                 United States Court of Appeals,

                         Fifth Circuit.

              Nos. 95-20349, 95-21019 and 96-20781.

     MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar,
Plaintiffs-Counter Defendants-Appellees,

                               v.

 DIAMOND & GEM TRADING USA, CO., Judith Juhasz and Frank Juhasz,
Defendants-Counter Plaintiffs-Appellants.

     MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar,
Plaintiffs-Counter Defendants-Appellees,

                               v.

       DIAMOND & GEM TRADING USA, CO., et al., Defendants,

  Judith Juhasz and Frank Juhasz, Defendants-Counter Claimants-
Appellants.

     MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar,
Plaintiffs-Appellees,

                               v.

       DIAMOND & GEM TRADING USA, CO., et al., Defendants,

     Judith Juhasz and Frank Juhasz, Defendants-Appellants.

                          May 28, 1997.

Appeals from the United States District Court for the Southern
District of Texas.

Before REAVLEY, KING and BARKSDALE, Circuit Judges.

     REAVLEY, Circuit Judge:

     In this trademark dispute, Judit and Frank Juhasz and their

proprietorship, Diamond & Gem Trading, USA, Co. (collectively

Juhasz), appeal a judgment awarding injunctive relief and damages,

a contempt order, an order awarding attorney's fees, and a summary

judgment denying their counterclaim for wrongful seizure. We agree


                                1
with the district court that plaintiffs were entitled to injunctive

relief and damages, but hold that the injunction entered was too

broad.     We also reverse the award of attorney's fees, affirm the

contempt order, and reverse the judgment on the counterclaim.

                               BACKGROUND

     Herendi Pocelangyar (Herendi), a Hungarian corporation, is the

manufacturer of Herend porcelain.           It manufactures high-quality

porcelain tableware, figurines, and other pieces.          The pieces are

hand-painted by master craftsmen and usually sell for hundreds or

thousands of dollars each.      Herendi owns a federally registered

trademark which consists of the hand-painted "Herend" name and

design.

     Martin's    Herend   Imports,   Inc.    (Martin's)   is   an   American

corporation.     Martin's and Herendi are parties to an exclusive

distributorship agreement, under which Martin's is authorized as

the sole importer of Herend porcelain for sale in the United

States.1     Martin's and Herendi select which Herendi pieces are

offered for sale in this country.           Martin's imports top quality

pieces and resells them in this country to upscale retailers.             It

chooses not to import many of the thousands of items offered by

Herendi even when manufactured to the same quality standards.

     Juhasz, individually or through Diamond & Gem or a successor

company, sold pieces bearing the Herend trademark after purchasing

them from American and foreign sources, including Herendi company


     1
      The United States distributorship is exclusive except as to
the U.S. Virgin Islands.

                                     2
stores located in Hungary. The parties dispute whether Juhasz ever

sold Herendi pieces that were "counterfeit" in the ordinary sense,

meaning that they bore a fake trademark or were not in fact

manufactured    by    Herendi.      Juhasz      has    vehemently    maintained

throughout   this     litigation   that    it   only    sold   genuine   Herend

porcelain, purchased from legitimate sources in this country or

elsewhere.     It claims that all the goods it sold bore a true

Herendi trademark and were in fact manufactured at the Herendi

factory.     Some of the pieces were vintage items from private

collections.   Juhasz conceded, however, that it sold Herend pieces

not offered for sale in this country by Martin's, the exclusive

distributor for the American market.             Such pieces are sometimes

referred to as "gray market" goods.2

     Herendi    and     Martin's    sued     Juhasz,     alleging      trademark

infringement    and    false     designation     of    origin,   and     seeking

injunctive relief, damages and an ex parte order of seizure.                 The

complaint alleges that Juhasz sells "counterfeit goods" bearing

"counterfeit   Herendi     trademarks."         An    accompanying     affidavit

submitted by Martin's president states that Martin's had purchased

from Juhasz numerous counterfeit Herend pieces, which were inferior

in quality to genuine pieces.       On the same day that suit was filed,

the district court signed a temporary restraining order and order

of seizure. Plaintiffs, through counsel and with the assistance of

     2
      See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 285, 108
S.Ct. 1811, 1814, 100 L.Ed.2d 313 (1988) ("A gray-market good is a
foreign-manufactured good, bearing a valid United States trademark,
that is imported without the consent of the United States trademark
holder.").

                                      3
U.S. marshals, raided Juhasz's premises, seizing numerous goods and

records.

