Addressing the issue of whether an importer of non-organic mushrooms from a Japanese producer infringed a trademark owned by the U.S. subsidiary of the Japanese producer, the U.S. Court of Appeals for the Ninth Circuit upheld summary judgment in favor of the U.S. subsidiary because the imported non-organic mushrooms were materially different from the U.S. grown organic mushrooms, but bore the same mark and was thus likely to cause consumer confusion.  Hokto Kinoko Co. and Hokuto Co., Ltd. v. Concord Farms, Inc., Case No. 11-56461 (9th Cir., Dec. 24, 2013) (Wardlaw, J.)

Hokto USA, a wholly owned subsidiary of Hokuto Japan, cultivates U.S. certified organic mushrooms in its state-of-the-art U.S. facility.  Before the facility was completed in 2009, Hokto USA imported mushrooms from Hokuto Japan which grew and packaged its mushrooms to suit U.S. consumer preferences and in growing conditions that met U.S. Certified Organic Standards (COS).  The defendants’, Concord Farms imports nonorganic mushrooms from Hokuto Japan that do not satisfy the COS.

Hokto USA sued Concord Farms for trademark infringement after discovering Hokuto Japan’s Japanese-made non-organic mushrooms mixed in with Hokto USA’s U.S.-made organic mushrooms displayed side-by-side in a grocery store under a sign that said “organic” and “made in the USA.”  The district court granted summary judgment and issued a permanent injunction in Hokto USA’s favor.  Concord Farm appealed.

Concord Farms’ imported Hokuto Japan mushrooms were “gray-market goods” because they were legitimately produced abroad under a valid U.S. trademark.  A “gray-market good” infringes a trademark if there is a likelihood of consumer confusion unless the imported goods were “genuine.”  The 9th Circuit found that Concord Farms imported Hokuto Japan mushrooms that were not “genuine” Hokto USA mushrooms because of material differences in quality control, language and packaging.  For example, Hokto USA mushrooms were organic, produced and packaged under controlled conditions for an American market (e.g., in English). Indeed, when it imported organic mushrooms from Hokuto Japan (before its U.S. facility was operational), Hokuto Japan used conditions that met U.S. Certified Organic Standards.  Concord Farms, on the other hand, imported Hokuto Japan mushrooms produced for Japanese consumption (e.g.,in Japanese) and made under conditions that did not meet U.S. Certified Organic Standards. 

After finding the Concord Farms’ mushrooms were not “genuine” Hokto USA mushrooms, the 9th Circuit analyzed infringement under the traditional Sleekcraft factors.  Despite no evidence of actual confusion, the 9th Circuit found the importation of Hokuto Japan mushrooms was likely to confuse consumers into thinking they were Hokto USA mushrooms, noting that the marks were identical and strong, the two products are related, sold in similar marketing channels and in direct competition, and that mushrooms were a low-cost good commanding less scrutiny from consumers. 

Finally, because Hokuto Japan and Hokto USA had a “close working relationship” to control the quality of the mushrooms distributed by the latter, the 9th Circuit was not persuaded by the argument that Hokuto Japan had issued Hokto USA a “naked license” that lacked an explicit mechanism for quality control.

Practice Note:  Simply because a producer makes quality goods for one distributor does not mean it will do so for another.