• Federal Circuit Vacates and Remands in Deere Appeal (2009-1016)
  • June 4, 2010 | Authors: Thomas J. Fisher; John F. Presper
  • Law Firm: Oblon, Spivak, McClelland, Maier & Neustadt, L.L.P. - Alexandria Office
  • On May 26, 2010, the Federal Circuit issued its opinion in Deere & Co. v. Int’l Trade Comm’n, No. 2009-1016.  This was an appeal from the ITC’s final determination in Certain Agricultural Vehicles & Components Thereof (Inv. No. 337-TA-487) that the sales of European-version John Deere harvesters in the U.S. by Intervenors Bourdeau Bros., Inc., OK Enterprises, and Sunova Implement Co. (collectively, “Bourdeau”) did not violate Section 337 based on a finding that although Bourdeau infringed Deere & Co.’s (“Deere”) trademarks through gray market competition, not “all or substantially all” of Deere’s authorized sales of harvesters in the U.S. were of the North American version, so Deere was not entitled to an exclusion order.  Because the ITC improperly applied the “all or substantially all” test, the Federal Circuit vacated and remanded.

    By way of background, the ITC instituted an investigation in February 2003 based on a complaint filed by Deere alleging that Bourdeau and other Deere dealers unlawfully imported and sold Deere’s European-version harvesters in the U.S. in violation of Section 337’s prohibition against importation of products “produced by the owner of the United States trademark or with its consent, but not authorized for sale in the United States,” often called “gray market goods.”  In May 2004, the ITC determined there were material differences between Deere’s North American version and European version harvesters, supporting a finding of trademark infringement and thus a general exclusion order.

    In March 2006, the Federal Circuit vacated-in-part and remanded the ITC’s decision based on the additional requirement that Deere also show that all or substantially all of its authorized domestic products (North American version) are materially different from the accused gray market goods (European version).  On remand, in December 2006, the ALJ issued an initial determination of infringement, finding that the original record showed that Deere did not authorize the sales of the European version in the U.S., that new evidence of alleged Deere financing of the European version sold by its dealers did not show authorization, and that the number of sales Bourdeau alleged were authorized was in any event so small that “substantially all” of Deere’s authorized U.S. sales were of the North American version.

    In August 2008, the ITC reversed the ALJ, finding substantial evidence that Deere’s U.S. and European dealers had apparent authority to sell the European version, that Deere itself sold and/or facilitated the sale of the European version in the U.S., and that not “all or substantially all” of the authorized harvesters sold in the U.S. were the North American version.  The ITC noted that since the total number of authorized sales of the North American version in the U.S. was approximately only 4400, the introduction of even a small number of the European version could cause substantial consumer confusion.  The ITC then found such confusion based on its determination that at least 141 European version harvesters sold in the U.S. were sold by official Deere dealers.  The ITC considered 141 to be a “substantial quantity” of nonconforming goods because it constituted 40 to 57% of the 247 to 347 European version harvesters sold in the U.S. by both official and independent (in some cases, accused) dealers.  Importantly, the ITC did not use as its denominator the total number of authorized harvesters sold in the U.S., which would have been the number of authorized North American version harvesters (4400) plus the number of authorized European version harvesters (141), or 4541.

    In the current appeal, Deere argued that (1) the ITC incorrectly determined the number of authorized European version harvesters sold in the U.S., and (2) even using the numerator that the ITC found, the ITC erred in applying the “all of substantially all” test by using 247 to 347 as the denominator instead of 4541; the latter results in only 3.1% of the authorized harvesters sold in the U.S. being of the European version, which Deere asserts is an insignificant number under the test.

    The Federal Circuit found that substantial evidence supported the numerator determined by the ITC.  In particular, the court found, contrary to Deere’s arguments, that (a) sales by official Deere dealers of the European version in the U.S. were authorized based on buyers’ reasonable belief given Deere’s actions that such sales were authorized; (b) substantial evidence supports the ITC’s finding that Deere’s official dealers, including its official European dealers, had apparent authority to sell the European version; (c) the ITC did not err in including sales by Deere’s official European dealers in the U.S. in its calculation; and (d) Deere had an opportunity to introduce evidence regarding authorization of its official European dealer sales.

    With respect to Deere’s denominator argument, the Federal Circuit agreed that the ITC misapplied the “all or substantially all” test, and that the denominator should have been total authorized sales in the U.S. in accordance with the court’s remand instructions, not the total European version sales in the U.S.  Using the ratio dictated by its remand instructions as well as the ITC’s lower-end and upper-end findings, the court concluded that a total of 3.1 to 3.4% of the authorized harvesters sold in the U.S. were the European version, or conversely that 96.6 to 96.9% of the authorized harvesters sold in the U.S. were the North American version.  The court observed that those figures may be insubstantial, but that is for the ITC to determine on remand based on all of the relevant facts, noting that “[t]he cutoff as to what is to be considered ‘substantially all’ is a question of fact.”

    Judge Newman concurred in the remand but dissented-in-part from the majority’s holding that the importation and sales of the European version were deemed to be authorized by Deere, stating that “it is incorrect to hold that the infringing sales are ‘authorized’ by a concoction of ‘apparent authority’” because to do so “improperly requires the trademark owner to prove that it tried and was unable to impose restrictions on its independent official dealers in the United States and overseas.”