate the United States trademark.

That, "Aha", say the Petitioners,

"That is the harbinger of everything that is stated in the 1972 regulations. "

Not so.

Not so at all.

The overall reason obviously was to, for this regulation, was to recognize after 13 years the force of this Court's Aldredge decision, the gloss that it had put on Section 27 of the Trademark Act.

It appears from what Congress was told when it was considering trademark legislation in 1944, it appears that the second sentence qualifying the general Aldredge rule was nothing more complicated than someone's conceptual difficulty with the idea that a person's own foreign trademark could be said to copy or simulate his identical United States trademark.

It had nothing to do with any supposed policy of Section 526 or for that matter any policy of the Trademark Act.

We can't know this for sure because the Customs Service has never once explained its regulations.

Not once.

Not once explained what it was doing when it made an amended regulation.

But the explanation was given, as I have said, to a Congressional committee by a witness from what was then the Tariff Commission.

And, without contradiction, he told the committee that Article 518, the amended Article 518 in 1936 effected only Section 27 and did not... and did not limit the reach of Section 526.

And I would pass from there to the 1950's and invite, invite Your Honors' particular attention to the discussion of the Guerlain case in our brief and of the Solicitor General's motion in this Court to vacate the judgment in favor of the government where he said that the Customs authorities have deemed themselves legally constrained to grant the claim of statutory protection invoked by the American distributors of French perfumes who were, according to Judge Edelstein's decision, part of a single international--

Unidentified Justice: But Mr. Allen, wasn't that partly because of the debate over whether they are related companies or the same company within the--

Mr. Allen: --It is very hard to make that out, Your Honor.

Unidentified Justice: --Because there was a factual dispute as to whether they were the same company.

Mr. Allen: There was, indeed.

They did contest that.

But listen to what further the Solicitor General said.

He was asking the judgment be vacated so that they could ask for legislation.

He said,

"An intragovernmental conflict as to the meaning of the tariff or trademark laws should be resolved through means other than antitrust litigation. "

Unidentified Justice: Yes, but that could be that the Department Justice thought that the exception extended to related companies and Treasury thought it only went to the same company.

There is that history.

Mr. Allen: Well, that is barely possible.

Unidentified Justice: There was a debate over that at the time.

Mr. Allen: But if... then if it is only the same company, it surely doesn't reach--

Unidentified Justice: Well, same or affiliated.

Same in the sense of 100 percent owned, whereas the related company concept talked about partially owned.

Mr. Allen: --At least one of the perfume companies in that case was a simple parent and subsidiary situation, according to Edelstein's finding.

Unidentified Justice: But one was not.

Guerlain was not, I think.

Mr. Allen: Guerlain was not.

But at least one of them was.

But that... well, it is a suggestion, Your Honor.

I had thought it seems a narrow view to talk about--

Unidentified Justice: But it is possible if there was that dispute between Treasury and Justice, not necessarily the dispute as to whether to the statute meant exactly what it said.

Mr. Allen: --It is possible, Your Honor.

It had not occurred to me that an intragovernmental conflict as to the meaning of the tariff or trademark laws would be that... would be that narrow a conflict.

But I can be wrong.

Chief Justice William H. Rehnquist: Thank you, Mr. Allen.

Mr. Cohen, you have four minutes remaining.

ORAL ARGUMENT BY LOUIS R. COHEN, ESQ. ON BEHALF OF PETITIONERS -- REBUTTAL

Unidentified Justice: Mr. Cohen, I just want to make clear: the United States has taken a position on the jurisdictional issue.

Mr. Cohen: Yes, and we have filed--

Unidentified Justice: And you agree with the court below?

Mr. Cohen: --Yes.

And we filed a memorandum which is probably lost in the stack of briefs in this case.

Unidentified Justice: Yes, I have it here.

Mr. Cohen: Mr. Chief Justice, with respect to the textual argument, our position is that it is entirely appropriate to read this text with the implicit contextual qualification supplying the ellipses, if you will, that after the words, "bears a trademark", it said...

"bears a trademark not applied by the U.S. owner or any affiliate. "

We think the evidence is consistent with the notion that that was the intention of this statute.

Unidentified Justice: But you do have to rewrite it a little bit.

Mr. Cohen: Well, no more than you have to rewrite an agreement with Panama that says, "any tax", to read it to say,

"any tax, but not a U.S. tax. "

Or to rewrite the statute that was involved in Watt v. Alaska which talks about minerals on Federal wildlife refuges to read:

"But not on reserved lands, only on acquired lands. "

Let me respond to some of the points that Mr. Allen has made.

With respect to the first version of the regulations, it is true that the first version of the regulations simply parroted the statute.

The 1922 Act was a massive statute.

It constituted almost the whole of Title 19.

That Treasury did not see fit to do anything other than quote the statute in the regulations that were adopted immediately thereafter, doesn't seem to us to have much bearing one way or the other.

The Clark Pease case, the Second Circuit case to which Mr. Allen was referring was not about the issue that is presently before the Court.

It was about whether the word, "merchandise", applies to goods brought in for personal use.

It does not appear in the opinion of that case that the U.S. trademark owner and the foreign trademark were the same person or were in any way related.

I will concede that the 1936 regulations, although they cite Section 526 and contain an explicit exception for the related company situation, don't do so as neatly as we might wish.

