                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

HOKTO KINOKO COMPANY, a                   No. 11-56461
Japanese corporation,
       Plaintiff-counter-defendant –         D.C. No.
                           Appellee,      2:10-cv-01384-
                                           RSWL-PLA
                 and

HOKUTO COMPANY, LTD., a                     OPINION
Japanese corporation,
   Third-party-defendant – Appellee,

                  v.

CONCORD FARMS, INC., a California
corporation,
     Defendant-counter-claim-third-
          party-plaintiff – Appellant.

     Appeal from the United States District Court
         for the Central District of California
   Ronald S.W. Lew, Senior District Judge, Presiding

                Argued and Submitted
           May 8, 2013—Pasadena, California

                Filed December 24, 2013

    Before: John T. Noonan, Kim McLane Wardlaw,
         and Mary H. Murguia, Circuit Judges.

               Opinion by Judge Wardlaw
2       HOKTO KINOKO CO. V. CONCORD FARMS, INC.

                           SUMMARY*


                            Trademark

    The panel affirmed the district court’s summary judgment
and permanent injunction against the defendant in a
trademark infringement action brought by a marketer of
organic mushrooms.

    The plaintiff alleged that the defendant wrongly imported
and marketed mushrooms under the plaintiff’s marks for
Certified Organic Mushrooms even though the imported
mushrooms were cultivated in Japan under nonorganic
standards by the plaintiff’s parent company. The defendant
counterclaimed against the plaintiff and its Japanese parent,
challenging the validity of the marks.

    The panel applied principles of law governing “gray-
market goods,” or goods legitimately produced and sold
abroad under a particular trademark, and then imported and
sold in the United States in competition with the U.S.
trademark holder’s products. The panel held that trademark
law extended to the imported mushrooms because they
materially differed from the plaintiff’s product both in their
production and in their packaging and thus were not “genuine
goods” of the plaintiff. The panel affirmed the district court’s
conclusion that there was no genuine dispute of material fact
as to whether the defendant’s marketing in the United States
of foreign-produced nonorganic mushrooms under the
plaintiff’s marks created a likelihood of consumer confusion.

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.               3

    The panel affirmed the district court’s grant of summary
judgment in favor of the plaintiff on the defendant’s claim
that the plaintiff’s trademark registration should be cancelled
for fraud. The panel also held that Japanese parent company
did not abandon its right to the exclusive use of the marks by
engaging in “naked licensing,” or licensing the marks to the
plaintiff without providing for a mechanism to oversee the
quality of the mushrooms the plaintiff sold under them.



                         COUNSEL

Alan M. Kindred (argued) and Ivan Posey, Kindred | Posey,
Hacienda Heights, California, for Defendant-Counter-Claim-
Third-Party-Plaintiff–Appellant.

David A. Dillard (argued), Christie, Parker & Hale, LLP,
Glendale, California, for Plaintiff-Counter-Defendant–
Appellee and Third-Party-Defendant–Appellee.


                         OPINION

WARDLAW, Circuit Judge:

    In this trademark infringement action, Hokto Kinoko Co.
(Hokto USA), a wholly owned subsidiary of Hokuto Co., Ltd.
(Hokuto Japan), sued Concord Farms, Inc. (Concord Farms)
for violating its rights to marks under which it markets its
Certified Organic Mushrooms, which are produced in the
United States. Hokto USA claimed that Concord Farms
wrongly imported and marketed mushrooms under its marks
for Certified Organic Mushrooms, but which were cultivated
4     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

in Japan by Hokuto Japan under nonorganic standards.
Concord Farms counterclaimed against Hokto USA and
Hokuto Japan, challenging the validity of the marks. The
district court granted summary judgment in favor of Hokto
USA and Hokuto Japan on all claims and entered a permanent
injunction against Concord Farms. We must decide (1)
whether the nonorganic mushrooms Concord Farms imported
from Japan were “genuine” so as to preclude any liability for
infringement; (2) whether Concord Farms’s marketing in the
United States of the foreign-produced nonorganic mushrooms
under Hokto USA’s marks created a likelihood of consumer
confusion; and (3) whether Hokuto Japan’s trademarks are
subject to cancellation for fraud or were abandoned because
it entered into a “naked licensing” agreement with Hokto
USA for their use in connection with its organic mushrooms.

                      I. Background

A. Hokuto Japan and Hokto USA

    Hokuto Japan is a Japanese corporation that produces
mushrooms in Japan. These mushrooms include maitake,
white beech (marketed as “Bunapi”), and brown beech
(marketed as “Bunashimeji”) mushrooms, and are sold in 3.5
ounce packages. Hokuto Japan’s mushrooms are grown in
nonorganic conditions throughout Japan and sold in Japanese-
language packaging.