     The case proceeded to trial.         At the close of plaintiffs'

case, the district court granted plaintiffs' motions for summary

judgment and judgment as a matter of law, holding Juhasz liable for

trademark infringement, and denying its counterclaim for wrongful

seizure. The issue of damages was left to the jury, which returned

a verdict of $685,000.    The court entered judgment in favor of both

plaintiffs for this amount, and granted a permanent injunction

against Juhasz.     As discussed below, the court later awarded

plaintiffs attorney's fees, and entered an order of contempt

against Juhasz.

                              DISCUSSION

A. Liability for Trademark Infringement

     While originally alleging that Juhasz was selling fake Herend

porcelain, plaintiffs ultimately sought judgment on the theory that

the pieces   sold   by   Juhasz,   even   if   genuine,   were   materially

different from those imported by Martin's for sale in this country

under its rights as the exclusive importer and distributor of

Herend wares.     The difference is between those lines of Herend

products Martin's imports and those lines it does not import.          The

district court agreed with this theory of liability.

     Some courts have recognized that trademark protection extends

to bar a defendant's importation of genuine goods where, as here,

the manufacturer of the goods has granted exclusive importation

rights to a single domestic importer. An early explication of this


                                    4
doctrine is found in Justice Holmes's opinion in A. Bourjois & Co.

v. Katzel.3      There, plaintiff Bourjois purchased the United States

business    and      the    "Java"   trademark     of    a   French    face      powder

manufacturer.         Defendant Katzel purchased the same powder in

France, packed in French boxes with the "Java" name, and began

selling it in the United States.              Although the powder was genuine,

the Court held that the plaintiff's trademark had been infringed.

The Court reasoned that the French manufacturer could no longer

legally sell the powder in the United States, and should not be

able to circumvent its agreement with the plaintiff by selling the

powder to others for import into this country.                        An essential

teaching    of    Katzel     is   that   trademarks       can   sometimes     have   a

territorial scope.

     There are factual distinctions between our case and Katzel.

In Katzel, the American importer was the only plaintiff, while in

our case both the American importer (Martin's) and the foreign

manufacturer (Herendi) are plaintiffs.                The Court noted a "public

understanding [ ] that the goods come from the plaintiff although

not made by it," that the trademark itself had been sold to the

plaintiff, and that the trademark "stakes the reputation of the

plaintiff     upon    the    character    of    the     goods."4      In   our    case,

liability was not based on proof that Martin's owns the trademark,

or that the public attached any meaning to the Martin's name or

even associated Martin's with Herend porcelain.                       Nevertheless,

     3
      260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923).
     4
      Id. at 692, 43 S.Ct. at 245.

                                          5
other courts have read Katzel and the trademark laws to prohibit a

defendant from importing goods that are materially different from

those imported by an exclusive distributor or importer, even absent

proof that the public associates the goods with the exclusive

distributor.

     This approach was fully explicated in the First Circuit's

opinion in Societe Des Produits Nestle, S.A. v. Casa Helvetia,

Inc.5 Nestle, a foreign company, owned the trademark for Perugina

chocolates.         Nestle   sold   expensive,    Italian-made     Perugina

chocolates in Puerto Rico through an exclusive distributorship

agreement    with   an   American   affiliate.    It    also   licensed   the

manufacture and sale of less expensive Perugina chocolates in

Venezuela.     Defendant     Casa   Helvetia   purchased   the   Venezuelan

chocolates through a middleman, imported them to Puerto Rico, and

sold them there under the Perugina mark. The court recognized that

trademark protection has a territorial element, but said that

Katzel did not prohibit the importation of identical foreign goods

carrying a valid trademark since, by and large, "courts do not read

Katzel ... to disallow the lawful importation of identical foreign

goods carrying a valid foreign trademark.              Be that as it may,

territorial protection kicks in under the Lanham Act where two

merchants sell physically different products in the same market and

under the same name, for it is this prototype that impinges on a

trademark holder's goodwill and threatens to deceive consumers."6

     5
      982 F.2d 633 (1st Cir.1992).
     6
      Id. at 637 (citations omitted).