I think that the 1943 regulations leave no doubt whatever that the Treasury is treating the Lanham Act section, Section 27, which later became the Section 42 of the Lanham Act dealing with copies and Section 526 together and provided quite clearly as to both of them an exception that persists to this day for goods of the U.S. trademark owner.

Unidentified Justice: Mr. Cohen, you don't contend that the interpretation being urged by Respondents here produces an absurdity; do you?

Will you concede also that that result is not an absurd result?

Just a policy result that you say Congress didn't have in mind.

Mr. Cohen: Yes.

And the Court said quite clearly in the 1940 American Truckinq Association case where it was holding that a statute given the ICC jurisdiction of the wages and hours of trucking company employees, the Court said,

"It is said that a broader reading would not be absurd, but it doesn't have to be absurd. "

"What we are looking for is what Congress intended. "

And, therefore, it limited the words of that statute to the case of employees with safety-related jobs.

Chief Justice William H. Rehnquist: Thank you, Mr. Cohen.

The case is submitted.

Transcript: 

ORAL ARGUMENT OF LOUIS R. COHEN, ESQUIRE ON BEHALF OF THE FEDERAL PETITIONERS

Chief Justice William H. Rehnquist: We will hear argument next in No. 86-495, K Mart Corporation versus Cartier, Inc., and related cases.

Very well, Mr. Cohen, you may proceed whenever you are ready.

Mr. Cohen: Thank you, Mr. Chief Justice, and may it please the Court, the parties to this case agree that Section 526 protects a U.S. trademark owner against importation of goods bearing its mark that were manufactured abroad by some other firm, even if that other firm has the legal right to use the mark in the foreign country.

Respondents brought this lawsuit to establish that Section 526 also does something quite different, namely, entitle the U.S. trademark owner to bar importation of goods that it itself or a company under common control manufactured, stamped with the trademark, and sold into commerce abroad.

We disagree.

Our central point is this: Substantive U.S. trademark law does not give a trademark owner any right to restrain the distribution of its own goods after sale.

Section 526 was designed to correct a judicial mistake that allowed the importation of infringing goods that had been manufactured by somebody else.

It need not be read as having also given the trademark owner an anomalous, even revolutionary new right to bar importation of its own genuine good which could be sold in this country by anyone without infringement if only they can get across the border.

To take a particular example, General Motors can stop anybody else from making a car and selling it as a Chevrolet, but as this Court made clear in the Prestonettes case and in the Champion Sparkplug case, and as Judge Snead explained in the Ninth Circuit in the recent NEC Electronics case, and as most of us know from experience, anyone apart from contract rights can sell a used genuine Chevrolet with the Chevrolet logo on it without General Motors' permission.

We think Treasury properly concluded that Congress did not inadvertently give General Motors, which has no right at all to restrain the further distribution of a Chevrolet it sells in Maryland, a right to dictate that a car it has sold in France may never enter this country.

Section 526, as its legislative history makes clear, and as Learned Hand said in 1923 in the LeBlume case, was intended to do something quite modest.

Since the 19th century, U.S. law has barred importation of goods bearing simulated U.S. trademarks applied by someone other than the U.S. trademark owner.

In 1921, in the Katzel case, the Second Circuit held quite erroneously that French goods bearing a mark affixed by the person who was entitled to affix that mark in France were noninfringing and could be imported into this country even though someone else unrelated to the French company owned that mark in this country.

This Court promptly corrected the Second Circuit but not before Congress had dealt with the casus omissus, as Judge Hand called it, by adopting Section 526 to make clear that even if a mark has been lawfully applied abroad, the goods that bear it may be denied importation if somebody else owned the mark in this country.

There is just no evidence that anyone wanted to give a multinational enterprise, be it General Motors or Honda or Pears Soap, the power to block importation of genuine goods it itself sold abroad.

And so Treasury, reading the statute in its legal and historical context, interprets it as not referring to a mark applied abroad by the very U.S. trademark owner who now seeks to exclude the goods or his affiliate or his licensee.

Respondents' arguments come down, I suggest, to a contention that the text does not allow that reading.

But in fact it is the kind of reading that this Court has often given to statutes even without the benefit of the long regular history that we have here.

Where a statute has a narrow reading that is perfectly consonant with its text and its legislative history, and there is also a broader reading that the words might literally bear, but which would work an implausible change in the settled legal context, this Court has not hesitated to decline on contextual grounds to give the statute a broad literal reading.

That's what happened in O'Connor, the Puerto Rican, excuse me, the Panamanian treaty case when the Court said that the words U.S. taxes because an exemption from U.S. taxation would be too implausible to have been what the draftsmen meant.

The Court did the same thing in Watt against Alaska when it said that the term "minerals in wildlife refuges" do not include minerals in reserved lands, but only in acquired lands, even though wildlife refuges were defined to include both reserved and acquired lands, because the context suggested that that's not what Congress meant.

That's what the Court did in the 1940 American Trucking Association's case, when it said that the term "employees of motor carriers" are referred in context... not in the context of anything else in the statute, but in the context of the general background of the law to employees in safety-related jobs.

It's what the Court did in the Guerra case when it said that the statute saying that pregnant women shall be treated the same as other employees set a floor, not a ceiling, meant they should be treated no worse but not... no better, because Congress wasn't worried about the problem of excessively favorable treatment of pregnant employees.