    In 2006, Hokuto Japan incorporated Hokto USA, also a
Japanese corporation, to produce and market mushrooms in
the United States. Hokto USA is a wholly owned subsidiary
of Hokuto Japan. Like Hokuto Japan, Hokto USA produces
white beech, brown beech, and maitake mushrooms. Unlike
Hokuto Japan’s mushrooms, however, Hokto USA’s
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.               5

mushrooms are certified organic and produced in a state-of-
the-art facility in San Marcos, California. Hokto USA’s
mushrooms are robotically transported within the facility in
plastic bottles, and its entire process is computer controlled.
While most mushroom-growing techniques involve manure
and compost, Hokto USA uses a sterilized culture medium
made of sawdust, corn cob pellets, vegetable protein, and
other nutrients. Hokto USA also enforces strict temperature
controls and other quality control standards, both in its San
Marcos facility and during the transportation and storage of
its mushrooms, to ensure that the mushrooms stay fresh for as
long as possible.

    The production of mushrooms in the United States did not
start off quite as smoothly as planned. Although Hokto USA
was incorporated in 2006, its San Marcos growing facility
was not completed until 2009. While the facility was under
construction, Hokto USA resorted to importing mushrooms
from Hokuto Japan. Because U.S. consumers have different
preferences than Japanese consumers, Hokuto Japan grew
mushrooms for Hokto USA in special conditions. Most
significantly, Hokuto Japan used a special growing medium
that met U.S. Certified Organic standards. Hokuto Japan also
worked with Hokto USA to develop English-language
packaging for the U.S. market. The packaging identified the
mushrooms as “Certified Organic” and provided nutritional
information geared toward U.S. consumers.

    When the San Marcos facility finally opened in 2009,
Hokto USA began producing its own mushrooms and stopped
importing Hokuto Japan’s mushrooms. But in 2010, there
was a shortfall of white beech mushrooms. To meet its
customers’ demand, Hokto USA imported two shipments of
Hokuto Japan’s inferior white beech mushrooms, which were
6      HOKTO KINOKO CO. V. CONCORD FARMS, INC.

produced in Japan and sold in Hokuto Japan’s usual
Japanese-language packaging.          Before selling these
mushrooms to U.S. consumers, Hokto USA affixed a white
sticker to every package, which clearly identified the
mushrooms as a product of Japan and identified the product
as “white beech mushrooms.” The white stickers also
identified the “distributor” as Hokto USA and provided U.S.
customer service information.

B. The Trademarks

    In 2003, Hokuto Japan acquired Japanese trademark
registrations for a series of marks (“Hokto marks”), including
variations on its logo and several mushroom-shaped cartoon
characters with faces, arms, and legs. These registrations
protected Hokuto Japan’s rights to use the marks to market a
wide variety of goods, ranging from mushrooms to live fish
to bonsai trees.

    Hokuto Japan also sought U.S. trademark registrations on
the same marks and hired a U.S. trademark attorney, Donald
Hanson, to apply for them. Believing that Hokuto Japan
intended to use the marks for the same wide range of non-
mushroom products listed in the Japanese registrations,
Hanson applied for U.S. registrations covering those same
goods and signed a form for each mark affirming that Hokuto
Japan had “a bona fide intention to use the mark in commerce
on or in connection with the identified goods and/or
services.” Hokuto Japan concedes that it never had a “bona
fide intention” to use the marks in connection with most of
the listed goods.

    The United States Patent and Trademark Office (USPTO)
issued registrations for the cartoon-character marks (Reg.
        HOKTO KINOKO CO. V. CONCORD FARMS, INC.                            7

Nos. 3182866, 3179700, and 3182867) in December 2006
and for the Hokto logo (Reg. No. 3210268) on February 20,
2007, for use in connection with all of the listed goods,
including those for which Hokuto Japan had no bona fide
intent to use the marks.1

    In August 2008, Hokuto Japan granted Hokto USA a
license for the exclusive use of the marks in the United States.
In 2010, Hokuto Japan assigned all of its rights under the
American trademark registrations to Hokto USA. Both the
mushrooms sold by Hokuto Japan in Japan and those sold by
Hokto USA in the United States are marketed in packaging
that prominently features the Hokto marks. After this lawsuit
was filed, Hokto USA amended the list of covered goods to
include only “vegetables, namely, fresh mushrooms.”

