                                                                                                                           Opinions of the United
1998 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


7-30-1998

Iberia Foods Corp v. Romeo
Precedential or Non-Precedential:

Docket 97-5424




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Recommended Citation
"Iberia Foods Corp v. Romeo" (1998). 1998 Decisions. Paper 178.
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Filed July 30, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-5424

IBERIA FOODS CORP.

v.

ROLANDO ROMEO, JR.
d/b/a ROL-ROM FOODS

Rolando Romeo, Jr., t/a
Rol-Rom Foods,

       Appellant

On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 93-cv-01690)

Argued Monday, April 27, 1998

BEFORE: ALITO, RENDELL and GARTH,
Circuit Judges

(Opinion filed July 30, 1998)

       Stephen L. Baker (Argued)
       Stephen L. Baker, P.A.
       359 East Main Street
       Somerville, New Jersey 08876

       Attorney for Appellant
       John G. Gilfillan, III (Argued)
       Kenneth L. Winters
       Carella, Byrne, Bain, Gilfillan,
       Cecchi, Stewart & Olstein
       6 Becker Farm Road
       Roseland, New Jersey 07068

       Attorneys for Appellee

OPINION OF THE COURT

GARTH, Circuit Judge:

This is a trademark action brought by Iberia Foods
against Rolando Romeo, Jr. and his company, Rol-Rom
Foods (collectively, "Rol-Rom"), to enjoin Rol-Rom's sale of
household cleaning products under the Mistolin trademark
owned by Iberia. The district court granted summary
judgment in favor of Iberia, and Rol-Rom has appealed.
Because the Mistolin products sold by Rol-Rom are
"genuine" under Section 32 of the Lanham Act, 15 U.S.C.
S 1114, we will reverse.

I.

Iberia Foods is a Brooklyn-based wholesale distributor of
grocery store products that owns the United States
trademark to Mistolin household cleaners. The line of
Mistolin products includes soaps, tile cleaners, and laundry
detergents, and is offered for sale at grocery stores and
supermarkets both in Puerto Rico and in certain
metropolitan areas in the United States for a few dollars a
bottle.

Mistolin products are manufactured exclusively in Puerto
Rico by Mistolin Caribe, Inc. ("Caribe"). In addition to
selling Mistolin to Iberia for resale in the United States,
Caribe markets Mistolin directly to distributors in Puerto
Rico for resale in the Puerto Rican market. Although both
Iberia and Caribe sell Mistolin products, the two companies
service entirely separate markets: Caribe sells Mistolin only
in Puerto Rico to Puerto Rican distributors, and Iberia sells
Mistolin only in the continental United States.

                                2
The business arrangement between Iberia and Caribe
dates back to 1988, when Iberia acquired the United States
trademark to Mistolin from Caribe's parent company,
Mistolin Dominicana, C.A. ("Dominicana").1 Although the
legal effect of the 1988 agreement is disputed, its terms
granted Iberia "all the rights, title and interest in and to
[the Mistolin] trademark insofar as they relate to the United
States." In exchange for ownership of the Mistolin
trademark, Iberia agreed to purchase Mistolin exclusively
from Caribe.

The defendant in this case, Rol-Rom Foods, is a New
Jersey-based distributor of household cleaning products
that purchases Mistolin products on the open market in
Puerto Rico and sells them in New York and New Jersey.
Although Rol-Rom has never purchased Mistolin products
directly from Caribe, it is undisputed that the Mistolin sold
by Rol-Rom was originally sold by Caribe for resale in the
Puerto Rico market. By obtaining Mistolin in Puerto Rico
and selling it in New York without Iberia's involvement, Rol-
Rom has been able to offer Mistolin for sale in direct
competition with Iberia at a substantial discount from
Iberia's price.

II.

In April 1993, Iberia filed a four count complaint against
Rol-Rom seeking injunctive relief and damages. The
principal count in the complaint alleged that Rol-Rom's sale
of Mistolin products constituted infringement of Iberia's
trademark in violation of S 32 of the Lanham Act, codified
at 15 U.S.C. S 1114.2 Rol-Rom's answer denied that it had
infringed Iberia's mark, alleged several affirmative defenses,
and added a number of counterclaims. Following discovery,
_________________________________________________________________

1. Although Caribe is technically a subsidiary of Dominicana, for the
sake of simplicity we will refer to Caribe rather than Dominicana when
discussing the 1988 agreement. This substitution has no effect on our
resolution of this appeal.

