United States District Court, D. New Jersey
Rockwell Automation, Inc. Plaintiffs,
Radwell International, Inc., Defendants.
B. KUGLER UNITED STATES DISTRICT COURT JUDGE
the Court in this action concerning, among other things,
trademark infringement is a motion [“the motion”]
(ECF Doc. 331) of defendant Radwell International, Inc.
[“Radwell”] against plaintiff Rockwell Automation
[“Rockwell”] under Federal Rule of Civil
Procedure [“Fed. R. Civ. Proc.” or
“Rule”] 56(a) for partial summary judgment on
Counts I, III,and V of plaintiff's second amended
complaint [“the complaint”] (ECF Doc. 140). The
motion is based on the argument in ECF Doc. 331-1 that recent
United States Supreme Court authority ends the judge-made
“material difference” theory of trademark
infringement and therefore these Counts fail.
COURT HAVING REVIEWED the parties' submissions
without a hearing as endorsed by Rule 78.1 (b), and for the
reasons below, and for good cause shown, The Court
DENIES the motion for partial summary judgment as to
Counts I, III, and V of the complaint. An appropriate Order
accompanies this Opinion.
Background and Procedure
parties already aware of the lengthy procedural history in
this action, what follows is an abridged version of that
history which focuses on information relevant to the motion.
Plaintiff Rockwell classifies itself as the world's
largest firm that makes and sells a large number of products
for various uses in industrial automation systems. Complaint,
ECF Doc. 140: ¶5. Safety and reliability of these
products and their parts are of paramount importance not only
to customers, but to Rockwell as a manufacturer to minimize
quality problems and/or products liability claims. All of
Rockwell's products bear one or more of its U.S.
registered trademarks,  which Rockwell asserts are source
identifiers to its U.S. customers of its strict warranty,
quality control measures, and customer support for each
product sold in the U.S. Id.: ¶23-29. To
preserve its warranty and quality control, Rockwell sells its
trademarked goods only through a contract-delimited supply
chain of authorized distributors. Id.: ¶24. To
become Rockwell-authorized, a distributor must obligate
itself via an executed agreement with Rockwell NOT to sell
Rockwell goods to “non-value-added resellers”.
Id.: ¶28. Specifically, Rockwell has created a
closed and exclusive supply chain of its trademarked goods by
obligating a vertical supply network of authorized
distributors to sell Rockwell trademarked goods ONLY to those
customers who will NOT re-sell the goods on the gray market.
Id. Thus, only authorized distributors may sell
Rockwell's goods to only those purchasers who must forego
re-sale in unauthorized markets.
July 2015, Rockwell initiated this action against defendant
Radwell. On 16 February 2016, it filed a first amended
complaint and on 28 March 2017 a second amended complaint,
which is the complaint that controls here. The complaint has
the following claims relevant to the motion: trademark
infringement under 15 U.S.C. §1114 (Count I), false
designation of origin under 15 U.S.C. § 1125(a)(1)(A)
(Count III), and statutory unfair competition under N.J.
Stat. Ann. §56:4-1 et seq. (Count V). It
alleges Radwell has been selling in the United States certain
products bearing Rockwell trademarks but which are
unauthorized and unlawful gray goods. Complaint, ECF Doc.
140: ¶¶185-196. The complaint further alleges
Radwell is not an authorized dealer of Rockwell goods in the
U.S. Consequently, those goods Radwell has sold in the U.S.
[“Radwell gray goods”] have been imported and/or
sold in the U.S. without Rockwell's warranty, quality
control and customer support and are therefore materially
different from Rockwell U.S. goods. As unauthorized gray
goods bearing Rockwell's trademarks, Radwell goods appear
identical to Rockwell U.S. goods. However, Radwell gray goods
lack the quality control, safety, warranty, and other quality
benefits, which Rockwell alleges make Radwell goods inferior.
Id. at ¶¶147-150. The complaint alleges
the Radwell gray goods confuse the public as to their source
and quality and thereby infringe Rockwell's trademarks
and are consequently unlawful. Id. at 196-273.
also alleges that it sells only to authorized dealers or in a
very limited way directly to customers. Id. at least
at ¶158. Further, Rockwell claims, in order to get
around the barrier that Radwell was not an authorized U.S.
distributor of Rockwell goods, Radwell committed fraud by
creating a purchasing network of third party agents that
bought Rockwell goods from Rockwell authorized distributors
and sold them to Radwell. Id. at ¶¶151 -
174; ¶¶188-191. Thus, it is Rockwell's
contention that its authorized distributors, intending to
meet their contractual obligations to Rockwell, nonetheless
sold goods they did not know were intended for Radwell's
ultimate purchase. Id. at ¶¶129 and 161.
Radwell in turn re-sold the goods in the U.S. without
authorization from Rockwell.
alleges Radwell has deceived its authorized distributors to
breach their distributorship agreements and/or received
unauthorized Rockwell Products from unauthorized sources
(Id. at ¶¶ 113-119, 205-206). Rockwell
further alleges Radwell was only able to re-sell these
products through a deceptive marketing scheme, largely
through an internet site that advertises the products as
“Radwell verified substitutes” for authorized
Rockwell products. Id. at ¶¶123-127.
September 2017, Rockwell petitioned the International Trade
Commission [“ITC”] to institute an investigation
of several respondents including Radwell pursuant to 19
U.S.C. §1337 [“the investigation” or
“§337 investigation”], In the ITC
petition, Rockwell alleged the same claims as in the
complaint. On 10 October 2017, the ITC instituted an
investigation into Rockwell claims. On 21 November 2017, in
response to Radwell's motion to stay the litigation, this
Court ordered discovery in this matter stayed, pending the
final resolution of the related ITC proceedings. ECF Doc.