C. Concord Farms

   Meanwhile, Concord Farms, a U.S. corporation that
grows and imports mushrooms, has been importing Hokuto
Japan’s mushrooms from Japan since 2003. From 2003 to

 1
   The registrations for each disputed trademark covered Hokuto Japan’s
use of the marks in connection with: “[f]resh mushrooms; live floral
wreaths; dried floral wreaths; live fishing bait; fresh hops; raw hops;
unprocessed hops; living fish for food; live seafood, namely, lobsters,
raw[;] fresh and unprocessed vegetables and fruits; living sugar plants;
copra; malt for brewing and distilling; living foxtail millet, common and
barnyard millet plants; living sesame plants; raw, fresh and unprocessed
corn; fresh, raw and unprocessed oats; unprocessed rice; living sorghum
plants; protein for animal consumption; animal foodstuffs; seeds and
bulbs; live trees; dried flowers; natural turf, namely, grass and lawn grass;
seedlings; saplings; live flowers; hay; dwarfed potted bonsai trees; live
mammals not for food, namely, fish, birds and insects; silkworm eggs;
cocoons for egg production; eggs for hatching; urushi tree seeds; rough
cork; and unworked or partly worked material, namely, palm tree leaves.”
8     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

2009, Concord Farms imported Hokuto Japan’s maitake,
brown beech, and white beech mushrooms. Since 2009, it
has imported only the maitake mushrooms. Because Concord
Farms purchases these products through a series of
wholesalers, Hokuto Japan was initially unaware that
Concord Farms was importing its mushrooms. The
mushrooms Concord Farms imports into the United States are
the nonorganic mushrooms that Hokuto Japan produces in
Japan for Japanese consumption and are packaged in the
Japanese packaging, which features the Hokto marks.
Concord Farms’s warehouse is not temperature controlled,
and Concord Farms does not impose formal limits on how
long mushrooms are kept in the warehouse.

    In July 2009, Hokto USA learned that Concord Farms
imports Hokuto Japan’s mushrooms when Hokto USA’s
representative saw packages of Hokuto Japan’s Japanese-
packaged, nonorganic maitake mushrooms mixed with
packages of Hokto USA’s maitake mushrooms in a grocery
store display. All of the mushrooms were under a sign that
said “organic” and “made in USA,” but the Japanese products
under the sign were neither. There was too much moisture in
the Hokuto Japan packages, and the mushrooms were going
bad. The store’s manager told Hokto USA’s representative
that he had purchased the Hokuto Japan mushrooms from
Concord Farms. At a produce exposition three months later,
Hokto USA’s representative requested that Concord Farms
refrain from importing, selling, or distributing Hokuto
Japan’s mushrooms. Concord Farms refused.

    Hokto USA filed this trademark action in the United
States District Court for the Central District of California.
All three parties filed cross-motions for summary judgment.
The district court entered judgment in favor of Hokto USA
      HOKTO KINOKO CO. V. CONCORD FARMS, INC.              9

and Hokuto Japan, and permanently enjoined Concord Farms
from selling the Hokuto Japan mushrooms in the United
States. Concord Farms timely appeals.

                 II. Standard of Review

   We review de novo the district court’s grant of summary
judgment. “[V]iewing the evidence in the light most
favorable to the nonmoving party,” we must determine
“whether there are any genuine issues of material fact, and
whether the district court correctly applied the relevant
substantive law.” Wendt v. Host Int’l, Inc., 125 F.3d 806,
809-10 (9th Cir. 1997).

                      III. Discussion

A. Gray-Market Goods

     The crux of Hokto USA’s claim is that when Concord
Farms imported mushrooms bearing the Hokto marks from
Hokuto Japan and sold those mushrooms in the United States,
it infringed Hokto USA’s rights to those marks. This case
thus implicates the set of trademark principles governing so-
called “gray-market goods”: goods that are legitimately
produced and sold abroad under a particular trademark, and
then imported and sold in the United States in competition
with the U.S. trademark holder’s products.

     The Supreme Court has explained that 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.” K Mart Corp. v. Cartier,
Inc., 486 U.S. 281, 285 (1988). The mushrooms at issue here
fit comfortably within the Supreme Court’s definition. Some
10     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

commentators apply the term “gray market” only where both
the trademark owner and the alleged infringer import their
product from foreign countries, see J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition § 29:46
(4th ed. 2005), or only where the U.S. trademark owner also
owns foreign rights in the disputed mark, see 1 Jerome
Gilson, Trademark Protection and Practice § 4.05[6] (2004).
Regardless of whether we categorize the mushrooms here as
gray-market goods, however, the fundamental nature of the
infringement claim is the same as that in gray-market cases:
Hokto USA alleges that Concord Farms violated its
trademarks by importing legitimately produced goods sold
under those same marks. See Am. Circuit Breaker Corp. v.
Or. Breakers, Inc., 406 F.3d 577, 583–84 (9th Cir. 2005)
(discussing ambiguity in definitions of gray-market goods
and concluding that “whether this is technically classified as
a gray-market case or not does not drive the solution”).