                                      6
The court adopted a test finding infringement where the foreign

goods imported by the defendant gray market importer are materially

different from the goods sold by the plaintiff authorized to sell

the trademarked goods in the domestic market.7                              The court also

noted that in this context "the threshold of materiality is always

quite low."8          Applying this test, the court held as a matter of law

that       the    chocolates      were     materially         different       since      their

presentation, composition, variety, and price were different.9

           As in our case, the goods at issue in Nestle were authentic

and bore a genuine trademark.                    The court nevertheless held that

Nestle, the owner of the trademark, and its regional Puerto Rico

distributor           were   entitled    to      injunctive        relief   for   trademark

infringement and unfair competition under sections 32(1)(a), 42 and

43(a)(1)         of    the   Lanham     Act.10       The   court    reasoned      that    "the


       7
        Id. at 637-40.
       8
        Id. at 641.
       9
        Id. at 642-44.
           10
       15 U.S.C. §§ 1114(1)(a), 1124, 1125(a)(1). Juhasz claims
that plaintiffs lack standing to pursue a trademark infringement
action. Herendi has standing as the registrant and owner of the
trademark. Courts have reached different conclusions as to whether
an exclusive distributor has standing to sue for trademark
infringement. E.g., Quabaug Rubber Co. v. Fabiano Shoe Co., 567
F.2d 154, 158-60 (1st Cir.1977); DEP Corp. v. Interstate Cigar
Co., 622 F.2d 621, 622-23 (2d Cir.1980); Ferrero U.S.A., Inc. v.
Ozak Trading, Inc., 753 F.Supp. 1240, 1244-45 (D.N.J.), aff'd mem.,
935 F.2d 1281 (3d Cir.1991). Regardless, in this circuit Martin's
has standing to sue for unfair competition under 15 U.S.C. § 1125,
even if it lacks standing to sue for trademark infringement under
15 U.S.C. § 1114. Norman M. Morris Corp. v. Weinstein, 466 F.2d
137, 142 (5th Cir.1972) (holding that exclusive distributor has
standing to sue for unfair competition). Accord Quabaug, 567 F.2d
at 160.

                                                 7
importation of goods properly trademarked abroad but not intended

for sale locally may confuse consumers and may well threaten the

local mark owner's goodwill."11

     Nestle did not turn on proof by the plaintiff of consumer

confusion.      Instead, it presumed a likelihood of confusion as a

matter of law when the products are materially different.12                    It

recognized that the presumption can be overcome by proof from the

defendant that "the differences are not of the kind that consumers,

on average, would likely consider in purchasing the product."13

     The Second Circuit has taken a similar approach.                In Original

Appalachian Artworks, Inc. v. Granada Electronics, Inc. ("OAA"),14

the owner of the trademark for Cabbage Patch Kids dolls, OAA, had

licensed a Spanish company, Jesmar, to make and sell Cabbage Patch

Kids dolls in Spain.          The dolls differed from dolls made for the

American market in that the "adoption papers" were printed in

Spanish.       When     the   defendant,       a   gray-market   importer,   began

importing the Jesmar dolls, OAA sought injunctive relief under the

Lanham Act. The court upheld a permanent injunction under section

32(1)(a) of the Lanham Act,15 on grounds that "Jesmar's dolls were

not intended to be sold in the United States and, most importantly,

were materially different from the Coleco Cabbage Patch Kids dolls

     11
          Nestle, 982 F.2d at 636.
     12
          Id. at 640.
     13
          Id. at 641.
     14
          816 F.2d 68 (2d Cir.1987).
     15
          15 U.S.C. § 1114(1)(a).

                                           8
sold in the United States....         Thus, even though the goods do bear

OAA's trademark and were manufactured under license with OAA, they

are not "genuine' goods because they differ from Coleco dolls and

were not authorized for sale in the United States."16

            We are persuaded that the Nestle/OAA test, which finds

infringement       if   the   goods   sold    by   the    authorized     domestic

distributor       and   the   defendant's    foreign     goods   are   materially

different, is a sound one, at least when the goods in question are

highly artistic, luxury goods.          The successful marketing of such

goods in this country by a foreign manufacturer is a skill and not

a science.       It depends not only on the "quality" of such goods as

measured in some objective or scientific sense, but on the ability

to impart on the domestic consumer a view that the goods are rare,

collectable, elegant, chic, or otherwise highly desirable pieces to

own.    As the Court noted in Katzel, "the monopoly of a trade-mark

... deals with a delicate matter that may be of great value but

that easily is destroyed...."17              For Herendi, maintaining the

goodwill of its trademark may depend on the stores where the goods

are sold, advertising, the selection of which of the thousands of

Herendi pieces will be offered for sale in this country, and many

other factors.          The president of Martin's stated in a summary

judgment affidavit that Martin's "limits the Herend products which

are sold here based on its evaluation of the U.S. market, its

desire to promote product identity among U.S. consumers, its desire

       16
            OAA, 816 F.2d at 73.
       17
            Katzel, 260 U.S. at 692, 43 S.Ct. at 245.

                                        9
to control the nature of the products on which the Herend mark is

affixed,     and   the   public's    perception   of   the   Herend     mark.

