Resale confusion?

Hyundai Construction Equipment U.S.A., Inc. v. Chris Johnson Equipment, Inc., 2008 WL 4210785 (N.D. Ill.)

This case is a good non-internet example of how concepts of direct trademark liability have expanded over the years. Plaintiff, a wholly owned subsidiary of the South Korean company Hyundai, is the exclusive distributor of new Hyundai heavy construction equipment in the US. Defendant Johnson is a heavy machinery broker specializing in construction equipment. Johnson buys equipment in various ways, including at auctions, job sites, and foreign locations. He bought “gray market” new and used Hyundai equipment manufactured in Korea for the Korean and Chinese markets; he imported 23 in total. Hyundai alleged material differences between the gray market versions and the US versions.

Setting aside a dispute over standing, Johnson’s main defense to Hyundai’s unfair competition/dilution claims was that there was no consumer confusion. All the buyers were sophisticated; all knew that the machines were intended for foreign markets; all knew there were differences from the US versions; all knew there was no Hyundai warranty; all knew that Johnson was not an authorized Hyundai dealer; and all bought based on Johnson’s lower prices. Every one of his customers who was deposed agreed with these propositions, though not all were deposed.

Hyundai’s response, which seems weak to me, was simply that consumer confusion is presumed when gray market goods have material differences. Johnson’s evidence, I would think, should have sufficed to rebut that presumption; I was not aware that such a presumption was irrebuttable. The court recast the rule as one that the Lanham Act bars importation and sale of genuine goods if the foreign products are materially different, which they were. This rule makes confusion irrelevant, which I think is inconsistent with the text and history of the Lanham Act, and indeed the court went on as if confusion were still important. It then characterized Johnson’s argument as one that Hyundai must prove actual confusion and rejected that argument, holding that the question is whether there is a “potential to mislead or confuse.” I think a much fairer reading of Johnson’s position is that an average consumer of these expensive and specialized goods is unlikely to be confused, a contention supported by evidence from actual consumers. Also, potential confusion is not the standard; likely confusion is.

And here’s the really interesting bit: “While it may have been Johnson's intention to warn all of his customers that they were buying the Korean version of the equipment this would not protect subsequent customers who may purchase the equipment from Johnson’s customers” (emphasis added). Not post-sale confusion; resale confusion. Contributory infringement would have been the better analysis here, because resale is a classic contributory infringement situation: you supply a product to someone who might engage in trademark infringement. Given the wealth of legitimate uses for the products here, I think a contributory infringement analysis would have taken defendant off the hook.

Final oddities: since plaintiff didn’t own the Hyundai trademark, its pure trademark claims failed, including its dilution claim, since §1125(c) limits relief to “the owner of a famous mark.”

Finally, the court rejected Hyundai’s fee request. There was no bad faith: “Johnson took apparent pains to inform his customers that they were getting exactly what they were getting: a Hyundai product without a warranty that had been purchased overseas.” So, while consumer confusion can be “presumed” (again, hunh?), there’s no actual confusion, thus avoiding the exceptional circumstances necessary for a fee award.