2. The remaining counts against Rol-Rom alleged violations of common
law trademark and service mark infringement, common law unfair
competition, and New Jersey statutory unfair competition under N.J.S.A.
56:4-1.

                               3
both parties moved for summary judgment on the federal
trademark infringement count.

Before the district court on summary judgment, Iberia
argued that Rol-Rom had clearly infringed Iberia's
trademark. According to Iberia, the 1988 agreement
between Iberia and Caribe had transferred the rights to the
Mistolin trademark in the continental United States to
Iberia, but had allowed Caribe to retain the trademark
rights to Mistolin in Puerto Rico. By buying Mistolin in
Puerto Rico and selling it in the continental United States,
Iberia contended, Rol-Rom had circumvented the quality
control measures enforced by Iberia on all the Mistolin
products it sold. Accordingly, Iberia claimed, Rol-Rom's
Mistolin was not "genuine," and Rol-Rom's sales constituted
infringement of Iberia's trademark because it injured the
goodwill Iberia had invested in the mark.

Rol-Rom's view of the case contrasted sharply with
Iberia's. According to Rol-Rom, the 1988 agreement had
transferred all of Caribe's United States trademark rights to
Iberia. Because Puerto Rico is considered part of the
"United States" for the purpose of federal trademark law,
see 15 U.S.C. S 1127, Rol-Rom claimed that the 1988
agreement had granted Iberia the Mistolin trademark rights
in Puerto Rico as well as in the continental United States.
According to Rol-Rom, Iberia's longstanding failure to
challenge Caribe's sales of Mistolin to Puerto Rican
distributors provided Rol-Rom with two affirmative defenses
to Iberia's action. First, Rol-Rom argued that Iberia's failure
to exercise control over its mark constituted a"naked
license" that had led to de facto abandonment of the
Mistolin trademark.3 Second, Rol-Rom claimed that Iberia
had impliedly consented to Caribe's sales of Mistolin in
Puerto Rico, such that Iberia had relinquished its
_________________________________________________________________

3. Rol-Rom's pleadings describe its abandonment argument as a
counterclaim, rather than as an affirmative defense. Abandonment,
however, is generally considered an affirmative defense to infringement,
rather than the type of actionable wrong that would sustain an
independent claim or counterclaim. See, e.g., Exxon Corp. v. Oxxford
Clothes, Inc., 109 F.3d 1070, 1075-76 (5th Cir.), cert. denied, 118 S. Ct.
299 (1997). For the sake of simplicity, we will refer to Rol-Rom's
abandonment argument as an affirmative defense.

                               4
trademark rights to the Mistolin sold by Rol-Rom pursuant
to the "first sale" or "exhaustion" doctrine.4

On March 26, 1996, the district court entered an order
denying Rol-Rom's motion for summary judgment and
granting Iberia's summary judgment motion. Addressing
Rol-Rom's defenses first, the district court held that Rol-
Rom's first sale and abandonment defenses were meritless
because the uncontroverted evidence in the record made
clear that neither Caribe nor Iberia had intended that Iberia
would possess the right to prevent Caribe from marketing
Mistolin in Puerto Rico. When Caribe and Iberia had agreed
to transfer the Mistolin trademark rights to Iberia "insofar
as they relate to the United States," the district court held,
they had intended to transfer only the rights covering the
continental United States, where Iberia was already
distributing Mistolin products. Because Iberia had no right
to control Caribe's sales of Mistolin in Puerto Rico, it had no
ability either to authorize Caribe's "first sale" of Mistolin or
to grant Caribe a "naked license" to sell it in Puerto Rico.
Accordingly, the district court held that the first sale
(exhaustion) and abandonment doctrines were inapplicable.
In any event, the district court noted, the Mistolin
trademark had clearly not been abandoned because the
mark continued to have significance among purchasers in
the continental United States.

