Violating exclusive territory isn't TM infringement

Leonel & Noel Corp. v. Cerveceria Centro Americana, S.A., 2010 WL 5368373 (N.D. Ill. Dec. 20, 2010)

Plaintiff, aka Tikal, sued defendants for, among other things, violation of the Lanham Act. Tikal imports and distributes beer. CCA produces Guatemalan beer. Tikal distributed CCA beer through an intermediary, Central Beer, allegedly completely controlled by CCA, and then, as relations deteriorated, through another intermediary, GKS. Tikal was assigned various exclusive territories. Then, defendants allegedly violated the territorial exclusivity and terminated Tikal in bad faith.

The court rejected Tikal’s Lanham Act claim (which it initially characterized as false advertising, but treated as trademark). “Mere unauthorized sale of a trademarked item does not result in a Lanham Act violation.” Instead, plaintiff must demonstrate a “defect (or potential defect) in the product itself that the customer would not be readily able to detect” that likely would result in consumer confusion. Violation of exclusive distribution rights didn’t constitute such a defect. The court distinguished cases in which the products at issue had been handled and diluted in violation of the manufacturer’s instructions and in which the defendant allegedly misrepresented that it was an exclusive distributor, thereby potentially deterring consumers from comparison shopping.