[Martin's] decisions can have a significant impact on the image of

Herend products in the U.S." As is its right, Herendi has chosen

Martin's as its exclusive distributor to assist in these complex

decisions, as a means of preserving the value of its trademark in

this country.

      The district court properly held Juhasz liable for trademark

infringement.      The evidence is undisputed that Juhasz sold Herend

pieces not offered by Martin's.            Frank Juhasz admitted in his

deposition that "at least 50 percent of what we sell, they don't

sell."     Some of the pieces, such as figurines of guinea hens and

rabbits, were completely different pieces from those sold by

Martin's.     Others had painted patterns and colors different from

those offered by Martin's.        As a matter of law, such differences

are material, since consumer choices for such artistic pieces are

necessarily     subjective   or     even   fanciful,   depending   on    each

consumer's personal artistic tastes.           As Juhasz observes in its

brief, "[e]ach consumer for a variety or reasons might prefer a

bird to a rabbit or stripes to diamonds or red to blue."              Juhasz

therefore cannot show "the differences are not of the kind that

consumers, on average, would likely consider in purchasing the

product."18

     Juhasz argues that its imports, while different, were of the

same grade and quality, but Nestle flatly rejects this argument,

     18
          Nestle, 982 F.2d at 641.

                                      10
holding that the plaintiff need not prove that the defendant's

imports      are        of   inferior       quality     to     establish    trademark

infringement, only that they are materially different.19                     We agree

with this approach.

     Juhasz argues that its conduct is sanctioned under Matrix

Essentials, Inc. v. Emporium Drug Mart, Inc.20 In this                            case,

plaintiff Matrix, the trademark owner, manufactured hair care

products.          It    sold    its    products      to     distributors   who    were

contractually       bound       to   sell   only   to      licensed   cosmetologists.

Defendant Emporium, a discount retailer, began selling the products

and Matrix sued for trademark infringement.                    We held that Emporium

had not violated the Lanham Act. We reasoned that Emporium's

stocking of genuine Matrix products did not create a likelihood of

consumer confusion.

          Matrix is distinguishable in that it was not a parallel

importer case, where the territorial scope of the trademark was in

issue.     As explained above, trademark protection can extend to an

owner's efforts to maintain the value and goodwill of the trademark

in a particular territory, where the owner has endeavored to

confine the use of the trademark to certain goods.                      Moreover, the

goods sold by the defendant in Matrix and the authorized retailers

were not materially different.                The court noted that the Matrix

products sold by Emporium "were the same products available in



     19
          Id. at 636, 640.
     20
          988 F.2d 587 (5th Cir.1993).

                                             11
salons."21

      Juhasz also relies on NEC Electronics v. CAL Circuit Abco22 and

Weil Ceramics and Glass, Inc. v. Dash.23 In these cases the courts

held that gray market importers of genuine goods were not liable

for    trademark         infringement.        However,   both   cases   are

distinguishable from our case because the goods were identical to

those sold by the authorized American distributors.24

           Juhasz claims that its sales of Herend porcelain are allowed

under the "first sale" rule.         Under this rule, recognized in NEC

Electronics, "[t]rademark law generally does not reach the sale of

genuine goods bearing a true mark even though such sale is without

the mark owner's consent.            Once a trademark owner sells his

product, the buyer ordinarily may resell the product under the

original mark without incurring any trademark law liability."25          An

analogous and better known first sale rule is recognized in the

copyright law, and is indeed codified in the Copyright Act.26 This

      21
           Id. at 589.
      22
           810 F.2d 1506 (9th Cir.1987).
      23
           878 F.2d 659 (3d Cir.1989).
      24
      NEC Electronics, 810 F.2d at 1508-09; Weil, 878 F.2d at 668
& n. 11 (noting that, if goods had been materially different, "that
fact would provide a stronger argument for [plaintiff's] claim of
trademark infringement.").
      25
      NEC Electronics, 810 F.2d at 1506 (emphasis added), quoted
in Matrix, 988 F.2d at 590, 593.
            26
        17 U.S.C. § 109(a) ("Notwithstanding the provisions of
section 106(3), the owner of a particular copy or phonorecord
lawfully made under this title, or any person authorized by such
owner, is entitled, without the authority of the copyright owner,
to sell or otherwise dispose of the possession of that copy or

                                         12
rule "finds its origins in the common law aversion to limiting the

alienation of personal property."27 As one court has explained, the

rationale behind the rule is that after the first sale, "the policy

favoring a copyright monopoly for authors gives way to policies

disfavoring restraints of trade and limitations on the alienation

of personal property...."28   Similar policies underlie recognition

of a first sale rule in trademark law.

