Friday, May 28, 2010

John Deere gray market case: what's in your denominator?

Of an earlier portion of the case, the CAFC wrote:

However, we vacated in part and remanded the
Commission’s decision based on a particular requirement
for recovery, under our recent decision in SKF USA, Inc.
v. International Trade Commission, 423 F.3d 1307 (Fed.
Cir. 2005), that Deere also show that all or substantially
all of Deere’s authorized domestic products are materially
different from the accused gray market goods. Bourdeau,
444 F.3d at 1325–27. In other words, Deere had to show
that substantially all of the Deere harvesters being sold in
the United States that were authorized by Deere were
North American-version harvesters, as opposed to Euro-
pean-version harvesters.
In discussing the “all or sub-
stantially all” requirement, we stated:
As we noted in SKF, the sale by a trademark
owner of the very same goods that he claims are
gray market goods is inconsistent with a claim
that consumers will be confused by those alleged
gray market goods. “To permit recovery by a
trademark owner when less than ‘substantially
all’ of its goods bear the material difference . . .
would allow the owner itself to contribute to the
confusion by consumers that it accuses gray mar-
ket importers of creating

Of the math:

The Commission next found that 40 to 57% of the
European-version harvesters sold in the United States
were sold by official Deere dealers.2 Id. at 51. To arrive
at its numbers, the Commission divided the number of
authorized European-version harvesters by the total
number of European-version harvesters sold in the United
States. The Commission found that at least 141 Euro-
pean-version harvesters were sold in the United States by
official Deere dealers. Id. at 28, 50. The Commission
indicated that the record showed a possible 14 more
authorized EuUnited States.

Dividing the smaller number of official European-
version harvesters sold in the United States (141) by the
total number of European-version harvesters sold in the
United States (247 to 347), the Commission arrived at its
40 to 57% number. Id. at 51. The Commission did not
use as its denominator the total number of authorized
harvesters sold in the United States, which would have
been the number of authorized North American-version
harvesters (4400) plus the number of authorized Euro-
pean-version harvesters (141), or 4541. The Commission
thus concluded that official Deere dealers were responsi-
ble for introducing a “substantial quantity” of noncon-
forming goods into U.S. commerce. Id.

A memorable line:

In order to divide the numerator by the denominator, we
need to have calculated the numerator.
Thus, in order to
enable the Commission to reapply the “all or substantially
all” test on remand, we must give the Commission guid-
ance on whether it appropriately calculated the numera-
tor. We therefore must decide whether the sales were
authorized by Deere. Furthermore, although the dissent
may disagree with our reasoning, we must affirm if the
Commission’s decision on authorization was supported
by substantial evidence, and we believe it was.

But, the problem was the denominator:

The question was whether “substantially all of the
authorized sales,” i.e., the sum of authorized North
American-version and authorized European-version
harvester sales, were of North American-version harvest-
ers. The denominator therefore should have been total
authorized sales, not total European-version harvester
sales, in the United States.

Bottom line, judgment vacated and remanded. Deere gets a win,
but the case isn't over.


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