Ninth Circuit Finds Trademark Infringement by Importer of Gray Market Mushrooms
The 9th Circuit U.S. Court of Appeals on Dec. 24 found California-based Concord Farms guilty of trademark infringement for importing gray market Japanese mushrooms that were similar to, but not the same as, mushrooms sold by the Japanese company’s subsidiary in the United States. The ruling affirms a permanent injunction ordered by the Central California U.S. District Court in 2011 to block Concord Farms from importing and selling mushrooms made by Hokuto in Japan. The 9th Circuit found the lower court correctly concluded that the Hokuto mushrooms slightly differed from mushrooms distributed in the U.S. by Hokto USA, and so were not “genuine goods” protected from infringement claims.
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As the U.S. subsidiary of Hokuto, Hokto USA had held exclusive use of the Hokuto marks since 2008. After its incorporation in 2006, Hokto USA initially imported specially-made organic mushrooms from Hokuto. The Japanese company grew organic mushrooms solely for export to Hokto USA because of the preferences of U.S. consumers. Hokto USA’s California facility wasn’t opened until 2009, at which point it began growing its own organic mushrooms using an automated cultivation system. Subsequently, Hokto USA imported two shipments of Hokuto non-organic mushrooms in 2010 to cover a shortfall of white beech mushrooms, but affixed a special label to the packaging to differentiate the product.
Hokto USA brought the lawsuit after finding Japanese Hokuto mushrooms alongside its own mushrooms in a U.S. grocery store. According to the court opinion, both the Concord Farms Hokuto mushrooms and the Hokto USA mushrooms were displayed under a sign that said “organic” and “made in USA.” The Concord Farms mushrooms imported from Hokuto also contained too much moisture, and the mushrooms were going bad.
Whether the Concord Farms Hokuto mushrooms infringed the trademark rights of Hokto USA depended on whether they were “genuine goods.” That’s because genuine goods can’t cause any consumer confusion that might damage a trademark.
In this case, the district court found, and the 9th Circuit affirmed, that the Concord Farms Hokuto mushrooms were not genuine. They differed from the mushrooms imported by Hokto USA before its California facility opened in 2009 because they were not organic like the mushrooms specially produced for export to Hokto by Hokuto, and didn’t have the dual-language packaging developed by Hokuto and Hokto during the period. They differed even more from the mushrooms grown by Hokto USA in California after 2009. Not only were they non-organic, but they also weren’t cultivated using the automated process developed for Hokto USA’s California facility. The packaging also differed dramatically.
The 9th Circuit also found the Concord Farms Hokuto mushrooms were different from the two shipments of white beech mushrooms imported by Hokto in 2010. Unlike the Hokuto mushrooms imported by Concord Farms, the white beech mushrooms imported by Hokto had a special label that included the English name, listed the weight in imperial units, and identified the origin as Japanese. But in any case, the white beech mushrooms were only imported in two shipments, and trademark law requires that “substantially all” of the imports are genuine to preclude trademark liability. Even if they were the same as the 2010 mushrooms, it may not have mattered, said the court.
Finding the Concord Farms Hokuto mushrooms were not genuine, the court also found that they likely cause confusion to potential consumers of Hokto USA’s mushrooms. Denying defenses from Concord Farms that Hokuto’s marks were obtained fraudulently and that Hokuto Japan engaged in “naked licensing” and was thus precluded from relief, the 9th Circuit upheld the lower court’s injunction against Concord Farms for trademark infringement via non-genuine gray market imports.
(Hokto Kinoko Co. v. Concord Farms, Inc.; CA9C No. 11-56461, dated 12/24/13, Judges Noonan, Murguia, and Wardlaw)