      We conclude that this rule does not protect Juhasz.   First,

the rule applies only to identical genuine goods.     No one would

argue, for example, that a seller of fake Rolex watches or Gucci

bags, or pirated compact discs, could escape liability by showing

that he was merely reselling the fakes after purchasing them from

the manufacturer of the pirated works.29   And as Nestle explains,

"although it has been said that "[t]rademark law generally does not

reach the sale of genuine goods bearing a true mark even though

such sale is without the mark owner's consent,' the maxim does not

apply when genuine, but unauthorized, imports differ materially

from authentic goods authorized for sale in the domestic market....

[A]n unauthorized importation may well turn an otherwise "genuine'




phonorecord.").
     27
       Sebastian Int'l Inc. v. Consumer Contacts (PTY) Ltd., 847
F.2d 1093, 1096 (3d Cir.1988).
      28
       Parfums Givenchy, Inc. v. C. & C Beauty Sales, Inc., 832
F.Supp. 1378, 1388 (C.D.Cal.1993).
     29
      Again, looking to the analogous copyright first sale rule,
the Copyright Act recognizes that the first sale rule only applies
to a copy "lawfully made under this title." 17 U.S.C. § 109(a).

                                 13
product into a "counterfeit' one."30

      Further, applying the first sale rule to an unauthorized

importer such as Juhasz would mean that the gray-market importer

would always escape liability.            Unauthorized importers are never

the   first       seller.    They   always     purchase   the   goods    from   the

manufacturer and owner of the trademark or an intermediary, and

resell the goods in violation of an agreement the manufacturer has

with the exclusive distributor, or a policy of the manufacturer

barring the sale of the goods in a particular geographic market.

Yet since 1923, when the Supreme Court ruled in Katzel, courts have

held that such sales can sometimes violate the trademark laws.                   If

Juhasz were correct, then the defendants in Katzel, Nestle and OAA

would      have    escaped   liability,    since   they   too   resold    genuine

products bearing genuine marks.

        We conclude, however, that the permanent injunction is too

broad in light of the first sale rule.              The injunction prohibits

Juhasz from "distributing, advertising or selling in the United

States products which are physically different from but which bear

the same federally registered trademark No. 1,816,915 as genuine

Herend products which are at that time being sold in the United

States by plaintiffs." By its terms, Juhasz is barred from selling

pieces that Martin's previously imported as appropriate for the

United States market but which are no longer being imported by

Martin's.         While plaintiffs should be allowed to maintain the

territorial integrity of the trademark by limiting which porcelain

      30
           Nestle, 982 F.2d at 638 (quoting NEC, 810 F.2d at 1509).

                                          14
pieces are offered for sale in this country, they should not be

heard to complain that the trademark is infringed when a good

previously approved for sale is deleted from Martin's current

catalogue. In such circumstances the first sale rule's policies of

limiting restraints on trade and alienation of personal property

outweigh the trademark owner's right to control its goodwill

through an exclusive distributorship arrangement.

     Even plaintiffs conceded below, in one of their filings, that

their proposed permanent injunction "would not prohibit Defendants

from selling products which Plaintiffs previously imported and sold

in the United States, even if such products are not presently sold

by Plaintiffs here, since Plaintiffs' previous sale in the U.S.

would constitute a "first sale' of such products."     Accordingly,

the injunction should be modified to allow Juhasz to sell all

pieces which have ever been sold by plaintiffs in the United

States.