B. Genuine Goods

    In general, the sale of gray-market goods may infringe on
the U.S. trademark holder’s rights, subject to the consumer
confusion analysis that generally governs trademark
infringement claims. An exception to this rule, however, is
that trademark law does not extend to the sale of “genuine
goods.” If the Japanese-produced Hokuto Japan mushrooms
that Concord Farms imported were “genuine” Hokto USA
goods, then Concord Farms would not be liable for trademark
infringement. The district court correctly concluded that the
mushrooms were not “genuine goods.”

    We have approached the “genuine good” inquiry both as
a threshold question for the applicability of trademark law,
and as part of the test for consumer confusion. Compare
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.              11

NEC Elecs. v. CAL Circuit Abco, 810 F.2d 1506, 1509 (9th
Cir. 1987) (“Trademark law generally does not reach the sale
of genuine goods . . . .” (emphasis added)), with Am. Circuit
Breaker, 406 F.3d at 585 (analyzing genuineness within
discussion of the absence of the likelihood of confusion). See
also John Paul Mitchell Sys. v. Pete-N-Larry’s, Inc.,
862 F. Supp. 1020, 1023–26 (W.D.N.Y. 1994) (describing
different courts’ approaches to the “genuineness” inquiry).
Here, because we confront a classic gray-market case, we
must analyze the genuine goods question as a threshold
matter, for if Concord Farms’s mushrooms are “genuine,” it
is not subject to liability for trademark infringement.

   1. The No-Material-Difference Requirement

    “Genuine,” in the trademark context, is a term of art: a
gray-market good is “genuine” only if it does not materially
differ from the U.S. trademark owner’s product. See, e.g.,
McCarthy, supra, § 29:51.75 (“[I]f there are material
differences between the gray market imports and the
authorized imports, then the gray market imports are not
‘genuine’ goods and can create a likelihood of confusion.”);
see also Iberia Foods Corp. v. Romeo, 150 F.3d 298, 303
(3d Cir. 1998) (explaining that where goods are marketed
under “identical marks but are materially different . . . the
alleged infringer’s goods are considered ‘non-genuine’ and
the sale of the goods constitutes infringement” (citations
omitted)); Societe Des Produits Nestle, S.A. v. Casa Helvetia,
Inc., 982 F.2d 633, 638 (1st Cir. 1992) (“It follows that the
Venezuelan chocolates purveyed by Casa Helvetia were not
‘genuine’ . . . if they (a) were not authorized for sale in the
United States and (b) differed materially from the authorized
(Italian-made) version.”).
12     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

    We first established that trademark law does not extend
to the sale of genuine goods in NEC Electronics. There, the
question before us was whether a U.S. subsidiary of a foreign
manufacturer may sue for trademark infringement where
another company “buys the parent’s identical goods abroad
and then sells them here using the parent’s true mark.”
810 F.2d at 1508–09 (emphasis added). In American Circuit
Breakers, applying the NEC Electronics rule, we explained
that a genuine-goods exception “makes good sense and
comports with the consumer protection rationale of trademark
law” because a consumer who purchases a genuine good
receives essentially the product he expected. 406 F.3d at 585.
In both NEC Electronics and American Circuit Breakers,
exemption from trademark law turned on whether the
allegedly infringing product differed materially from the U.S.
trademark holder’s product.

    Because the likelihood of confusion increases as the
differences between products become more subtle, the
threshold for determining a material difference is low. The
key question is whether a consumer is likely to consider a
difference relevant when purchasing a product. Courts have
found a wide range of differences “material” in this context.
The Second Circuit, for instance, held that Cabbage Patch
dolls were not “genuine” when accompanied with fictitious
“birth certificates” and “adoption papers” written in a foreign
language. Original Appalachian Artworks, Inc. v. Granada
Elecs., Inc., 816 F.2d 68, 73 (2d Cir. 1987). The D.C. Circuit
held that there were material differences between the British
and American versions of dishwasher detergent where the
chemical composition of the detergents differed slightly, and
the British detergent was labeled “washing up liquid” rather
than “dishwashing liquid” and included a “royal emblem.”
Lever Bros. v. United States, 877 F.2d 101, 103 (D.C. Cir.
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.              13

1989). Along the same lines, a district court in the Central
District of California, comparing the Mexican and U.S.
versions of Pepsi, held that differences in quality control and
the use of Spanish, rather than English, on the soda cans were
material differences. PepsiCo, Inc. v. Reyes, 70 F. Supp. 2d
1057, 1059 (C.D. Cal. 1999). We agree that differences in
language, quality control, and packaging may each be
sufficiently material to render imported goods not “genuine.”