It's what we all do when we assume that the words

"No Sleeping in This Railroad Station. "

do not mean that it is illegal to fall asleep while waiting for a train.

Since I think at the very least there is no unambiguously expressed intention of Congress to give a trademark owner the help of the Customs Service in excluding its own goods--

Unidentified Justice: Why is that not unambiguously expressed?

Mr. Cohen: --Well, because--

Unidentified Justice: I mean, I'd like to think that, but why is that not unambiguously expressed?

Mr. Cohen: --Because the statute does not, I think, focus on the precise question at issue.

It says that goods that bear a trademark, registered and so forth, may not be imported without the consent of the U.S. trademark owner, but it does not, I think, answer the question whether the term "bears a trademark" there means to refer to a trademark that is... that has been applied by the very person who now seeks to exclude the goods.

Unidentified Justice: So when we have a general statute, it is ambiguous as to each of the specific instances that its language covers?

Mr. Cohen: No, when you have a general statute there is... yes, there is room for interpretation.

I think when the Court has said a statute speaks to the precise question at issue, it's really meant, does the statute focus on that question the way the statute did in the Dimension Financial case, when there is a definition that is aimed at precisely the question the Court is trying to answer.

Here, the words leave open the question whether that is what Congress meant--

Unidentified Justice: They cover the situation.

You acknowledge that.

The words cover the situation.

Your point is simply that the words do not say... well, in essence you're saying, we have a statute that says, all colors--

Mr. Cohen: --They cover the situation--

Unidentified Justice: --We have a statute that says all colors, but you're saying yes, but the statute does not say, including red.

Mr. Cohen: --They cover the situation--

Unidentified Justice: That's essentially your argument.

Mr. Cohen: --No, I think in that case you would say that somebody deliberately focused on how many colors.

Here, we have a statute that, like a statute that says any tax, and is held not to include U.S. taxes, as in the more recent cases--

Unidentified Justice: We relied on other contexts, on other language and contexts of the statute in that case.

We just didn't say, as far as we know Congress didn't focus on this particular tax.

We relied upon the rest of the statute.

Mr. Cohen: --But the basic reason for the reading the Court reached in that case after saying there was, I believe the phrase was, some textual evidence, albeit subtle, the basic reading that the Court reached was based on the legal context in which the statute was written and the implausibility of the conclusion that Congress meant to cover a case that there was no sign that it had deliberately adverted to, or in that case the draftsmen of the agreement.

There has to be room to say that words that can apply generally, words like "employees" in the Motor Carrier Act which have a commonly understood meaning, nevertheless don't have... don't necessarily have their full reach, and it has to be possible, it seems to me, to say that where there is no evidence that anyone adverted and adverted in the drafting to the particular... to the particular question at issue, that one can look at context, and there is also room, it seems to me, then for a regulatory interpretation as well.

It seems to me that this--

Unidentified Justice: Well, is the ambiguity here in the term "bears" or is it "ownership and domicile"?

Mr. Cohen: --I think--

Unidentified Justice: Or is it in the whole thrust of the statute?

Mr. Cohen: --Well, I think it is in the whole thrust of the statute, but I think that the way I would prefer to say it is, the question is whether "bears a trademark" means to include the case where the trademark was applied by the very person who now seeks to exclude the goods, or whether that is a case that is outside of Congress's concern just as treating pregnant women more favorably than other employees is not within what Congress meant when it said, treat them the same.

Unidentified Justice: I thought if there is one given constant in this case it's the word "trademark", and it's the ownership and the domiciliary of the trademark holder that's in question.

Mr. Cohen: I think--

Unidentified Justice: Or are you saying that "trademark" itself is ambiguous?

Mr. Cohen: --I think that the question is whether the statute applies to exclude goods bearing a trademark that has been applied by the same person who now seeks to exclude them.

It is--

Unidentified Justice: But the statute doesn't say that anyone can exclude a trademark.

It says that the owner and the domiciliary can exclude the goods bearing the mark.

Mr. Cohen: --Well, yes, and the very fact that the statute--

Unidentified Justice: So it seems to me that that's the focus of the statute.

Mr. Cohen: --Well, the very fact that the statute limits the power of exclusion to a U.S. owner and indeed to goods of foreign manufacture is, I think, some textual evidence that Congress's intent here was simply to give a U.S. owner who was separate from the foreign manufacturer of the goods the power to exclude those goods because they infringe his trademark over here.

I don't think those limitations make any sense if what we're talking about is a general right of a trademark owner to control the distribution of its own goods.

Most U.S. trademark law does not draw any distinction between a U.S. citizen's and other persons--

Unidentified Justice: So one of your major propositions is that "bears a trademark" is an ambiguous phrase?

Mr. Cohen: --I think that the question whether the whole statute reaches this case, as Treasury has said, I think, since 1936, certainly since the mid-forties, is the question on which the statute is ambiguous.

Unidentified Justice: Well, then, it seems to me the question may become whether the regulation so transcends whatever ambiguity is there that there's no statutory anchor for it.

Is that the issue in the case?

Mr. Cohen: I think that the... no.

I think that what the regulation does is to say, this is a statute that was written to fill a hole, to enable a U.S. trademark owner to keep out goods that are infringing here but are... but are genuine abroad, and the question is whether that statute also does something that the petitioner in the Prestonettes case described from this podium 63 years ago as revolutionary, and the Court agreed with him, namely, to give... that it did not... namely, to give the U.S. trademark owner a chance, a means of restraining the distribution of its own goods.

