Karl Storz Endoscopy-America, Inc. v. Surgical Technologies Inc. et al

April 4, 2002 Advisory

The Decision
On Thursday, April 4, 2002, the United States Court of Appeals for the Ninth Circuit issued an important decision in Karl Storz Endoscopy-America, Inc. v. Surgical Technologies Inc. et al., a case of first impression regarding the scope of the protections provided by U.S. trademark laws. Representing Karl Storz, a team of Wiggin & Dana lawyers led by Mark Kravitz and William Speranza won a significant victory that may enable many manufacturers to continue to safeguard their marks even where their products have undergone aftermarket services or repairs.

Factual Background
Storz is the exclusive U.S. distributor for its parent company, Karl Storz GmbH & Co., which manufactures rigid endoscopes for use in minimally-invasive surgical and diagnostic procedures. Storz sells its endoscopes primarily to hospitals, for use ultimately by surgeons, who know the "Karl Storz" name by reputation and through the prominent display of the company name on an endoscope's central block element. Because these instruments cost thousands of dollars apiece, hospitals generally seek to repair rather than discard damaged endoscopes. Surgical Technologies, Inc. ("Surgi-Tech") was one of many third-party service companies that performed such repairs. Surgi-Tech's services ranged from "complete rebuilds" that replaced all of an endoscope's parts, with the exception of the block element bearing the "Karl Storz" name, to "relensing" services that replaced an endoscope's functional lenses, to minor repairs. "Broker" companies such as Pacific Medical Repair ("Pacific") facilitate this repair market by soliciting repair orders from hospitals and other owners and managing the transmission of the instruments to and from service companies such as Surgi-Tech.

The case arose when Storz investigated surgeons' complaints about the quality and performance of its endoscopes, only to discover that the endoscopes in question were not original, but had been repaired or rebuilt by companies like Surgi-Tech – with no indication on the endoscope as to the fact of the repair. Storz brought a trademark infringement action in U.S. District Court against both Surgi-Tech and Pacific under the Lanham Act, 15 U.S.C. § 1051 et seq., which prohibits the "use in commerce" of a mark, like the "Karl Storz" name, where such use is likely to cause confusion. The District Court granted Surgi-Tech and Pacific summary judgment, holding that, because the owners of the endoscopes – the hospitals – were themselves soliciting the repairs, there was no likelihood of confusion regarding the fact that repaired or rebuilt endoscopes were no longer original Karl Storz endoscopes. The District Court also noted that repair services did not necessarily constitute a "use in commerce" of the Karl Storz trademark so as to warrant protection under the Lanham Act.

The Court's Reasoning
The Ninth Circuit reversed, reaffirming its past rulings that the Lanham Act is concerned with likelihood of confusion on the part of anyone, not just the actual purchasers of the product. "‘Post-sale' confusion," the Court noted, "may be no less injurious to the trademark owner's reputation than confusion on the part of the purchaser at the time of sale." In this case, even though surgeons do not generally own the endoscopes, they are the ultimate users of the instruments, and their impressions of endoscope quality can influence hospital purchasing decisions. Storz's evidence that surgeons actually were confused by rebuilt endoscopes thus presented a triable issue that the District Court could not resolve at summary judgment.

The Ninth Circuit also held that, to the extent that Surgi-Tech's repair services resulted in the construction of a different product bearing the Karl Storz name, Surgi-Tech had "used" the trademark "in commerce" within the meaning of the Lanham Act. Recognizing that property owners have a right to repair trademarked goods, the Court declined to identify a bright-line test for determining when third-party repairs constitute "uses in commerce." Instead, the Court held that the question must be resolved on the facts of each case, including "the nature and extent of the alterations, the nature of the device and how it is designed . . . , whether a market has developed for services and spare parts," and "whether end users of the product are likely to be misled as to the party responsible for the composition of the product."

As the first published decision on the issue of "use in commerce" as applied to repairs, this decision is good news for manufacturers. While the Court was careful to emphasize that not every form of repair constitutes a "use in commerce," it made clear that a trial court cannot simply dismiss out of hand a Lanham Act claim based on repair work but must consider whether such repairs transform the products in question in a manner likely to cause confusion. Wiggin & Dana anticipates that more litigation will follow to illuminate the application of those principles.

For more information please contact Mark Kravitz or Bill Speranza