   2. Concord Farms’s Mushrooms

    Whether the mushrooms that Concord Farms imports
from Hokuto Japan are genuine goods thus turns on whether
they materially differ from Hokto USA’s mushrooms.
Concord Farms’s mushrooms are not organic, are grown
under Hokuto Japan’s less extensive quality control
standards, and are sold in packaging designed for domestic
Japanese consumers. The Hokuto Japan packaging is in
Japanese, and the packages’ weights are measured in grams,
not ounces. The Hokuto Japan packaging identifies the
mushrooms as the “product of” the specific Japanese
prefecture in which they were produced. It also displays
Hokuto Japan’s website and telephone number. To determine
whether these Concord Farms mushrooms are “genuine”
Hokto USA goods, we must compare them to the three
categories of Hokto USA’s mushrooms: (1) the mushrooms
that Hokto USA imported from Hokuto Japan prior to the
opening of Hokto USA’s San Marcos, California plant; (2)
the mushrooms that Hokto USA produces at its California
plant; (3) and the white beech mushrooms that Hokto USA
imported from Hokuto Japan in May and November 2010 to
supplement its supply.
14     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

    The mushrooms that Hokto USA imported from Hokuto
Japan prior to the opening of the San Marcos facility
materially differed from Concord Farms’s mushrooms both
in their production and in their packaging. Hokto USA
submitted uncontradicted evidence that certified organic
status is more important to American consumers than to
Japanese consumers, and that Hokuto Japan used a special
growing medium to ensure that the mushrooms intended for
sale by Hokto USA in the United States met U.S. Certified
Organic standards. In contrast, Hokuto Japan does not use
this special growing medium to produce mushrooms intended
for Japanese consumption; so, when Concord Farms imported
Hokuto Japan’s mushrooms for sale in the United States, they
did not meet Certified Organic standards. Hokuto Japan and
Hokto USA also developed packaging in both English and
Japanese, in contrast to the packaging developed for Japanese
consumers. The dual-language packaging described in
English the mushrooms’ recommended serving size, calorie
count, and other nutritional information. We agree with the
district court that these differences in production and
packaging are material, rendering these imports not
“genuine.”

    Concord Farms’s mushrooms materially differ even more
from the mushrooms that Hokto USA produces in its San
Marcos facility. Like the pre-2009 imports, Hokto USA’s
mushrooms are certified organic and sold in dual-language
packaging. At its San Marcos facility, Hokto USA uses a
hygienic, computer-controlled cultivation process, which
includes the robotic transport of mushrooms in plastic bottles;
a sterile culture medium composed of sawdust, corn cob
pellets, and other nutrients; and aggressive sterilization and
temperature controls to ensure a longer shelf life. The
packaging on the domestically produced mushrooms
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.              15

identifies them as a “Product of USA,” provides weights in
grams and ounces, and displays Hokto USA’s website.

    Concord Farms’s mushrooms are also materially different
from the white beech mushrooms that Hokto USA imported
from Hokuto Japan in May and November 2010. When
Hokto imported Hokuto Japan’s mushrooms because of
problems at Hokto USA’s San Marcos facility, it ensured that
a label was affixed to each imported package. The label
included the English name for the mushrooms, listed the
packages’ weights in ounces rather than grams, clearly
identified the mushrooms’ origin, and provided a U.S.
address for customer service inquiries. It is more than likely
that consumers would consider these clarifying English-
language labels relevant when purchasing the mushrooms.
See Bordeau Bros. v. Int’l Trade Comm’n, 444 F.3d 1317,
1323-24 (Fed. Cir. 2006) (explaining that “there need only be
one material difference between a domestic and a foreign
product” to support the conclusion that the product is not
genuine). Concord Farms’s mushrooms are therefore not
“genuine goods” in relation to any of the three separately sold
and packaged Hokto USA products.

