IBT Class 11 Problem 6.

4 Oct 6
I. The Setting:
* Sunrise is a Japanese multinational corporation which produced bicycles and exported Europe
and North America. However, the rising value of Yen hurts its price competitiveness. Local
manufactures increased their market shares. Sunrise is considering that production in the United
States and France should be an alternative strategy.
Class Notes: SUNRISE wants to move part of plant into free trade areas in order to get low tariff
and keep the core value in Japan.
Now NAFTA is a "free trade area" and European Union is a "custom union."
Question:
1. What is the difference between free trade area and customs union? Which one is preferable to
Sunrise?
2. Tariffs for components? Can Sunrise take advantage of NAFTA and EU as regional markets?
3. Safety of the bicycles (product recall or product ban??)
1. Difference between custom union and free trade agreement.
(1) GATT Art. XXIV 8(a)-- Custom Union:
* Restrictions should be eliminated;
* For nonmembers, same duties and same regulations. (Surrender sovereignty to trade with
nonmembers.)
* Move freely in the EU.
(2) GATT Art. XXIV 8(b)-- Free Trade Agreement:
* NO same tariff included; NO common border;
* can each have its own duty to nonmember country;
* Trades among the members may be duty free;
* CANNOT move freely inside the countries of the area.
THUS, an important question needs to be answered: what goods is originated in the area??
[rules of origin are different in each FTA countries.]
2. NAFTA Rules of Origin (Preferential Trade) [vs. "MFN standard:" Last Substantial
Transformation]
** For non-special goods
(i) Tariff-shift Rule: section 401 (b): non-originating materials must undergo an applicable
change. (like flour to bread)
(ii) Value-Content Rule: transaction-value method and net-cost method.
Problem 6.4: EU is more transparent because of the same standard. FTA rules of origins
have more barriers.

IBT Class 15 Oct 20

I. Facts: Sales of ROCKERS have declined in the U.S. There are three causes:
(1) Pirate products produced without license;
"pirate" means use without authorization; theft/stolen products

(2) unauthorized sharing of the ROCKERS music on the internet;

(3) import competition from European subsidiaries, like K-Market, Inc.. [grey market goods]
obtained from wholesalers from European subsidiaries who got license from DACCA.
II. Governing law: TRIPs and the WIPO Copyright Treaty.
** Issue: grey market goods (goods lawfully bearing patents, trademarks, or copyrights which
originate abroad and which compete without permission in domestic markets.)
III. Analysis
Part A. Counterfeit Goods
1. Counterfeiting and Theft of Tangible Intellectual Property: Challenges and Solutions (page
805)
* Global Counterfeiting: economic loss; threat to consumers, health and safety.
* Recommendation (page 807)
2. "Anti-Piracy" (page 807)
* Optical Disc Piracy
* Internet Piracy (4 categories)
* U.S. counterfeiting remedies: criminal penalties; civil actions (TRO, injunction...)
3. A.T. Cross Company v. Sunil Trading Corp. (page 812)
** Facts: Defendant ordered bogus pens from a Taiwan Corp and the pens were shipped to New
York's free trade zone in order to export and sale to Metro. Defendant's sale was effected by the
use of letter of credit, by providing certificates that the pen were actually products of United
States. The plaintiff sued defendant alleging trademark infringement.
* The issue in this case is whether in creating the foreign trade zone, it was intended to exclude
the jurisdictional reach of the Lanham Act from the zone.
* The court said no. Court said Custom officials have power (substantial authority) to regulate
the operation of the zone.
* And the Commerce Clause extends into the foreign trade zone, and the jurisdictional reach of
the Lanham Act is coextensive.
* There is not an express repudiation of federal jurisdiction. Thus Lanham Act applies.
4. Anti-Circumvention (page 815)- deals with widespread access to the Internet.
* It is difficult to provide intellectual property protection to digital works, like the problem who
have jurisdiction over internet piracy.
* WIPO
* Digital rights management tools: encryption, virtual containers, and watermarks. (page 816)
* Article 11 of WIPO Copyright Treaty
* DMCA
5. Universal City Studios, Inc. v. Shawn C. Reimerdes (page 818)
* Facts: defendant developed a device, DeCss, which is able to circumvent the CSS protection
system used by plaintiff to protect the copyright of the film. And defendant posted the device on
the internet, and made the films available through the world. Plaintiff sued under DMCA to
enjoin defendant's action.

