Wednesday, February 20, 2008

No Trademark Jurisdiction without Embargo

The Federal Circuit has issued a decision in Sakar International v. United States, a case I posted about here. Sakar, you may recall, involved the seizure of and a civil penalty relating to the importation of PDA accessories bearing of allegedly counterfeit Microsoft Windows logos on keyboards and UL labels on chargers. The Court of International Trade originally determined that it had jurisdiction to hear the case because it was an embargo. However, because Customs and Border Protection's assessment of the fine was not yet final, the CIT dismissed the case.

On appeal, things only got worse for Sakar.

The Federal Circuit rejected the notion that the law prohibiting the importation of merchandise is an embargo. Rather, according to the Federal Circuit, an embargo is a governmental restriction on the importation of merchandise for governmental purposes. The law prohibiting the importation of counterfeits is, on the contrary, there to permit private parties to enjoy their private property interest in the trademark. For proof of that, the Federal Circuit pointed out that 19 USC 1526(e), the law under which the seizure occured, includes an exception permitting the entry of the merchandise with the permission of the trademark holder. Thus, the interests at stake here are the trademark holder's, not the government's. Hence, no embargo. No embargo, no jurisdiction.

In addition to the statute, the Federal Circuit noted that the Supreme Court had addressed this very issue in K Mart v. Cartier in 1988. K Mart was a big deal case involving a jurisdictional dispute between the Court of International Trade and the District Courts. The issue was whether the restriction on the importation of infringing merchandise was an embargo, giving the CIT jurisdiction. The difference between K Mart and Sakar is that K Mart involved section 1526(a) not 1526(e). Sakar argued that 1526(e) was a complete ban on imports and, therefore, an embargo.

There is something to this. Subsection (a) prohibits the importation of merchandise bearing a US trademark without the consent of the trademark holder. Subsection (e) says that counterfeit merchandise will be seized by CBP. But, subsection (e) also has an escape clause for importers of counterfeit merchandise who receive permission to import from the trademark holder. That means the private party is ultimately in control. Thus, there is no embargo.

That's too bad. Not because I want potentially counterfeit goods to enter the country. But, I remain curious about how a court would resolve the question about how to value the counterfeits. For now, that will remain an open question.

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