         We further hold that the injunction should make clear that

Juhasz is not limited to selling individual pieces which Martin's

has imported and sold first in this country.     To hold otherwise

would require Juhasz to establish the provenance of each individual

piece.    Herend pieces, though beautiful and distinctive, are mass

produced and should not be treated the way the art world treats an

original Picasso. As long as plaintiffs have ever approved a piece

for importation and sale in this country, Juhasz is free to sell

any individual piece of the same quality from the same product

line.     Juhasz is, for example, allowed to sell any Herend piece


                                  15
offered in a Martin's catalogue.        The Lanham Act protects the

trademark;      it does not protect the exclusive distributorship

agreement per se.     In addition, the injunction should be modified

to allow the sale of Herend pieces which were imported to this

country before Martin's became Herendi's exclusive distributor in

1957.     We can see no basis for holding that plaintiffs had a right

to render such pieces "counterfeit" by choosing, decades ago, not

to select them for importation after they created the exclusive

distributorship.

B. Damages

        Juhasz complains that the district court erred in awarding

damages. Under the Lanham Act the plaintiff is entitled to recover

defendant's profits and "any damages sustained by the plaintiff."31

Further:

     In assessing profits the plaintiff shall be required to prove
     defendant's sales only; defendant must prove all elements of
     cost or deduction claimed. In assessing damages the court may
     enter judgment, according to the circumstances of the case,
     for any sum above the amount found as actual damages, not
     exceeding three times such amount. If the court shall find
     that the amount of the recovery based on profits is either
     inadequate or excessive the court may in its discretion enter
     judgment for such sum as the court shall find to be just,
     according to the circumstances of the case.32

Great latitude is given the district court in awarding damages

under the Lanham Act, "which expressly confers upon the district

judges wide discretion in determining a just amount or recovery for




     31
          15 U.S.C. § 1117(a).
     32
          Id.

                                   16
trademark infringement."33

      Plaintiffs offered an accounting expert who had reviewed

Juhasz's business records. She relied on Frank Juhasz's deposition

testimony that at least 50 percent of the Herend pieces it sold

were not products sold by Martin's in the United States.          He

admitted that these were pieces that Herendi "intended to sell in

other countries" and that "had never been seen on this market."

The expert found that the business records were inconsistent, but

estimated Juhasz's sales of infringing goods (50 percent of gross

sales of Herend goods) during the 1991-1994 period at $238,541.

She calculated damages based on infringing sales and plaintiffs'

lost profits amounting to $403,000.        She further opined that

inventory records indicated inventory several times higher than the

inventory testified to by defendants and discovered by plaintiffs

on the date of the seizure.     She testified that the damages would

be significantly higher ($350,000) if this additional inventory

were taken into account.     She did not take into account any damage

to plaintiffs' reputations, or any pre-1991 or post-1994 sales by

Juhasz.

     The jury found damages of $685,000, and the court awarded this

amount.    While the evidence of damages could have been more

precise, we conclude that the award should be affirmed, given the

broad discretion accorded the district court in deciding damages up

to three times the amount of actual damages found.


      33
        Holiday Inns, Inc. v. Alberding, 683 F.2d 931, 935 (5th
Cir.1982).

                                   17
C. Attorney's Fees

       The district court awarded attorney's fees of $328,825 for

the entirety of the fees incurred by plaintiffs in prosecuting this

action.     Plaintiffs sought attorney's fees under 15 U.S.C. §

1117(a), which provides that "[t]he court in exceptional cases may

award reasonable attorney fees to the prevailing party."             We have

noted that the legislative history of this statute suggests that

the exceptional case is one in which the defendant's trademark

infringement "can be characterized as "malicious,' "fraudulent,'

"deliberate,' or "willful,' " and that it "has been interpreted by

courts to require a showing of a high degree of culpability."34

      The court erred in finding that this is an "extraordinary"

case meriting the award of attorney's fees.          Suffice it to say that

the   law   of   gray   market   goods    and   "parallel   importers"   is   a

difficult subject.      The district court itself erred in the breadth

of the injunction it ordered, as explained above.                  Likewise,

plaintiffs and their able counsel incorrectly believed that the ex

parte seizure provision of the Lanham Act applied to the gray

market goods in issue, as discussed below.           Juhasz's counsel erred

in advising it, after the ex parte seizure, that Juhasz's conduct

was legal under Matrix.      The notion that a jeweler can violate the

trademark laws by importing and selling genuine porcelain with a

genuine trademark borders on the counterintuitive, even to those

seasoned in the law.       We can find no evidence in the record that


      34
       Texas Pig Stands, Inc. v. Hard Rock Cafe Int'l, Inc., 951
F.2d 684, 697 (5th Cir.1992).

                                         18
Juhasz knew at the time of its actions that it was violating the

law.    Frank and Judit Juhasz swore in post-trial affidavits that

they only sold genuine Herend porcelain, and did not believe that

the sales were illegal.   When Judit Juhasz was asked by her counsel

at trial whether she believed the items taken during the seizure

were counterfeit, plaintiffs successfully objected on grounds that

the question was irrelevant.     Even after the ex parte seizure,

Juhasz obtained an opinion of legal counsel who advised that their

sales of gray market goods were "not an infringement of anyone's

rights in accordance with United States law."       Plaintiffs did not

demonstrate the kind of highly culpable conduct meriting an award

of attorney's fees.