** Governing law: DMCA section 1201(a)(2)

* The court used disease metaphor to illustrate the problem, distinguishing from the book
infringement to digital infringement.
Part B. Grey Market Goods
1. Weicher, K Mart Corp. v. Cartier, Inc.: A Black Decision for the Grey Market (page 823)
** Grey Market Goods: products manufactured with a genuine trademark that an independent
importer purchases in an authorized foreign market and resells in the United States, without the
express consent of the trademark owner.
* Black Market: deals with counterfeit and stolen goods. Grey market is legal.
* Grey market importers charged little because they can take advantage of fluctuating exchange
rates.
* U.S. government permits grey markets goods when foreign trademark owners and U.S.
trademark owners are same or affiliated. Only independent foreign manufacturers are prohibited.
** parallel importation.
** Pros and Cons of grey market goods (page 826)
2. K Mart Corp. v. Cartier, Inc. (page 827)
** Issue: whether the permitting the importation of certain grey market goods is a reasonable
interpretation of section 526 of the Tariff Act of 1930.
* It deals with three situations where the grey market arises:
(1) The grey market victim is a domestic firm that purchases from an independent foreign firm
the right to register and use the latter's trademark as a U.S. trademark and sell its foreignmanufactured products here. [If foreign manufacture could import the trademark goods and
distribute them in U.S.]
(2) A domestic firm registers the U.S. trademark for goods that are manufactured abroad by an
affiliated manufacture. [variations on page 827 bottom]
(3) The domestic holder of a U.S. trademark authorizes an independent foreign manufacture an
exclusive right to use the trademark in a particular foreign location, but conditions the right on
the foreign manufacturer's promise not to import its trademarked goods into U.S.
*** Congress then implement section 526 with two exceptions: "common control" exception and
"authorized use" exception. (page 828-29)
3. Lever Bros. Co. v. United States (page 830)
* Lever and its British affiliate both produce a kind of soap with different design and different
packaging.
* Lever asserted the importation of the British products in the United States was in violation of
section 42 of the Lanham Act.
* U.S. Custom claimed that any importation of goods manufactured by an affiliate of a U.S.
trademark owner cannot copy or simulate a registered mark because those goods are ipso facto
genuine.
* The court held that "affiliation exception" does not apply here:
(1) There is a false premise that foreign trademarks applied to foreign goods are "genuine"
in the United States. Trademarks applied to physically different foreign goods are not
genuine from the viewpoint of the American consumer.
(2) Even though legislative history is silence on the issue of materially different goods, it

does not imply authorization. Lanham Act has a counter provision addressing this issue.
Thus, the application of Custom's affiliate exception was precluded by Lanham Act.
** The Lanham Act bars the importation of physically different foreign goods bearing a
trademark identical to a valid U.S. trademark, regardless of the trademark's genuine
character abroad or affiliation between the producing firms.
4. Quality King Distributors, Inc. v. L'anza Research International, Inc. (page 833)
* L'anza sells hair products and copyrighted the labels that are affixed to those products.
* Once it arranged the sale of three shipments to a distributor in Malta with the price 35% to
40% lower than it charged to domestic distributors.
* Later, it found the goods were sold in California by unauthorized retailers who purchased from
Quality King, who bought all shipments from Malta distributors, imported them, and resold
them to domestic retailers.
** Issue: whether the right granted by section 602 [the copyright owner has the right to prohibit
the unauthorized importation of copies] is limited by section 109 "first sale doctrine."
* The court said yes. After the first sale of a copyrighted item lawfully made under this title,
any subsequent purchaser is obviously an owner of that item. Such an owner is entitled
without the authority of the copyright owner to sell that item.
** The limited right under section 602 does not encompass resales by lawful owners.
5. Parallel Importation of Trademarked Goods (page 836)
** Parallel Importation: the importation of genuine goods by someone other than the designated
exclusive importer.
** Factors considered in determining whether the parallel importation was illegal. (page 837
middle)+ function of trademarks and anticompetitive effects of barring parallel importation.
** Parallel importation is allowed where the foreign and domestic trademarks are owned by
parent -subsidiary company. Personal use is also allowed.