Trademark Case — Protecting a reputation

May 3, 2002
The National Law Journal, April 22, 2002, by Gary Young

The 9th U.S. Circuit Court of Appeals has issued a ruling that may extend the power manufacturers have to protect their trademark and prevent confusion about it when a product is refurbished.

The decision involves a trademark infringement suit by the American distributor of German-made endoscopes against a company that refurbished the instruments on behalf of the hospitals that used and owned them. Karl Storz Endoscopy-America Inc. v. Surgical Technologies Inc., No. 00-55147.

A unanimous three-judge panel ruled that Surgical Technologies may have violated the Lanham Act by returning the shaft-like devices -- used to perform minimally invasive diagnoses and surgery -- to the owners without any indication that they had been altered.

In an opinion by Judge Ronald M. Whyte, the 9th Circuit reversed the trial court. "If the reconstructed product still bearing the original manufacturer's trademark is so altered as to be a different product from that of the original manufacturer, the repair transaction involves a 'use in commerce.' " The court added that the hospitals' knowledge of the refurbished instruments' lineage was not the final word, because confusion further down the line could be "no less injurious to the trademark owner's reputation." Storz was entitled to a trial on that point, the court said, because it presented evidence that the surgeons who actually used the instruments were often unaware that the instruments had been through a complete makeover and blamed Storz for their poor quality.

Mark R. Kravitz of New Haven, Conn.'s Wiggin & Dana handled the appeal for Storz. He said that a key piece of evidence was a 1996 letter that Surgi-Tech distributed to its dealers and employees explaining why Surgi-Tech, which had once etched its name onto refurbished endoscopes, was ending that practice. Surgi-Tech found that it was being blamed for shoddy repair work on instruments that had actually been refurbished a second time by other companies that did not label their work.

Surgi-Tech's attorney, Dale Britton of San Diego's Klinedinst, Fliehman & McKillop, said that he was surprised by the court's ruling because Storz produced no evidence that Surgi-Tech had done the refurbishing of the endoscopes about which Storz received complaints or that Storz had lost any sales because of substandard repairs.

Britton warns that the decision could give car makers, for instance, a license to restrict the activities of independent repair companies.