    Even if the small batches of mushrooms imported in 2010
were not materially different from Concord Farms’s imports,
Hokto USA would not necessarily be precluded from
obtaining relief under the Lanham Act. Hokto USA need
only demonstrate that “substantially all” of its imports were
materially different from Concord Farms’s imports. See
Bordeau Bros., 444 F.3d at 1321. Because we conclude that
all of Hokto USA’s mushrooms were materially different
from those Concord Farms imported, we need not address
whether two shipments of mushrooms without material
differences would have defeated Hokto USA’s argument that
16     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

“substantially all” of its mushrooms were materially different
from Concord Farms’s.

    Rather than addressing whether Hokto USA’s asserted
differences are “material,” Concord Farms argues that Hokto
USA admitted that Concord Farms’s goods were “genuine”
and that Concord Farms imported “the same” products that
Hokto USA sold in response to Concord Farms’s request for
admissions.       Concord Farms’s argument, however,
mischaracterizes Hokto USA’s admissions and relies on
misleading statements from its employees taken plainly out
of context. In a carefully cabined response to Concord
Farms’s request for admissions, Hokto USA admitted that
“[i]f ‘genuine products’ refers to the products produced by
Hokuto Japan, then Hokto [USA] admits this request.” In
other words, Hokto USA admitted that the mushrooms were
actually produced by Hokuto Japan and not counterfeit.
However, Hokto USA’s response does not suggest that
Concord Farms’s products are “the same” as Hokto USA’s
products. Along the same lines, Hokto USA’s employees
uniformly asserted that Hokto USA imported only two sets of
mushrooms, both of which materially differed from Concord
Farms’s: (1) those imported before the 2009 opening of the
San Marcos facility, and (2) those imported during 2010 with
labels affixed to the packages. Because Concord Farms
offers no other evidence that its imported mushrooms were
not “materially different” from Hokto USA’s mushrooms, the
district court correctly concluded that they are not genuine
Hokto USA goods.

C. Likelihood of Consumer Confusion

   Because Concord Farms’s mushrooms are not “genuine”
Hokto USA goods, Concord Farms is not exempt from
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.               17

potential liability under trademark law. The sine qua non of
trademark infringement is consumer confusion. To determine
the likelihood of consumer confusion, we apply the long-
established factors set forth in AMF Inc. v. Sleekcraft Boats,
599 F.2d 341, 348–54 (9th Cir. 1979). The Sleekcraft factors
include (1) the “similarity of the marks”; (2) the “strength of
the mark” that has allegedly been infringed; (3) “evidence of
actual confusion”; (4) the relatedness or “proximity” of the
goods; (5) the “normal marketing channels” used by both
parties; (6) the “type of goods and the degree of care likely to
be exercised by the purchaser”; (7) the alleged infringer’s
“intent in selecting the mark”; and (8) evidence that “either
party may expand his business to compete with the other.”
Id. We apply these factors flexibly, and Hokto USA need not
demonstrate that every factor weighs in its favor. See
Network Automation, Inc. v. Advanced Sys. Concepts, Inc.,
638 F.3d 1137, 1145 (9th Cir. 2011) (explaining that the
Sleekcraft factors are an adaptable tool for determining
consumer confusion, not a “rote checklist”); Surfvivor
Media, Inc. v. Survivor Prods., 406 F.3d 625, 631 (9th Cir.
2005) (“The test is a fluid one and the plaintiff need not
satisfy every factor, provided that strong showings are made
with respect to some of them.”).

    Here, the first factor, the similarity of the marks, weighs
unequivocally in favor of a finding of consumer confusion
because the marks are identical. The second factor, the
strength of the mark, also weighs in Hokto USA’s favor. A
mark is “strong” if it is particularly unique or memorable, and
the more unique a mark is, the greater the trademark
protection it is entitled to. Id. “Fanciful” marks, which are
words or phrases invented solely to function as trademarks,
receive a high level of trademark protection because they are
inherently distinctive. See Brookfield Commc’ns v. W. Coast
18     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

Entm’t Corp., 174 F.3d 1036, 1058 (9th Cir. 1999)
(contrasting “fanciful” marks with “suggestive” marks,
“descriptive” marks and other types of less distinctive
marks); Dreamwerks Prod. Grp. v. SKG Studio, 142 F.3d
1127, 1130 n.7 (9th Cir. 1998). The marks here, which
consist of a stylized depiction of a fictitious word2 and
cartoon-character mushrooms, are unique, fanciful, and likely
to be associated with Hokto USA by U.S. consumers. Hokto
USA has adduced no evidence as to the third factor, actual
consumer confusion. However, we have specifically
recognized that likelihood of confusion may be established
absent such evidence. See Am. Int’l Grp., Inc. v. Am. Int’l
Bank, 926 F.2d 829, 832 (9th Cir. 1991).