Having dispensed with Rol-Rom's affirmative defenses,
the district court turned to Iberia's motion for summary
judgment. Here, the district court referenced its prior
discussion of Iberia's view that the Mistolin sold by Rol-Rom
was not "genuine" because it never passed through Iberia's
post-manufacture quality controls. In that discussion, the
district court had also noted the presence of "record
evidence showing that [Iberia] has in fact instituted some
quality control procedures over products it received from
_________________________________________________________________

4. According to the "first sale" or "exhaustion" doctrine, a trademark
owner's authorized initial sale of its product into the stream of commerce
extinguishes the trademark owner's rights to maintain control over who
buys, sells, and uses the product in its authorized form. See, e.g.,
Sebastian Int'l, Inc. v. Longs Drug Stores Corp., 53 F.3d 1073, 1076 (9th
Cir. 1995).

                               5
Caribe." In its motion for summary judgment, Iberia argued
that this evidence entitled Iberia to summary judgment on
its federal trademark infringement count. The district court
agreed, although it did not specify the basis for its implicit
conclusion that Rol-Rom's Mistolin was not "genuine."

The litigation regarding Iberia's remaining claims and
Rol-Rom's counterclaims continued until June 4, 1997,
when the district court acceded to the parties' request to
enter a final order and injunction that would allow Rol-Rom
to pursue an appeal without further delay. The final order
enjoined Rol-Rom from selling Mistolin products that had
not first been distributed by Iberia, and ordered that if Rol-
Rom violated the injunction it would be held in contempt,
fined, and forced to pay Iberia's attorney's fees. Further, the
final order stated that Rol-Rom's counterclaims and Iberia's
claim for damages were withdrawn with prejudice, subject
to the right of the parties to reinstate their claims if the
district court's March 26, 1996 were to be reversed on
appeal.5

Rol-Rom filed a timely appeal. We will reverse.

III.

On summary judgment, we exercise plenary review,
construing all evidence and resolving all doubts raised by
affidavits, depositions, answers to interrogatories, and
admissions on file in favor of the non-moving party. See
SEC v. Hughes Capital Corp., 124 F.3d 449, 452 (3d Cir.
1997). Our task is to identify and explain the substantive
law governing the action, and then in light of that law
determine whether there is a genuine dispute over
dispositive facts. See Ciarlante v. Brown & Williamson
_________________________________________________________________

5. Although we need not reach such issues to resolve Iberia's S 32 claim,
we think it is proper in light of the district court's arrangement and our
remand to note that we agree with the district court's conclusion that
the 1988 agreement transferred to Iberia only those trademark rights
relating to the continental United States. Thus, we agree with the
district
court that Iberia owns the trademark rights to Mistolin in the continental
United States; that Caribe retains the rights to Mistolin in Puerto Rico;
and that Rol-Rom's abandonment and "first sale" arguments are
meritless.

                               6
Tobacco Corp., 143 F.3d 139, 145 (3rd Cir. 1998) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.
Ct. 2505, 2510, 91 L. Ed.2d 202 (1986)). If upon review of
cross motions for summary judgment we find no genuine
dispute over material facts, then we will order judgment to
be entered in favor of the party deserving judgment in light
of the law and undisputed facts. See Ciarlante, 143 F.3d at
145-46.

IV.

Although the parties have devoted their attention to the
merits of Rol-Rom's affirmative defenses, we consider the
primary question raised by this appeal to be one addressed
only in passing by the parties. The question is: has Iberia
established that the Mistolin sold by Rol-Rom is not
"genuine" according S 32 of the Lanham Act? Because we
conclude that Iberia has failed to establish that the Mistolin
sold by Rol-Rom is not "genuine," we hold that Rol-Rom is
entitled to summary judgment, and that the order of the
district court must be reversed.

A.

Iberia's federal trademark claim proceeds under S 32 of
the Lanham Act, 15 U.S.C. S 1114.6 Under the sway of
Justice Holmes's landmark opinion in A. Bourjois & Co. v.
Katzel, 260 U.S. 689, 43 S. Ct. 244 (1923), courts have
construed this statute to grant trademark owners the right
to enjoin the sale of products containing the owner's
_________________________________________________________________

6. This statute states in relevant part that:

       (1) Any person who shall, without the consent of the registrant--

       (a) use in commerce any reproduction, counterfeit, copy, or
colorable
       imitation of a registered mark in connection with the sale,
offering
       for sale, distribution, or advertising of any goods or services on
or
       in connection with which such use is likely to cause confusion, or
       to cause mistake, or to deceive . . .

