U.S. District Judge Robert Kugler/photo by Carmen Natale

A federal judge in Camden has denied a motion for partial summary judgment in Rockwell Automation's trademark infringement suit against a gray-market reseller of the company's industrial automation products.

Radwell International moved to dismiss Rockwell's trademark claims based on a 2017 U.S. Supreme Court ruling, Impression Products v. Lexmark International. But U.S. District Judge Robert Kugler denied the motion to dismiss, rejecting Radwell's theory about the Lexmark case's impact on the sale of goods through unofficial channels.

Rockwell's suit targets the sale of its products by Radwell, claiming that the sale of those products without Rockwell's warranty, quality control and customer support is confusing to the public and thereby infringes on its trademarks. Rockwell sells its products only through a chain of authorized distributors who agree not to sell those items to nonvalue-added resellers.

Radwell, based in Willingboro, argues that the Lexmark decision held that Rockwell's intellectual property rights were exhausted on the first sale of the goods in question. Radwell further contended that Lexmark abolished the doctrine that the sale of gray goods, even if materially different from goods authorized for sale in the U.S., necessarily creates confusion as to the source of those goods. And Radwell also claimed that a 2013 U.S. Supreme Court case, Kirtsaeng v. John Wiley & Sons, which involves the sale of copyrighted gray goods, supports its interpretation.

Kugler said the U.S. Court of Appeals for the Third Circuit has not decided whether the Supreme Court's holdings in Lexmark and Kirtsaeng did away with the material differences doctrine for trademarks. But he cited a 1998 case, Iberia Foods v. Romeo, which he said was "the Third Circuit's defining case on the exception to the first sale doctrine" because of "material differences" of unauthorized gray goods.

In Iberia Foods, the U.S. distributor of a cleaning product called Mistolin brought suit against a seller of a gray market version of the product that was purchased in Puerto Rico and distributed in the U.S. The District Court granted summary judgment to the gray market distributor, finding that its products were not genuine, because they never passed through Iberia's quality controls. The Third Circuit reversed, finding the gray market products did not materially differ from Iberia's.

Kugler said such quality control procedures may create subtle differences that are difficult to measure. The test for whether such procedures create material differences is whether those differences create consumer confusion about the product's origin that could injure the trademark owner's goodwill.

Kugler also cited a September 2019 case from the Eastern District of New York, Abbott Laboratories v. Adelphia Supply USA, which held that the Lexmark case did not disrupt the material differences doctrine. In Abbott, a maker of glucose strips used by diabetics to monitor their blood sugar brought suit against a company that bought lower-priced versions of those strips overseas and resold them in the U.S.

The Abbott court said it was "not persuaded that the principles enunciated in Kirtsaeng and Lexmark disturb this Circuit's law on trademark infringement with respect to gray goods."

"Because of the thorough-going reviews of the 'material differences' exception to the first sale doctrine in Iberia and Abbott and given that neither Lexmark nor Kirtsaeng raised or had reason to even consider the 'material exception' doctrine as applied to trademarks, this Court relies on Third Circuit reasoning in Iberia and on the relevant considerations in Abbott for the continued relevance and applicability of the 'material differences' doctrine to the motion here," Kugler wrote.

Radwell asked for the court to declare a "death knell" to the material differences doctrine, which would be "a new, unprecedented application of the first sale doctrine for gray goods covered by trademarks," Kugler said. But "this court confirms with the Abbott court that the 'material differences' jurisprudence was not disturbed by Lexmark or Kirtsaeng," Kugler said.

Peter Shapiro of Lewis, Brisbois, Bisgaard & Smith in New York, representing Radwell, did not return a reporter's call about the ruling. Jenny Kramer of Alston & Bird in New York, representing Rockwell, also did not return a call.