D. Wrongful Seizure Counterclaim

       Juhasz complains that the district court erred in granting

summary judgment against it on its counterclaim for wrongful

seizure.     Simultaneously   with   the   filing   of   their   original

complaint, plaintiffs sought and obtained a order of seizure

pursuant to 15 U.S.C. § 1116(d), which provides in pertinent part:

       (1)(A) In the case of a civil action arising under section
       1114(1)(a) of this title ... with respect to a violation that
       consists of using a counterfeit mark in connection with the
       sale, offering for sale, or distributions of goods or
       services, the court may, upon ex parte application, grant an
       order ... providing for the seizure of goods or counterfeit
       marks involved in such violation and the means of making such
       marks, and records documenting the manufacture, sale or
       receipt of things involved in such violation.

       (B) As used in this subsection the term "counterfeit mark"
       means—

            (i) a counterfeit of a mark that is registered ...
            whether or not the person against whom relief is sought
            knew such mark was so registered ...

                                 19
     but such term does not include any mark or designation used on
     or in connection with goods or services of which the
     manufacture35 or producer was, at the time of the manufacture
     or production in question authorized to use the mark or
     designation for the type of goods or services so manufactured
     or produced, by the holder of the right to use such mark or
     designation.

      Given the draconian nature of this ex parte remedy, providing

for the seizure of defendant's wares and records without prior

notice to the defendant and with the assistance of law enforcement

officers,36 we believe that it should be narrowly construed. By its

terms, this provision does not apply to gray market goods such as

the ones at issue here.      It does not apply to goods having a mark

placed on the product "at the time of the manufacture" by a

manufacturer "authorized to use the mark ... by the holder of the

right to use such mark."      Here, the owner of the right to use the

Herend trademark—Herendi—is also the manufacturer, and was of

course authorized to place its own trademark on its own goods at

the time of its own manufacture.     Gray market goods are not subject

to this provision even if they are materially different from those

selected for the domestic market.         Plaintiffs had no right to

conduct an ex parte seizure of authentic Herend pieces from Juhasz.

Hence, the district court erred in ruling that the counterclaim

should fail because plaintiffs "seized several porcelain products

that were different from the products that Herend sells in the

United States."

     The result would be different if plaintiffs had seized fake

     35
          So in original.   Probably should be "manufacturer."
     36
          See 15 U.S.C. § 1116(d)(9).

                                    20
pieces with a forged trademark.      The seizure order was based on an

affidavit of Martin's president, who believed that several of the

pieces Martin's had purchased from Juhasz were not authentic Herend

porcelain.   Plaintiffs never established as a matter of law that

Juhasz was selling fakes, and there is substantial evidence to the

contrary. At trial plaintiffs called Herendi's commercial director

and its lead painter, undoubtedly two of the world's leading

experts on the authenticity of Herend porcelain, and neither

identified   a   single   piece   sold   by   Juhasz   as   having   a   fake

trademark.

     Under 15 U.S.C. § 1116(d)(11), "[a] person who suffers damage

by reason of a wrongful seizure under this subsection has a cause

of action against the applicant for the order under which such

seizure was made, and shall be entitled to recover such relief as

may by appropriate, including damages for lost profits, cost of

materials, loss of good will, and punitive damages in instances

where the seizure was sought in bad faith...."         The court erred in

granting judgment in favor of plaintiffs on this counterclaim after

the plaintiffs rested.