        . . . shall be liable in a civil action by the registrant for the
       remedies hereinafter provided.

15 U.S.C. S 1114 (1997).

                               7
authentic mark when the products offered for sale are
similar but not identical to those offered by the trademark
owner. The need for such protection has arisen most often
in the context of so-called "gray goods" cases. In such
cases, holders of United States trademarks affixed to
products manufactured abroad have used S 32 of the
Lanham Act as a means of preventing the sales of inferior
parallel imports. See, e.g., Original Appalachian Artworks,
Inc. v. Granada Elecs., Inc., 816 F.2d 68 (2d Cir. 1987)
(owner of Cabbage Patch Kids trademark entitled to
injunctive relief from sales in United States of Spanish
version of dolls without "adoption" feature). The scope of
the action is not limited to gray goods cases, however. The
same theory has been used to enjoin the sale of domestic
products in conditions materially different from those
offered by the trademark owner. See, e.g., Warner-Lambert
Co. v. Northside Dev. Co., 86 F.3d 3 (2d Cir. 1996) (owner
of Halls cough drops trademark entitled to injunction
against sale of Halls cough drops past their expiration
date).

As a matter of doctrine, a trademark owner attempting to
use S 32 to prevent an infringement must establish that the
products sold by the alleged infringer are not "genuine."
See, e.g., Weil Ceramics and Glass, Inc. v. Dash, 878 F.2d
659, 671-73 (3d Cir. 1989); El Greco Leather Prod. Co. v.
Shoe World, Inc., 806 F.2d 392, 395-99 (2d Cir. 1986); Shell
Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107-08
(4th Cir. 1991). The test for whether an alleged infringer's
products are genuine asks whether there are "material
differences" between the products sold by the trademark
owner and those sold by the alleged infringer. See Societe
Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d
633, 638 (1st Cir. 1992); Martin's Herend Imports, Inc. v.
Diamond & Gem Trading USA, 112 F.3d 1296, 1302 (5th
Cir. 1997). If there are no material differences between the
products sold, then the products offered by the alleged
infringer are "genuine" and an infringement action under
S 32 of the Lanham Act must fail. Whether differences are
material so that an alleged infringer's products are non-
genuine is a matter of law that we review de novo. See El
Greco, 806 F.2d at 395; Casa Helvetia, 982 F.2d at 642,
642 n.9.

                               8
The purpose of the material differences test is to
determine whether the allegedly infringing products are
likely to injure the goodwill developed by the trademark
owner in the trademarked goods. See Weil Ceramics, 878
F.2d at 671. When the products sold by the alleged
infringer and the trademark owner contain identical marks
but are materially different, consumers are likely to be
confused about the quality and nature of the trademarked
goods. See Casa Helvetia, 982 F.2d at 641. Characteristics
of the alleged infringer's goods that are not shared by the
trademark owner's goods are likely to affect consumers'
perceptions of the desirability of the owner's goods. See
Weil Ceramics, 878 F.2d at 671; Martin's Herend, 112 F.3d
at 1302. Sales of the alleged infringer's goods will tarnish
the "commercial magnetism" of the trademark, injuring the
trademark owner. Mishawaka Rubber & Woolen Mfg. Co. v.
S.S. Kresge Co., 316 U.S. 203, 205, 62 S. Ct. 1022, 1024
(1942) (Frankfurter, J.).7 In such circumstances, the alleged
_________________________________________________________________

7. A few examples may prove helpful here. In Original Appalachian
Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68 (2d Cir. 1987), the
Second Circuit granted an injunction to the owner of the United States
trademark for Cabbage Patch Kids dolls against the importation of
Cabbage Patch Kids dolls manufactured in Spain for the Spanish
market. Although the Spanish dolls looked very similar to the domestic
ones, the Spanish dolls lacked certain features (in particular, the
ability
to be "adopted" by the owner) that had sparked consumer interest and
sales in the United States. The court held that the domestic trademark
owner was entitled to an injunction because the domestic trademark
owner's goodwill was injured by consumer association of its mark with
the less desirable Spanish dolls. See 816 F.2d at 73.

In Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d
633, 638 (1st Cir. 1992), the First Circuit granted an injunction to the
owner of the United States trademark for Italian-made Perugina
chocolates against the parallel importation of Venezuelan-made Perugina
chocolates. The court catalogued a series of differences between the
Venezuelan imports and the products sold by the trademark owner,
including differences in the composition of the chocolate, the packaging,
the price, and the conditions under which the chocolates were
transported and stored. The court held that the differences were likely to
result in consumer confusion and that the trademark owner was entitled
to injunctive relief. See 982 F.2d at 644.

                               9
infringer's goods are considered "non-genuine" and the sale
of the goods constitutes infringement.

In contrast, when the differences between the products
prove so minimal that consumers who purchase the alleged
infringer's goods "get precisely what they believed that they
were purchasing," Weil Ceramics, 878 F.2d. at 672,
consumers' perceptions of the trademarked goods are not
likely to be affected by the alleged infringer's sales. See
Casa Helvetia, 982 F.2d at 641. Although consumers may
be unaware of the precise avenues that a given product has
traveled on its way to the supermarket shelf, the authentic
trademark on the alleged infringer's goods is an accurate
indicator of their nature and quality. Cf. Prestonettes, Inc.
v. Coty, 264 U.S. 359, 368, 44 S. Ct. 350, 351 (1924).
Thus, the goods may be considered "genuine." This does
not mean that the trademark owner suffers no economic
harm from the alleged infringers' sales, but it does mean
that S 32 of the Lanham Act does not offer a remedy to the
trademark owner. See Weil Ceramics, 878 F.2d. at 672.

Because consumer preferences are as fickle and diverse
as the human imagination, it is impossible to devise an
exhaustive list of the types of differences between products
that can be considered material for the purposes of the
genuineness test. Compare Granada Elecs., 816 F.2d at 73
(holding that imported Cabbage Patch Kids dolls are
materially different from domestic dolls because imported
dolls cannot be "adopted" by domestic owners) with Shell
Oil, 928 F.2d at 107-08 (holding that bulk oil purchased
_________________________________________________________________

Finally, in Martin's Herend Imports, Inc. v. Diamond & Gem Trading
USA, 112 F.3d 1296, 1302 (5th Cir. 1997), the Fifth Circuit enjoined the
parallel importation of Hungarian Herend porcelains brought to the
United States over the objections of the United States trademark owner.
The court held that there were material differences between the
porcelains sold by the trademark owner and the alleged infringer
because the trademark owner had chosen to sell only select items in the
United States. The alleged infringer, in contrast, sold many items that
were not offered by the trademark owner. In light of the delicate task of
maintaining goodwill in high-end artistic products, the court held, this
difference was enough to entitle the United States trademark owner to
an injunction against the parallel importation. See 112 F.3d at 1302.

                               10
from Shell and resold by oil wholesaler was not genuine
because it was not stored according to Shell's
specifications). Any differences that are likely to damage the
goodwill developed by the trademark owner can be deemed
material.

B.

Iberia argues that material differences exist between the
Mistolin sold by Rol-Rom and that sold by Iberia because
Iberia conducts a "quality control" inspection of every
shipment of Mistolin on receipt from Caribe. 8 According to
the record, Iberia inspects every box of Mistolin it receives,
and rejects products that do not meet its specifications.
Iberia contends that its rejection of substandard goods has
raised the quality of the Mistolin sold by Iberia so that it is
materially different from the uninspected Mistolin sold by
Rol-Rom.