I would like to reserve the remainder of my time, if I may.

Chief Justice William H. Rehnquist: Thank you, Mr. Cohen.

We will hear now from you, Mr. Lewin.

ORAL ARGUMENT OF NATHAN LEWIN, ESQUIRE ON BEHALF OF THE PRIVATE PETITIONERS

Mr. Lewin: Thank you, Mr. Chief Justice, and may it please the Court, our position that Section 526 is broad enough to entitle the Customs Service to give it the construction which it has done for at least the past 50 years is based on, we think, three factors.

One is the use of and the particular addition of specific statutory language, and that is the language dealing with ownership by an American corporation.

The legislative history makes it clear that that specific language was put in in conference after the Senate debate which ended with some uncertainty about the Pears Soap hypothetical, which is close precisely to the situation presented by the present litigation.

And it is subsequent to that time that the conference determined to make it clear that what Congress was protecting in 1922 were American owners, and American owners of trademarks, we submit, does not include and was never intended to include a multinational foreign corporation which could set up a wholly owned American subsidiary, and that brings us to the second, as it were, ambiguity in this statute which entitled Customs to arrive at the result, which is that the statute was enacted in 1922, and in our supplemental memorandum we quoted for the Court various references that were made at that time, and it was a time when the corporate layering that is now customary was, we submit, in its infancy, that at that time Congress was not contemplating foreign, wholly owned subsidiaries.

It was... that kind of a corporate structure was something to which the courts were ready to look through and say you weren't an American owner, you weren't the owner.

The real owner was whoever the corporate parent was.

So we think the history is important.

The plain language principal, we think, looks to what Congress would have had in mind at the time, and in 1922 we submit Congress would have had in mind not protecting what would have been a layer in which the American trademark owner was simply the subsidiary of a foreign corporation.

Unidentified Justice: How do we know that?

Mr. Lewin: Well, because all the language in the legislative history speaks about protecting American manufacturers and producers from fraud.

Unidentified Justice: Does anyone speak about not protecting others?

I mean, there is nothing in the legislative history that would exclude this situation.

You are just saying there's nothing there--

Mr. Lewin: There's nothing in the legislative history that says... except that the case that gave rise, of course, to this problem was one which involved a foreign manufacturer that had sold its rights to an American corporation and, if anything, the respondents are claiming this is xenophobic, but if anything the indication is that the Congress was concerned about the American purchasers.

Never was there the slightest suggestion that there was a wish to affect trademark law in some way.

The respondents have talked about this as raising the principle of territoriality.

That was not discussed in the legislative history.

It was clear that what Congress was saying over and over again, we're protecting American purchasers from fraud.

Unidentified Justice: --You think we should only interpret statutes to do... to resolve that one problem that prompted them?

We have a lot of statutes that are prompted by a particular problem, but they are drawn more broadly, and later on other things come along, and we don't go back and look at it and say, well, gee, it's just this one narrow problem that they had in mind.

If they wrote a broader statute that covers more things, we say it covers them.

Mr. Lewin: That is certainly true, Justice Scalia, but it is not true if what was... what happens later on was wholly unanticipated.

It is true, Congress can draw broad strokes and say that things are out on the periphery we are not going to deal with with a specific exception, but if what Congress... if what happens is the growth of multinational corporations and the situation that is now presented by the gray market was not anticipated by the 1922 Congress, then it's appropriate that Congress look at what happened then.

Congress did that exactly in the Wells Fargo case, decided about a month ago, when there was as clear a law as could possibly have been enacted which said that certain obligations were free from all taxation now or hereafter imposed by the United States, and this Court said, no, no, let's look back at 1937.

What was Congress looking at in 1937?

Not estate taxes, even though the statute said all taxation now or hereafter, which would have included estate taxes.

But the Court said, we are looking at the history, we are looking at the context of what Congress could possibly have contemplated at the time.

Unidentified Justice: We had one word in that case that we could interpret more narrowly that would produce the result that you wanted, the word "taxation".

Did taxes mean all of this, or did it mean somewhat less?

What one word or even two words in this statute can you point to which, if given a narrower interpretation, would produce the result here that you want?

Mr. Lewin: I think it is the words

"owned by a citizen of or a corporation created or organized within the United States. "

and we think that that means not someone who is a subsidiary of a foreign corporation.

Let me take slight issue with you, Justice Scalia.

There were two words that were relevant, and I think it points up the question you asked Mr. Cohen.

The words were "all taxation", not "taxation", "all taxation", and I believe that that is comparable to your analogy of all colors.

The Congress said all taxes, not simply taxes, and yet this Court said estate taxes are somewhat different.

Let me--

Unidentified Justice: Well, as I understand the statute, it does restrict an American corporation if the American corporation licenses a foreign manufacturer and the goods somehow find their way back here.

Mr. Lewin: --Yes, and again--

Unidentified Justice: So I point that out to you and ask you to comment on it in light of what you have just told Justice Scalia, and secondly, I would say that you began by saying Congress put in these words in the conference section "American corporation", and you somehow transpose that into an intent to protect the American consumer.

I am not sure how that follows.

Mr. Lewin: --With regard to your second question, I am speaking about an American corporation.