July 2018, Radwell voluntarily entered into a consent order
stipulation with the ITC by which it agreed it would stop
selling, importing, and selling for import any goods bearing
Rockwell marks. On 20 July 2018, the ITC Administrative Law
Judge [“ALJ”] issued an initial determination,
which formally approved Radwell's consent stipulation,
and which constituted an ITC consent order and formally
terminated the investigation as to Radwell. On 15 August
2018, the ITC Commission in full accepted Radwell's
consent stipulation; the ITC consent order became effective;
and the stay of discovery (ECF Doc. 278:2) in this matter was
March 2019, Radwell filed this summary judgement motion (ECF
Doc. 331); the opposition (ECF Doc. 350) and reply papers
(ECF Doc. 369) were timely filed.
Radwell's foremost argument is that, after the Supreme
Court's ruling in Lexmark,  intellectual
property [“IP”] rights have been held exhausted
upon the first sale of the items covered by those rights,
whether domestic or international, unless there is an express
statutory exception to the contrary. Further, Radwell argues,
since the first sale doctrine applies to goods and services
covered by registered trademarks and as the Lanham Act lacks
an express exception to the first sale doctrine, the IP
rights in the Rockwell goods sold in commerce inside or
outside of the U.S. were necessarily exhausted under
Lexmark upon Radwell's purchase of
Rockwell-marked goods. Moreover, lacking an express statutory
exception to the first-sale doctrine, the Lanham Act can
provide Rockwell no statutory basis to sue Radwell for
trademark infringement and the ancillary counts depending on
that infringement. ECF Doc. 369: 2.
argument relies on what it regards as the necessary inference
of Lexmark: that the judge-made exception of
“material differences” between the marked item
sold or authorized by the mark owner and the gray good sold
by a downstream marketer, even if unauthorized, is now
without legal support. In other words, Radwell contends
Lexmark abolished the doctrine that the sale of gray
goods, even if “materially different” from the
goods authorized for sale in the U.S., necessarily creates
consumer confusion as to the source of those goods. It
further contends that another Supreme Court case,
Kirtsaeng,  involving the domestic and international
exhaustion of copyrighted gray goods supports this
“material differences” doctrine, which is
judge-made law, has been an exception to the doctrine that
the first sale of a good covered by IP exhausts the IP owner
rights in the good. And it is this doctrine that Rockwell has
relied on to base its trademark infringement and ancillary
claims. Radwell asserts that, since Lexmark,
Rockwell cannot argue that its goods, sold in its approved
marketing chain and bearing certain warranties of quality and
safety, are “materially different” from the same
Radwell goods, which lacked those warranties.
argues Lexmark did away with “the material
differences” doctrine by asserting the first sale
doctrine trumps every sale unless there is a statutory
exception. Therefore, the quality and safety assurances of
Rockwell to its U.S. purchasers cannot, without a statutory
exception in the Lanham Act, create a “materially
different” good than a Radwell gray good, which lacks
those warranties. ECF Doc. 369:8. Radwell argues, regardless
of who sold the Rockwell marked good in the U.S. and
regardless of whatever assurances were or not attached to
that good, the Rockwell's rights in those goods were
exhausted whenever or wherever first sold, with or without
the mark owner's authorization. Ultimately, Radwell
argues Lexmark held an absolute exhaustion of IP
rights after first sale applies, unless there is a statutory,
not a judge-made, exception, which Radwell notes the Lanham
avers the Radwell gray goods were not authorized first sales
that exhausted Rockwell's IP rights in the goods. This is
because of Radwell's fraud. Radwell lied to authorized
dealers in order to buy these goods and then sold them
without the warranties of quality, safety, and customer
service that Rockwell required of its authorized
distributors. ECF Doc. 350: 1 and ECF Doc.
350-1:2. Rockwell therefore asserts the Radwell
gray goods were not and could never be authorized sales of
Rockwell goods but were instead “materially
different” in their quality, safety, and replacement
warranties, which Rockwell effected only for authorized goods
sold in the U.S. Put simply, having been bought outside of
the U.S. for re-sale within the U.S., Radwell gray goods
lacked Rockwell warranties. Nonetheless, the ultimate U.S.
purchaser would very likely not know the Radwell gray goods
lacked the Rockwell warranties, which would create consumer
confusion as to the source of the goods, especially when it
came time for the U.S. purchaser to request Rockwell's
compliance with a warranty and was refused. ECF Doc. 350: 1.
Rockwell argues the Radwell gray goods were “materially
different” from authorized U.S. goods in that being
sold without Rockwell authorization in the U.S., they lacked
the warranties of authorized U.S. goods. Because of these
material differences, the Radwell gray goods cannot invoke
the first sale doctrine, no matter how many times they were
sold and re-sold in the United States. The “material
differences” exception to the first sale doctrine for
marked gray goods is set forth in long-standing judge-made
law, impelled by the inevitable consumer confusion roused
when gray goods materially differ from U.S. authorized goods.
Ultimately, such consumer confusion is the hallmark of
trademark infringement. Id. at 8-9.
also contends Radwell is precluded under the doctrines of
res judicata, collateral estoppel, and law of the
case from asserting the defense that the first sale doctrine
bars Rockwell's trademark infringement claim. Rockwell
states Radwell has already raised and lost on this defense
twice before. Id. at 6.
Summary Judgment Generally
judgment is appropriate “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with affidavits, if any, show that there is no genuine issue
as to any material fact and that the moving party is entitled
to judgment as a matter of law.” Fed. R. Civ.
P. 56(c). An issue is “genuine” if the
evidence is such that a reasonable jury could return a
verdict for the non-moving party. Anderson v. Liberty
Lobby, Inc.,477 ...