When a trademark owner arranges to have its mark
placed on a product manufactured by another company,
the owner's rigorous quality control and inspection
procedure on receipt from the manufacturer has often been
recognized as the basis of a material difference between
products sold by the trademark owner and those offered by
another company without the trademark owner's stamp of
approval. See, e.g., El Greco, 806 F.2d at 395 (shoes); Casa
Helvetia, 982 F.2d at 642 (chocolates). The reason for this
is evident. Because the quality of a manufacturer's output
can be uneven, and consumers can be expected over time
_________________________________________________________________

8. In the "Statement of the Case" portion of its brief, Iberia remarks in
passing that Rol-Rom has sold Mistolin products, and in particular,
Mistolin All Purpose Cleaner, "which Iberia has discontinued and/or has
determined not to sell under the Mistolin mark." Appellee's Br. at 8. Were
this statement supported in the record, it might have provided the basis
for a material difference between the Mistolin products sold by Iberia and
Rol-Rom. See, e.g., Martin's Herend, 112 F.3d at 1302 (holding that
parallel importer's porcelain figurines were materially different from
trademark owner's figurines because "at least 50 percent" of the
figurines sold by the parallel importer were not sold by trademark
owner). Here, however, the record fails to support Iberia's statement: the
record indicates that both Iberia and Rol-Rom discontinued selling
Mistolin All Purpose Cleaner. See App. 167 (Iberia); App. 281 (Rol-Rom).

                               11
to notice the quality of the products they purchase, a
trademark owner's inspection on receipt from the
manufacturer may be a necessary part of maintaining
consumer goodwill associated with its mark. Cf . Casa
Helvetia, 982 F.2d at 643.

Because quality control measures may create subtle
differences in quality that are difficult to measure but
important to consumers, courts do not require trademark
owners to show that the actual quality of the inspected
goods is measurably higher than that of the uninspected
goods. See, e.g., El Greco, 806 F.2d at 395; Shell Oil, 928
F.2d at 107. At the same time, "quality control" is not a
talisman the mere utterance of which entitles the
trademark owner to judgment. See, e.g., Polymer Tech.
Corp. v. Mimran, 37 F.3d 74, 78-80 (2d Cir. 1994) (rejecting
trademark owner's claim of infringement based on
circumvention of owner's quality control efforts). Rather,
the test is whether the quality control procedures
established by the trademark owner are likely to result in
differences between the products such that consumer
confusion regarding the sponsorship of the products could
injure the trademark owner's goodwill. See Warner-Lambert
Co. v. Northside Dev. Co., 86 F.3d 3, 6 (2d Cir. 1996)
(trademark holder must show that it uses substantial and
nonpretextual quality control procedures such that non-
conforming sales will diminish the value of the mark).

According to Jesus Garcia, the chairman of the board of
Iberia, Iberia's inspection of Mistolin upon receipt from
Caribe consists of looking for "external self-evident
problems." App. 139. First, the exterior packaging of the
deliveries is inspected to make sure that the boxes are not
damaged. Second, an Iberia employee takes a "random
sample" of Mistolin and looks at it. If the packaging is
damaged or there is "something wrong" with the sample,
Iberia destroys the goods and receives credit from Caribe.
Iberia has no standard explaining when there is"something
wrong" with a sample, however: the employee simply looks
at the Mistolin and smells it to determine whether or not it
seems "off." Although Garcia stated in his deposition that
Iberia sends products to a laboratory for inspection if
something seems "wrong" with a shipment of Mistolin,

                               12
Garcia could not recall any time within the previous ten
years when this was actually done. App. 136-40.

The reason that Iberia's inspection is limited to looking
for obvious defects is that since acquiring the trademark in
1988, Iberia has never made any efforts to learn how Caribe
manufactures Mistolin products or what ingredients they
contain. App. 92 ("Iberia Foods Corp. has no knowledge as
to what are the contents or ingredients used in the
products manufactured by Mistolin Caribe Inc.") (statement
of Jesus Garcia). Iberia simply orders Mistolin products
from Caribe, and assumes that the bottles it receives
contain "Mistolin" cleaner. In fact, Iberia's sole participation
in the design or manufacture of any Mistolin product
entailed helping Caribe design new U.S. labels when federal
law began mandating that labels contain new product
warnings. App. 147-48. Otherwise, everything about
Mistolin, from its ingredients to the U.P.C. symbols placed
on its bottles, has been determined by Caribe. The result of
Iberia's "hands off " approach is that its quality control
process is limited to determining whether the Mistolin
products it receives from Caribe have been damaged during
shipment, and whether random samples look and smell
"right."9