It was not a corporation that is a subsidiary or an arm or a corporate agent of a wholly owned subsidiary of the foreign corporation.

Our statute protects American consumers.

Indeed, it protects many distributors like my client and K-Mart who over the course of the years have relied on Customs' interpretation, which did not spring out of the blue.

It has been in effect... these regulations were issued in 1970.

They reflect what happened--

Unidentified Justice: I am talking just about the statute now.

Mr. Lewin: --Yes.

Now, with regard to the American company, the American parent of the foreign corporation that produces abroad, we submit that that was also not within Congress's contemplation, both in terms of that language and in terms of its limitation to articles of foreign manufacture, and when an American corporation is deliberately manufacturing abroad, Justice Kennedy, that American corporation is in control of its product.

It makes a choice.

Take Duracell or any of the companies that are cited.

If it determines to produce a product abroad that looks identical to the product that it sells in the United States under the trade-mark in the United States, we are saying that that product which it is in control of, the respondents argue that there is some form of unfair competition here because these companies should be able to rely on their own advertising in the United States.

That company which manufactures the product abroad could manufacture a product that looked different in the foreign market.

Duracell would have been able to do that, and yet it chose not to do so.

It chose to create a worldwide market in which the product would look the same all over the world, and what we are saying is, Customs in 1936 made clear that it did not view the statute as applying to the very same company that had both the production abroad and the trademark in the United States.

Customs in 1936, when this whole multinational enterprise began to bloom somewhat, there was more movement within international commerce, the Customs Service at that point made its first statement in a regulation which appears here in the joint appendix in which it said that statute does not apply to the same owner, and we submit that that language and that policy of Customs has been well-known to Congress.

It was known to Congress before the Lanham Act was passed in 1946.

It was known to Congress throughout this entire period of time.

Unidentified Justice: Why didn't they just do it in the thirties?

You mean there was really no... no international trade before that?

I had thought that the Depression cut it down rather than expanded it.

I would have thought when this statute was passed there was probably a much brisker international trade, including multinational corporations, than there was later.

Mr. Lewin: I think in terms of being able to get goods, the desirability of just even being able to move goods from across the Atlantic to the United States, I think, was more difficult and less desirable, and in terms of having multinational corporations who would... foreign... even if one takes the Bourjois case, the foreign manufacturer saw fit in that case to sell all its rights in the United States rather than try in some way to transport its goods to the United States and then attempt to make its own profits there.

The record, I think, indicates that.

Thank you.

Chief Justice William H. Rehnquist: Thank you, Mr. Lewin.

We will resume there at 1:00 o'clock.

We will hear now from you, Mr. Allen.

ORAL ARGUMENT OF WILLIAM H. ALLEN, ESQUIRE ON BEHALF OF THE RESPONDENTS

Mr. Allen: Thank you, Mr. Chief Justice, and may it please the Court, I want to turn, address myself first to what Mr. Cohen described as the central point of the case on the other side, the point that as I understand is thought to make it implausible that Congress meant what it said when it wrote Section 526.

That is the idea that an owner of a trademark cannot prohibit the sale of goods bearing that trademark once unchanged, once he has first sold them or put them into commerce, but there really isn't any such first sale doctrine insofar as international transactions are concerned.

The doctrine just doesn't fit with the concept of territoriality of trademarks.

Justice Holmes explained it in this Court's opinion in the Katzel case to which you have heard reference this morning.

He said it wasn't accurate to speak of the trademark on the face powder as distributed in the United States as being that of the French manufacturer of the trademark, even though it came from there, because in law, he said, it is the trademark only of the United States Bourjois company in this country, and there are very solid factual reasons for this territorial view of trademarks.

For one thing, for one thing, products differ from country to country.

Nothing sinister about those differences, nothing about which my clients need feel embarrassed.

And the differences don't have anything to do, either, with whether the United states distributor or manufacturer of the products does or does not have corporate ties to the firm that makes the products for overseas distribution.

Differences result simply from differing tastes, differing environmental conditions, differing laws as well as the fact that goods intended for markets other than the United States may not be appropriately packed for shipment to the United States, or they may lack United States distributors' valuable warranty on the goods, or differences simple as the fact that fresh batteries made in the United States will make your flashlight light up, whereas batteries that are a long time in the shipping here and aren't meant to be won't make your flashlight light up.

The fact of these differences between products intended for the United States market and products not intended for the United States market, intended for some other product, is one of the reasons why Section 526, if enforced as written, conforms fully with the policy of the trademark law.

One of those policies is to protect consumers against deception and confusion, and Section 526 would do that by ensuring that consumers were not imposed upon by products that were not quite the products they associate with familiar United States trademarks.

Furthermore, Section 526, if enforced as written, protects the trademark owner against erosion of his investment in the good will that is represented by the trademark, and that is the other principal goal in the trademark law.

In the kinds of goods we are concerned with here, the trademark owner makes heavy investments, advertising, promoting his brand, quality assurance and service, both pre-sale and post-sale service.

The gray market goods, the goods that come here, though not intended for the United States market do not bear the costs of those promotional and service investments and don't yield the trademark owner any return on them.

I believe that I'm a biased listener, but I thought I heard it conceded this morning that Section 526 is written in terms broad enough to cover the cases that the Customs Service regulations deprive of its coverage.