     The fourth and fifth factors, the relatedness of the goods
and the parties’ normal marketing channels, also weigh in
Hokto USA’s favor. Both Hokto USA and Concord Farms
sell maitake mushrooms, and both sell them to grocery stores
in the United States. Indeed, Hokto USA discovered Concord
Farms’s infringement because it found Concord Farms’s
packages of the same variety of mushrooms in the same
grocery store in which it sold its own mushrooms. The sixth
factor, the type of goods and the degree of care purchasers are
likely to exercise, also weighs in Hokto USA’s favor. We
expect consumers to be “more discerning” and “less easily
confused” when purchasing expensive goods. Brookfield,
174 F.3d at 1060. As the district court correctly noted,
mushrooms are a “low-cost consumer good,” and reasonably
prudent purchasers are unlikely to carefully examine the
mushrooms’ packaging before each purchase.



   2
     “Hokto” has no meaning in Japanese, although “Hokuto” means
“northern star.”
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.              19

    The seventh factor is the alleged infringer’s intent in
adopting the marks. When an alleged infringer knowingly
adopts a mark identical or similar to another’s mark, “courts
will presume an intent to deceive the public.” Official Airline
Guides, Inc. v. Goss, 6 F.3d 1385, 1394 (9th Cir. 1993).
Here, Concord Farms imported mushrooms bearing a mark
identical to that of Hokto USA’s mushrooms, and it has
produced no evidence to negate the presumption that it
intended to confuse consumers. Thus, the intent factor also
weighs in favor of Hokto USA. The final factor is whether
either party is likely to expand its product lines so as to
compete directly with the product sold under the allegedly
infringing mark. This factor also weighs in Hokto USA’s
favor, as the companies already directly compete in the
relevant market, and indeed sell mushrooms to the same
grocery stores.

    While Hokto USA failed to introduce evidence of actual
confusion, each of the other Sleekcraft factors weighs heavily
in Hokto USA’s favor. The district court thus correctly
concluded that there was no genuine dispute of material fact
as to whether Concord Farms’s importation of Hokuto Japan
mushrooms is likely to confuse consumers.

D. Concord Farms’s Cross-Motion for Summary
   Judgment

   1. Cancellation for Fraud on the PTO

    Concord Farms asserts that Hokto USA’s trademark
registration should be cancelled for fraud. A party who
believes he has been harmed by a trademark’s registration
may seek the cancellation of that trademark’s registration on
certain specified grounds, including that the trademark was
20     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

obtained by the commission of fraud on the United States
Patent and Trade Office (USPTO). 15 U.S.C. § 1064; see
also 15 U.S.C. § 1119 (“In any action involving a registered
mark the court may . . . order the cancelation of registrations
. . . .”). When a trademark’s registration is cancelled, its
owner is no longer entitled to the rights that flow from federal
registration, including the presumption that the mark is valid.

      To succeed on a claim for cancellation based on fraud,
Concord Farms must adduce evidence of (1) a false
representation regarding a material fact; (2) the registrant’s
knowledge or belief that the representation is false; (3) the
registrant’s intent to induce reliance upon the
misrepresentation; (4) actual, reasonable reliance on the
misrepresentation; and (5) damages proximately caused by
that reliance. Robi v. Five Platters, Inc., 918 F.2d 1439, 1444
(9th Cir. 1990). A false representation in the original
trademark application or an affidavit accompanying a renewal
application may be grounds for cancellation if all five
requirements are met. See McCarthy, supra, § 20:58.
Concord Farms, however, bears a heavy burden of
demonstrating that a trademark should be cancelled. See
Robi, 918 F.2d at 1444. Although a material false
representation regarding an applicant’s bona fide intent to use
a trademark for a particular purpose may satisfy the test’s
first requirement, material falsity “is only one aspect of the
fraud claim.” Spin Master Ltd. v. Zobmondo Entm’t,
778 F. Supp. 2d 1052, 1060 (C.D. Cal. 2011).

    Here, there is no dispute that there was a material false
representation in Hokuto Japan’s applications to register the
marks. The applications contained a statement that Hokuto
Japan had a “bona fide intention” to use the registered marks
on a wide variety of non-mushroom products, ranging from
       HOKTO KINOKO CO. V. CONCORD FARMS, INC.              21

live fish to bonsai trees. Hokuto Japan’s representative
admitted in deposition that Hokuto Japan had no intention to
use the marks on those products. Concord Farms has failed,
however, to put forward evidence as to any of the remaining
four elements of a claim for cancellation due to fraud.

