486 U.S. 281, 108 S. Ct. 1811, 100 L. Ed. 2d 313 (1988)
Gray-market goods consist of foreign-manufactured products bearing valid United States trademarks that enter the domestic market without the consent of the United States trademark holder.1 Three primary contexts produced such imports.2 A domestic firm might purchase trademark rights from an independent foreign manufacturer.3 A domestic firm might register a trademark for goods manufactured by an affiliated foreign entity.4 A domestic trademark holder might authorize an independent foreign manufacturer to use the mark abroad while restricting importation into the United States.5
Congress addressed parallel importation in 1922.6 It enacted section 526 of the Tariff Act of 1922 in response to a Court of Appeals decision that declined to enjoin such imports.7 The provision was later reenacted as section 526 of the 1930 Tariff Act.8 That statute generally prohibits importation of foreign-manufactured merchandise bearing a United States trademark without the owner's written consent.9
The Customs Service implemented the statute through regulations for over fifty years.10 Those regulations included exceptions from the general prohibition.11 The regulation at 19 CFR § 133.21(c) (1987) created a common-control exception.12 It allowed imports when the foreign and domestic trademarks were owned by the same entity or subject to common ownership or control.13 The regulation also created an authorized-use exception.14 It permitted imports when the foreign manufacturer applied the mark under authorization from the United States owner.15
In February 1984 the Coalition to Preserve the Integrity of American Trademarks and two member companies filed suit.16 Respondents brought suit in Federal District Court in February 1984 seeking a declaration that the Customs Service regulation is invalid and an injunction against its enforcement.17 The plaintiffs sought a declaration that the common-control and authorized-use exceptions were invalid.18 They also sought an injunction against enforcement.19 K Mart Corporation and 47th Street Photo intervened as defendants.20
The District Court upheld the regulation in 1984.21 The Court of Appeals for the District of Columbia Circuit reversed in 1986.22 It held the regulation inconsistent with the statute.23 The Supreme Court granted certiorari to resolve a conflict among the circuits.24 It affirmed jurisdiction in an earlier opinion and set the cases for reargument on the merits before issuing its decision in 1988.25
Whether the Customs Service regulation's common-control exception is a permissible construction of section 526 of the Tariff Act of 1930?26
Section 526 of the Tariff Act of 1930 is ambiguous with respect to the phrases 'owned by' and 'merchandise of foreign manufacture' when applied to affiliated entities in cases 2a, 2b, and 2c.27
Yes. The common-control exception in 19 CFR § 133.21(c)(1)-(2) is a permissible construction of section 526 of the Tariff Act of 1930.28 Three primary contexts produced such imports. Congress responded in 1922 by enacting section 526.29
That statute prohibits importation of foreign-manufactured merchandise bearing a United States trademark without the owner's consent.30 The Customs Service enforced the statute through regulations for over fifty years.31 Those regulations carved out a common-control exception allowing imports when the foreign and domestic trademarks are owned by the same entity or subject to common ownership or control.32 Respondents brought suit in Federal District Court in February 1984 seeking a declaration that the Customs Service regulation is invalid and an injunction against its enforcement.
The District Court upheld the regulation.33 The Court of Appeals reversed in 1986.34 The Supreme Court granted certiorari.35 It held the exception permissible in 1988.36
The statutory language does not clearly indicate which entity owns the trademark in a parent-subsidiary relationship.37 The language also leaves unclear whether goods manufactured by a foreign subsidiary of a domestic firm are of foreign manufacture.38 The agency's longstanding interpretation aligns with the protectionist purpose of section 526.39 It does not extend protection to affiliated entities that can control parallel imports through corporate channels.40
The common-control exception constitutes a permissible construction of section 526 of the Tariff Act of 1930.41
Related opinions on this issue
Joined by Justices Marshall And Stevens, And Justice White As To Part Iv
Justice Brennan concurred in the judgment that the common-control exception is consistent with section 526.42 He reached that conclusion through an analysis that differed from Justice Kennedy's.43 Brennan emphasized the protectionist flavor of the statute.44
Its structure bespeaks an intent to protect only domestic interests.45 The language of section 526 can reasonably be read to avoid an anomaly that would allow a foreign manufacturer to bypass the statutory barriers by incorporating a shell domestic subsidiary.46 Section 526 defines neither 'owned by' nor 'of foreign manufacture.