E. Contempt Order

     After the court entered its permanent injunction, plaintiffs

sought a civil contempt order, alleging that Juhasz was violating

the injunction.     After a hearing, the court found that Juhasz had

sold and advertised for sale Herend pieces materially different

from those offered by Martin's.          The court entered a contempt

order, which ordered that Juhasz:             (1) return all physically


                                    21
different Herend products and all related brochures, price lists

and other advertising materials; (2) turn over records documenting

the sale of physically different products, so that plaintiffs could

in the future seek recovery of lost revenues;       (3) identify and

send a letter to all persons who had received physically different

products or advertising for such products, stating that defendants

sold them in violation of the injunction;    (4) pay plaintiffs $6300

as reasonable attorney's fees incurred in bringing the contempt

proceeding;     (5) serve within 12 days a declaration describing its

compliance with the contempt order;        and (6) beginning 10 days

after entry of the contempt order, pay a fine of $50 per day for

each day of non-compliance with the order.

         We review an order of contempt under the abuse of discretion

standard, and the district court's underlying fact findings under

the clearly erroneous standard.37

         We note that the contempt order should not be reversed simply

because we now hold, above, that the injunction the court issued

was too broad. The Supreme Court has recognized "the long-standing

rule that a contempt proceeding does not open to reconsideration

the legal or factual basis of the order alleged to have been

disobeyed and thus become a retrial of the original controversy."38

Juhasz was obliged to obey the injunction pending reconsideration

by the district court or appellate review.

          37
         Travelhost, Inc. v. Blandford, 68 F.3d 958, 961 (5th
Cir.1995).
    38
      Maggio v. Zeitz, 333 U.S. 56, 69, 68 S.Ct. 401, 408, 92 L.Ed.
476 (1948).

                                   22
          Juhasz argues that the contempt order was one of criminal

contempt requiring proof beyond a reasonable doubt.                        We disagree.

As we explained in Lamar Financial Corp v. Adams:39

     If the purpose of the sanction is to punish the contemnor and
     vindicate the authority of the court, the order is viewed as
     criminal. If the purpose of the sanction is to coerce the
     contemnor into compliance with a court order, or to compensate
     another party for the contemnor's violation, the order is
     considered purely civil. A key determinant in this inquiry is
     whether the penalty imposed is absolute or conditional on the
     contemnor's conduct.40

     The purpose of the contempt order was to compel Juhasz to

comply     with     the    previously      entered       injunction.           The   modest

attorney's fees awarded were compensation to the plaintiffs for the

costs     of   prosecuting        the     contempt       motion,   and    the    monetary

sanctions      of    $50    per     day    were     prospective        only,    and    thus

conditioned         on    the   contemnor's        future      compliance       with   the

injunction.

          Juhasz argues that it only sold pieces obtained in the

"secondary market" after the injunction issued, and that the

injunction was so vague that it did not understand that such sales

were prohibited.           The injunction plainly prohibited Juhasz from

"distributing, advertising or selling in the United States products

which are      physically         different       from   but   which     bear    the   same

federally registered trademark No. 1,816,915 as genuine Herend

products which are at that time being sold in the United States by

plaintiffs."        There is no exception for sales of pieces purchased


     39
          918 F.2d 564 (5th Cir.1990).
     40
          Id. at 566 (citations omitted).

                                             23
in the "secondary market."

     Juhasz appears to complain that the scope of the injunction

became confused when plaintiffs themselves conceded in one of their

pleadings    (discussed     above)     that    their    proposed   permanent

injunction "would not prohibit Defendants from selling products

which Plaintiffs previously imported and sold in the United States,

even if such products are not presently sold by Plaintiffs here,

since Plaintiffs' previous sale in the U.S. would constitute a

"first sale'    of   such   products."        This   interpretation   of   the

injunction would not allow Juhasz to sell pieces unless they had

first been imported to this country and sold by Martin's.                  The

evidence showed that Juhasz was not selling pieces first sold in

this country by Martin's.            Regardless of this statement, the

injunction the court entered had no exception for secondary market

purchases.   Further, plaintiffs offered evidence that, after the

injunction issued, Juhasz sold and advertised for sale Herend

pieces that plaintiffs had never sold in the United States.

     We conclude that the fact findings forming the basis for the

contempt order are not clearly erroneous, and that the district

court did not abuse its discretion in issuing the contempt order.

                               CONCLUSION

     For the foregoing reasons, we conclude that an injunction was

properly issued against Juhasz, but that the injunction entered by

the district court was too broad;          that plaintiffs are entitled to

damages but are not entitled to attorney's fees; that the contempt

order should be affirmed;      and that the summary judgment against


                                      24
Juhasz on its wrongful seizure counterclaim should be reversed.

Accordingly, we affirm in part, reverse in part, and remand for

further proceedings consistent with this opinion.

     AFFIRMED in part, REVERSED in part and REMANDED.




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