We conclude that Iberia's quality inspections are
insufficient to create a material difference between the
inspected Mistolin sold by Iberia and the uninspected
Mistolin sold by Rol-Rom. By limiting its inspection to "self-
evident" defects, Iberia does no more than weed out those
bottles of Mistolin that are entirely unsaleable on the open
market. This "weeding out" is insufficient because bottles
so obviously defective as to be unmarketable are not likely
to reach consumers in any event. First, distributors will
generally try to catch such blatant defects to keep their
_________________________________________________________________

9. In the one instance in which Iberia rejected Mistolin sent by Caribe
for
a defect that was not obvious, Garcia conceded that the defect had not
been discovered during Iberia's inspection. This occurred in 1993, when
Caribe sent Iberia a shipment of Mistolin that looked normal when it first
arrived, but later deteriorated in the bottle. Although Garcia did not
explain how this defect was eventually discovered, he did state that it
was not detected when the shipment underwent Iberia's quality control
procedures. App. 136.

                               13
retailers happy: this is as true when the distributor
happens to be the trademark owner as when the distributor
is another company such as Rol-Rom. See App. 285 ("[W]e
don't sell anything that's damaged or broken . . . because
our clients wouldn't stand for it.") (statement of Rolando
Romeo, Jr.). Those defects that do pass by the distributors
will be caught by retailers, who are unlikely to place broken
bottles of Mistolin on their shelves if they expect to stay in
business for long. Because unmarketable Mistolin products
will not generally reach consumers regardless of whether
Iberia catches the defects first, Iberia's limited inspection is
insufficient to create a material difference between the
Mistolin offered to consumers through Iberia and that
offered to consumers through Rol-Rom.

The limited scope of the inspection performed by Iberia
distinguishes this case from other cases in which a
trademark owner's quality control mechanism created a
material difference between the products offered by the
trademark owner and the alleged infringer. In those cases,
the trademark owner's inspection reflected a deliberate
effort to ensure that the quality of the product matched the
high standards set by the trademark owner. For example,
in El Greco, the trademark owner's agent would inspect the
manufacturer's product before shipment. Unless the agent
issued an inspection certificate stating that the
manufacturer's goods fully complied with the trademark
owner's standards and specifications, the goods were never
shipped to the trademark owner for sale. See 806 F.2d at
395. In Casa Helvetia, the trademark owner conducted
laboratory tests on the chocolates it received from the
Italian manufacturer, destroyed those chocolates that were
beyond a fixed expiration date, and transported its
products in special refrigerated containers. Even the alleged
infringer conceded that its quality control procedures
differed "radically" from the strict regimen followed by the
trademark owner to maintain the quality of the products
sold. See 982 F.2d at 642-43.

In both El Greco and Casa Helvetia, the trademark
owner's inspection was an integral part of a careful effort to
ensure that the quality of the product matched the high
standards set by the trademark owner. Circumventing that

                               14
inspection threatened the trademark owner's efforts to
maintain the goodwill that consumers associated with the
mark. In this case, however, Iberia has hardly set any
standard at all: rather, it has deferred almost entirely to
Caribe's judgment of what Mistolin products are and how
they are to be manufactured. Iberia's "hands off " approach
has reduced its quality control inspection to a de minimis
check designed to make sure that the products it receives
from Caribe are not obviously unmarketable. We are
satisfied that such an inspection is insufficient to create a
material difference between the products sold by Iberia and
those sold by Rol-Rom.

V.

Because there is no material difference between the
Mistolin sold by Iberia and that sold by Rol-Rom, we hold
that the Mistolin sold by Rol-Rom is "genuine" and that
Iberia's attempt to use S 32 of Lanham Act to block Rol-
Rom's sales must fail. Because buyers of Rol-Rom's Mistolin
get precisely what they believe that they are purchasing,
see Weil Ceramics, 878 F.2d at 672, the goodwill associated
with Mistolin products is not harmed by Rol-Rom's sales.

We therefore reverse so much of the district court's June
4, 1997 order as entered judgment for Iberia on the federal
trademark infringement count, and direct the district court
to enter judgment for Rol-Rom on this count. Pursuant to
the terms of the June 4, 1997 order, which directed the
reinstatement of remaining claims if the district court's
order were reversed, we will remand to the district court for
further appropriate proceedings.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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