    Hokuto Japan asserts that the false representation was the
result of its misunderstanding about the differences between
U.S. and Japanese trademark registration requirements. The
American trademark attorney whom Hokuto Japan hired to
register the trademarks testified that he could not recall
making an inquiry to confirm that Hokuto Japan had bona
fide intent to use the marks on non-mushroom products, and
that it was not his usual practice to make such inquiries.
Moreover, once Hokuto Japan realized its error, it filed
requests to amend its trademark registration. Concord Farms
has put forth no evidence suggesting that the false statement
here was anything other than the result of a simple mistake.
Concord Farms adduced no evidence that Hokuto Japan knew
of the misstatement made by its lawyer or intended to defraud
the USPTO. Concord Farms has also failed to put forward
evidence of intent, reliance, or damages. Instead, as the
district court correctly concluded, Concord Farms relies
“purely on attorney argument to support its position.” Such
argument, in the absence of evidence, does not create a triable
dispute of material fact.

   2. Naked Licensing

     Concord Farms next asserts that Hokuto Japan abandoned
its right to the exclusive use of the marks by engaging in
“naked licensing”—specifically, by licensing the marks to
Hokto USA without providing for a mechanism to oversee
the quality of the mushrooms Hokto USA sold under them.
22     HOKTO KINOKO CO. V. CONCORD FARMS, INC.

Where a trademark owner licenses the use of its mark but
does not provide for the continued quality control of the
goods and services sold under the mark, the trademark may
cease to function as a useful marker of the product’s quality
or source. When this happens, the owner is said to have
abandoned the mark by issuing a “naked license,” and is
estopped from asserting rights in the trademark. Barcamerica
Int’l USA Trust v. Tyfield Imps., Inc., 289 F.3d 589, 595–96
(9th Cir. 2002).

    It is undisputed that Hokuto Japan did not include formal
quality control provisions in its 2008 licensing agreement
with Hokto USA, which was in effect until Hokuto Japan
assigned the U.S. trademark rights to Hokto USA in 2010.
However, that is not the end of our inquiry. Even absent
formal quality control provisions, a trademark owner does not
abandon its trademark where “the particular circumstances of
the licensing arrangement” suggest that the public will not be
deceived. Id. at 596 (internal quotation marks omitted). Such
circumstances exist “where the licensor is familiar with and
relies upon the licensee’s own efforts to control quality.” Id.
(internal quotation marks omitted). More specifically, the
licensor may establish adequate quality control by
demonstrating a close working relationship between the
licensor and the licensee. Id. at 597.

     Hokto USA is Hokuto Japan’s wholly owned subsidiary,
and the two companies worked together to develop the
quality control mechanisms that Hokto USA uses in the U.S.
market. For example, Hokuto Japan specially produced the
initial batches of organic mushrooms that Hokto USA
imported before the San Marcos facility was completed.
Hokuto Japan and Hokto USA also jointly developed the
special growing conditions that Hokto USA uses at the new
        HOKTO KINOKO CO. V. CONCORD FARMS, INC.                      23

facility, and Hokuto Japan monitored the quality control of
Hokto USA’s mushrooms while the licensing agreement was
in effect. The two companies also worked together to create
English-language packaging for the imports. Given this close
working relationship, Hokuto Japan was familiar with and
reasonably relied upon Hokto USA’s efforts to control the
quality of the mushrooms it distributed. Accordingly, we
affirm the district court’s conclusion that Hokuto Japan did
not engage in naked licensing.3

                          IV. Conclusion

    We AFFIRM the district court’s order granting Hokto
USA’s and Hokuto Japan’s motions for summary judgment
and denying Concord Farms’s motion for summary judgment.
We also AFFIRM the district court’s permanent injunction
enjoining Concord Farms from importing Hokuto Japan’s
products.




  3
    Concord Farms cursorily mentions two other affirmative defenses,
unclean hands and estoppel. Because Concord Farms did not assert an
unclean hands defense in its cross-motion for summary judgment, that
defense is not properly before us. See Barcamerica, 289 F.3d at 595 n.6.
As for estoppel, Concord Farms neither explains the factual basis for its
argument nor presents legal analysis supporting it. Assuming that
Concord Farms’s assertion of estoppel is based on its argument that Hokto
USA admitted Concord Farms’s mushrooms were “genuine goods,” the
argument lacks merit for the same reason Hokto USA’s alleged admission
does not defeat its trademark infringement claim.