' Both phrases admit of considerable ambiguity when applied to affiliates of foreign manufacturers.47 Brennan also examined the purpose and legislative history of section 526.48 He concluded that if Congress had any intent as to the application of section 526 to affiliates of foreign manufacturers, it was that they ought not enjoy the provision's protection.49
The conclusion that the common-control exception is consistent with section 526 is further buttressed by the deference owed to an agency interpretation that represents a longstanding agency position.50
Joined by The Chief Justice, Justice Blackmun, And Justice O'connor
Justice Scalia dissented from the upholding of the common-control exception.51 He asserted that subsections (c)(1) and (c)(2) of the regulation conflict with the clear language of section 526(a).52 The requirement that the trademark be owned by a United States citizen or corporation is unambiguous with respect to cases 2b and 2c.53
A parent corporation may or may not be said to own the assets owned by its subsidiary.54 No matter how that ambiguity is resolved, it is impossible to conclude that a trademark owned by a United States corporation and applied abroad either by the corporation or its foreign subsidiary is owned by anyone other than a United States corporation.55 Scalia rejected the majority's suggested interpretation of 'of foreign manufacture' as meaning manufactured by a foreigner rather than manufactured in a foreign country.56
That reading is unusual and inconceivable because it would undermine even the core of the statute by eliminating protection for some trademark holders in case 1.
Joined by Justice White As To Part Ii-b
Justice Kennedy dissented from Justice Scalia's view on the common-control exception.57 He disagreed with Justice Scalia's reasons for declining to recognize this ambiguity.58 The threshold question in ascertaining the correct interpretation of a statute is whether the language of the statute is clear or arguably ambiguous.59
The purported gloss any party gives to the statute is in the first instance irrelevant.60 Kennedy noted that agency regulations may give varying interpretations of the same phrase when that phrase appears in different statutes and different statutory contexts. He believed the regulation's treatment of situations 2b and 2c could be sustained without adopting the majority's novel reading of the phrase of foreign manufacture.
Whether the Customs Service regulation's authorized-use exception is a permissible construction of section 526 of the Tariff Act of 1930?61
Section 526 of the Tariff Act of 1930 unambiguously prohibits importation in the authorized-use context because the domestic trademark holder still owns the trademark and the goods are of foreign manufacture.62
No. The authorized-use exception in 19 CFR § 133.21(c)(3) is not a permissible construction of section 526 of the Tariff Act of 1930.63 The statute unambiguously covers goods made in a foreign country by an independent foreign manufacturer under authorization from the United States trademark holder.64 Under no reasonable construction of the statutory language can such goods be removed from the purview of the statute.65 The ambiguous statutory phrases that sustain the common-control exception are irrelevant to the proscription contained in subsection (3) of the regulation.66
The design of the regulation is such that the subsection dealing with authorized use is severable.67 Its invalidation will not impair the function of the statute as a whole.68 There is no indication that the regulation would not have been passed but for its inclusion.69 The Supreme Court therefore affirmed the Court of Appeals in part and reversed in part.70
It held that the authorized-use exception conflicts with the unequivocal language of the statute.71
The authorized-use exception is not a permissible construction of section 526 of the Tariff Act of 1930.72
Related opinions on this issue
Joined by Justices Marshall And Stevens, And Justice White As To Part Iv
Justice Brennan dissented from the Court's judgment that the authorized-use exception is inconsistent with section 526.73 He argued that the application of section 526 to the authorized-use context is ambiguous.74 The prevailing understanding of trademark ownership at the time of enactment differed from modern views.75
When section 526 was before Congress, the prevailing law held that a trademark's sole purpose was to identify for consumers the product's physical source or origin.76 Any attempt by a trademark holder to authorize a third party to use its trademark worked an abandonment of the trademark.77 Not until the 1930s did a trend develop approving of trademark licensing on the theory that a trademark might also serve the function of identifying product quality.78
Brennan concluded that Congress did not address case 3 any more clearly than it addressed case 2.79 Treasury's decision to exclude case 3 from section 526's prohibition is entitled to deference because the equities in case 3 differ significantly from the equities that motivated Congress to protect the prototypical gray-market victim.80
Joined by The Chief Justice, Justice Blackmun, And Justice O'connor
Justice Scalia concurred in the conclusion that the authorized-use exception is not a permissible construction of section 526(a).81 He joined Parts I, II-A, and II-C of the Court's opinion.82 Scalia agreed that section 526(a) unambiguously embraces the situation in which a domestic trademark owner authorizes a foreign firm to use its United States trademark abroad.83
In that situation the United States trademark is unambiguously owned by a United States firm.84 It is registered by a firm domiciled in the United States.85 The goods sought to be imported are of foreign manufacture.86
Scalia rejected Justice Brennan's approach as an improper method of statutory construction.87 A 19th-century statute criminalizing the theft of goods is not ambiguous in its application to the theft of microwave ovens simply because the legislators enacting it were unlikely to have contemplated those appliances.88 Scalia would hold invalid subsection (c)(3) of the regulation.89
Joined by Justice White As To Part Ii-b
Justice Kennedy joined the holding that subsection (c)(3) of the regulation cannot stand.90 He disagreed with Justice Scalia's reasons for declining to recognize ambiguity in the phrase of foreign manufacture.91 The threshold question in ascertaining the correct interpretation of a statute is whether the language of the statute is clear or arguably ambiguous.
The purported gloss any party gives to the statute is in the first instance irrelevant. Kennedy also stated that the regulation speaks to the hypothetical situation posed by Scalia because it allows a company justifiably invoking the protection of the statute to bar the importation of goods of foreign or domestic manufacture.92