That seems to me to mean that the contested issues are whether Section 526 is fairly susceptible to a narrow reading, and not just narrow reading, but a narrow reading that fits the Customs Service regulations and at the same time keeps faith with the words that Congress chose, and second, whether there is any good reason in the legislative history or elsewhere for reading the statute in that narrow way.

I believe that the answer to both questions is a pretty resounding no.

I am going to take them up, plan to take them up in their logical order, text first, secondary sources second, even though the order of emphasis, petitioners' argument is just the opposite.

If I hear them correctly, they say repeatedly and loudly that secondary sources indicate a Congressional intent less sweeping than the words of the statute indicate, and then they add, and this almost... again, I'm a biased listener, but it seemed to me it almost had to be dragged out of them this morning, oh, yes, sotto vocce, you can construe those words to accord with our view of Congressional intent, even if you have to insert into the statutory text what Mr. Cohen in one of his papers calls an implicit contextual qualification.

It seems to me that that argument is close to if it is not... is the same argument that was rejected by the Court just last week in the Puerto Rico petroleum price regulation preemption case.

That's an argument for what the Court there described as giving effect to Congressional intent in a vacuum unrelated to the giving of meaning to an enacted statutory text.

And as I hope to demonstrate, there is actually less to the appeal even to secondary sources than appears from all that petitioners say about it.

First, first the text.

At the very least, one has to say it's uphill for the other side on the text.

Thirty years ago the Solicitor General made a motion in this Court to vacate a favorable judgment in the Guerlain antitrust perfume... perfume antitrust case in which the meaning of Section 526 of the Tariff Act was in issue.

In his motion, he said that he was bound to recognize that 30 years.

Nonetheless:

Unidentified Justice: Do you say, counsel, that the statute is not ambiguous in any respect, particularly the terms "ownership" and "domicile"?

Those are non-ambiguous, self-defining, clear terms that admit of no gloss by the regulatory authorities?

Mr. Allen: --I find no ambiguity in them.

And I plan to turn first to those two terms, because it is on them that whatever textual argument is made is principally based, and the terms of the statute are that the trademark to be protected by Section 526 has to be owned by a corporation created within the United States and registered by a person domiciled in the United States.

As I say, I don't find a ambiguity, but if there were any ambiguity, it would be resolved by finding the source of those terms in trademark law of the time.

The requirement--

Unidentified Justice: And so under trademark law there can be only one owner of a patent?

This is some indivisible metaphysical core?

Mr. Allen: --One owner of a trademark.

There was one owner of a trademark.

And I should say about these two requirements of domicile and citizenship... they are the... owned by a citizen and registered by a person domiciled... they very considerably overlap, because most U.S. citizens are domiciled in the United States, and most people who are domiciled in the United States are citizens of the United States, and--

Unidentified Justice: We are not really used to thinking of ownership or even of the term "property" as being indivisible, are we?

Mr. Allen: --Well, I think--

Unidentified Justice: The whole bundle of sticks approach.

Mr. Allen: --But in the... it was used in those terms in the trademark statute.

In the trademark statute there was... two people, two categories of people were allowed to register trademarks that they owned.

This is the first section of the Trademark Act of 1905, Justice Kennedy.

One category was a person domiciled in the United States.

That person had to allege that he had used the trademark in commerce.

The other kind of eligible registrant was a trademark owner that resided or was located in a foreign country that extended the privilege of trademark registration to United States citizens.

In that case, if he had already registered the mark in a foreign country, he could register it in the United States without alleging use in commerce.

Section 526 as originally proposed had only the requirement of domicile, of United States domicile, which I suggest was taken directly from the trademark law, and which had the very purpose of ensuring a trademark that was in use in the United States.

The requirement of Section 526 that the trademark be owned by a United States citizen or a United States Corporation was added in conference.

In general, we tend to think that a corporation created in the United States is a corporation incorporated under one of the laws, under the laws of one of the states, and such a corporation, regardless of its parentage, I submit, is ordinarily regarded as the owner of what formally belongs to it.

This Court had decided in, I believe, 1909 cases of... an omnibus case involving a number of cases arising under the commodity clause of the Hepburn Act of 1909.

That statute forbade a railroad to carry coal that it owned or in which it had a direct or indirect interest.

Volume 213 at Page 366 is the citation.

The Court rejected the argument of the government that the statute reached all coal nominally owned by mining company subsidiaries of railroads.

Not even the use by Congress of the phrase "direct or indirect interest" was enough to carry the day for the government on the... on the commodities clause case.

So there's no general rule such as Mr. Lewin suggested that under federal statutes that make the ownership of something by a corporation an operative fact, nominal ownership by a subsidiary corporation is attributed to the parent.

The rule is quite to the contrary.

There may be particular facts in particular cases that will justify looking through to the parent, and indeed there were subsequent cases under the commodities clause where this Court did just that, but the general rule, I submit, is as I have stated it.

Unidentified Justice: That is general, Mr. Allen, but not invariable.

I can conceive of a statute that refers to the owner, which we might interpret to include the parent corporation of a wholly owned subsidiary.

Can't you conceive that?

Mr. Allen: I can imagine there would, but I don't know why that would be so here.

Ownership, owned by was like domicile, a trademark concept.

An applicant had to allege... an applicant had to be the owner of his trademark, an applicant for registration, and he had to allege his citizenship, and he satisfies that... he satisfies that obligation by stating under what jurisdiction the corporation was created if the owner is a corporation.

It doesn't ask a thing about the ultimate parentage of the corporation.

Unidentified Justice: Well, then, you are saying that all of the proliferation of international corporations, subsidiaries, interlocking directorates, licenses to manufacture, sales of patents are just irrelevant, and that we stick with the old concept that only one entity can own a patent?

Mr. Allen: I don't know why... can own a trademark.

Unidentified Justice: Can own a trademark.

Own a trademark.

Mr. Allen: Can own a trademark.

I don't understand why not, Justice Scalia, because we did know about things like that.

The very Senate debate--

Unidentified Justice: But then at the very least--

Mr. Allen: --that was referred to shows that we knew about it.

Unidentified Justice: --Then at the very least Congress has drawn a statute in the 1920s which simply does not accord with the modern reality.

Mr. Allen: It may or may not, Your Honor.

After all, after all, one of the examples in addition to the Katzel case that was offered on the Senate floor when Section 526 was being debated was the Bayer Aspirin Company, which had been taken over by the alien property custodian during the war and sold to American interests.

Why was it taken over by the alien property custodian?

Because it was ultimately owned before the war by the German Bayer company, that's why.

That's why.

And you had the Senators talking about the multinational distribution of Pears Soap.

These kinds of things went on then and they were known to the Congress.

It is certainly very far, very far from the failure to anticipate a certain application that might, I can conceive of, justify reading a statute in a... in a narrow way, but this was... I submit, perhaps it is proliferating, as Your Honor says, but it was certainly not unknown to the Congress of 1922 that there could be intercorporate relations of this sort.

And it drew for its concepts in writing this amendment to the Tariff Act dealing with trademarks, it drew upon the concepts used in the trademark law of the time.

And I submit that when a Congress did indeed, as this Congress did, use the familiar words and concepts of the trademark registration statute, it would not have intended the Customs Service to apply a new, different, and unusual set of criteria in determining ownership, domicile, or corporate citizenship for the purposes of Section 526.

And all of this, all of what I've said to this point is quite aside from the case of American manufacturers and producers that are denied the protection of Section 526 by the Customs Service regulations with respect to goods that they or affiliates manufacture abroad.

Ford Motor Company, Duracell, Proctor and Gamble, legions of example.

Unidentified Justice: And the American parent is the owner in all those instances?

Mr. Allen: Yes.

That is the case I am putting, and there are such... there are many such cases, including those I have named.

Those companies are obviously domiciled in the United States.

They are certainly corporate citizens of the United States, and surely, surely they own a United States trademark.

It has been suggested that Congress--

Unidentified Justice: But the statute doesn't say United States trademark.

It says trademark.

Mr. Allen: --It says United States trademark.

It says any merchandise of foreign manufacture that bears a trademark owned by a citizen of or a corporation created in the United States--

Unidentified Justice: That's not... but you are saying that trademark is a concept in which ownership cannot be split.

Mr. Allen: --Well, I don t think that--

Unidentified Justice: And then you refer to United States trademark, and the statute doesn't say that.

Mr. Allen: --It doesn't say United States.

I was using that as shorthand to mean the trademark owned by a citizen of the United States and registered in the... in the Trademark Office here by a citizen of the United States.

And at least, I suggest... my latest... my latest words went only to those companies that are unquestionably American companies, and surely they are to be regarded as owners of the trademark that they use in the United States.

It has been suggested that those companies are disqualified because the goods... disqualified from the protection of the statute because the goods that they or their affiliates manufacture are not goods of foreign manufacture with another statutory term within the meaning of the statute.

That just seems to me far fetched textually can't be squared with the reason why that qualification was put into the amendment and it certainly can't be squared with the understanding that Congress had of the statute when it reenacted it in 1930.

You may recall that in 1930 the Senate proposed to delete the provision of Section 526 that enables goods bearing a trademark owned by a citizen of the United States to be imported into the United States if the owner of the United States trademark gives its consent.

The reason was to prevent American companies from establishing plants abroad, manufacturing their products there, and bringing them back into the United States.

The understanding had to be, had to be that Section 526 as it was written, as it had been first enacted in 1922, applied to those companies.

I simply don't see how there is another explanation of the Senate consideration of the statute when it was reenacted in 1930.

Unidentified Justice: Let me just be sure I understand your point.

There are two Duracell batteries.

One was manufactured in the United States, the other is manufactured abroad by... under a trademark that has been sold or licensed to it.

There is only one owner of that trademark?

Mr. Allen: There may be an owner in Belgium.

There could be a separate owner in Belgium.

That is--

Unidentified Justice: But it's the goods that have the trademark.

Mr. Allen: --It is the goods that--

Unidentified Justice: And there are two batteries, and each... one is manufactured foreign, and the other is manufactured U.S., and the owner of the trademark depends on where the batteries are?

Mr. Allen: --The owner of the trademark that is registered in the United States and by a person domiciled in the United States has to be the trademark that is used in the commerce of the United States, yes.

Yes, Your Honor.

Unidentified Justice: And the same would work the other way a around?

If it's a Sony product, and the original owner is in Japan, but there's a... I don't know if Sony manufactures here, but--

Mr. Allen: A distributor.

There is in fact... in the case of Sony there is a manufacturer in the United States.

Unidentified Justice: --Even though the goods have been manufactured... the two goods have been manufactured in different places, and have a different trademark in the sense a different manufacturing entity affixed it, there is only one owner to that trademark in all cases?

Mr. Allen: Only one owner in the United States, Your Honor.

That's what the statute deals with, imported goods into the United States that bear a trademark owned by a citizen of the United States.

The--

Unidentified Justice: The statute doesn't, say United States trademark.

Mr. Allen: --I did not say it that time, I didn't think, Justice Kennedy.

It is... but what it forbids is the importation of goods that bear the trademark that, as I say, is owned by a citizen, created within the United States and registered in the Trademark Office by a person domiciled in the United States.

That can be--

Unidentified Justice: I don't quite understand your point.

Your point is that that can only be a United States trademark?

Mr. Allen: --That is... I have used the shorthand "United States trademark".

That can only be a United States trademark because it has to have been used in the commerce of the United States in those circumstances, yes.

Unidentified Justice: And this is so clear that regulations aren't needed to clarify it?

Mr. Allen: Regulations are not... these regulations do not clarify that point, Your Honor.

Let me... perhaps I can get at it in a different way.

It is perfectly permissible for a trademark in the United... for a trademark as it applies to goods that are in the commerce of the United States to be owned by and registered by the distributor of those goods, and not the manufacturer.

So take, for example, the Bourjois Company of the Bourjois and Katzel.

It owned in the United States trademark for the French face powder, Java.

What... the least that Congress did and the least that this Court did was to say that the goods bearing that trademark, even though it was the authentic trademark in France, and even though genuine, could not be imported into the United States to compete with the Bourjois companies, the Bourjois companies' goods bearing the trademark that it owned in the United States and had registered in the United States.

In that sense, in that sense only do I argue that there can only be one owner of the trademark.

There can be multiple owners of a trademark insofar as it is used in different countries.

That... and indeed, it is exactly... it is only the case of that sort of multiple ownership that the Customs Service regulations say that Section 526 applies to.

I say it applies even though, even though, and the words of the statute, I submit, bear me out, it applies even though that trademark in France, Japan, wherever it may be, is owned by a company affiliated with the owner of the trademark in the... who has used it in the commerce of the United States and has registered it with the Patent and Trademark Office.

Unidentified Justice: So goods that have a French trademark suddenly have a U.S. trademark the minute they land in New York.

Is that it?

Mr. Allen: They cannot be bought into the United States because that trademark is the trademark of the American owner of the trademark only in the United States, as Justice Holmes phrased it, and as I say, that is the least we know from the statute and the least we know from the Katzel case itself.

Thank you.

Chief Justice William H. Rehnquist: Thank you, Mr. Allen.

Mr. Cohen, you have three minutes remaining.

ORAL ARGUMENT OF LOUIS R. COHEN, ESQUIRE ON BEHALF OF THE FEDERAL PETITIONERS -- REBUTTAL

Mr. Cohen: Thank you, Mr. Chief Justice.

The Treasury Department has for 50 years drawn a line between a stranger's goods and the trademark owner's own goods in the interpretation of Section 526, and I suggest that there is ample room in the statute and in the Court's jurisprudence to sustain a regulation with that history.

Justice Holmes' opinion for the Court in the Prestonettes case in 1923 said,

"A trademark only gives the right to prohibit the use of it so far as to protect the owner's good will against the sale of another's product as his. "

Skipping a citation,

"There is nothing to the contrary in Bourjois v. Katzel. "

this Court's decision in that case.

I suggest that there is also nothing to the contrary the federal statute that was passed to do the same thing that this Court did in its decision in Katzel, which was to plug a hole that had permitted the importation of infringing goods.

Section 526 was a modest statute, enacted correct a mistake.

Congress thought an American firm had cheated by somebody over there.

It did not achieve any importance... there were very few cases under it... until recent years, and really the strong dollar the late 1970s and eighties prompted this and other lawsuits seeking to turn the statute into something that it had never been, namely, a help to multinational companies in imposing vertical restraints on the distribution of their own goods.

Batteries may be stale because they are made in France.

They may also be stale because they are made in California and shipped here.

A firm plainly has no right merely because it has applied its trademark to the goods in California to permit their being sold here.

There is no reason to believe that this statute was designed to give that firm which cannot keep its California goods out of Maryland a right to keep its own French goods out of Maryland.

Unidentified Justice: Mr. Cohen, let's assume that that description by Justice Holmes applies here.

It only protects against the goods of another.

But like many of your distinctions based on the statutory language or even the dicta of Holmes, that covers some of the regulations here, but not all.

Among the things that the Customs Office has read out of the statute is No.

(c)(3), the articles of foreign manufacture bear a recorded trademark or trade name applied under authorization of the United States owner.

They are not the United States owner's goods, but he has allowed somebody else to put a trademark on them.

Mr. Cohen: May I respond briefly?

This case is a facial challenge to the regulation.

The core case under the regulation has been since 1936 the case where the same company is involved.

If Copiat concedes that the Treasury can draw a distinction between... that takes care of the same company case, I suggest they have lost this case.

They can bring another case saying that Treasury has drawn the line in not quite the right place.

Thank you, Mr. Chief Justice.

Chief Justice William H. Rehnquist: Thank you, Mr. Cohen.

The case is submitted.

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