Company that completely refurbished products but maintained original manufacturer's trademarks violated Lanham Act

Law Reporter, Oct 2002

Karl Storz Endoscopy-America, Inc. v. Surgical Tech, Inc., 285 RM 848 (9th Cir. 2002).

The Ninth Circuit Court of Appeals held that a company that replaced a product's parts then used the original manufacturer's trademark on the product violated the Lanham Act, 15 U.S.C. secs1051 et seq.

Here, Storz manufactured and sold endoscopes. Surgical Technologies repaired and rebuilt endoscopes, then returned them to the owners with the original manufacturer's name still on the products. The replacement parts used in rebuilt endoscopes were bought from different manufacturers. Storz sued Surgical Technologies under the Lanham Act, alleging, among other claims, trademark infringement. The trial court granted, in part, defendant's motion for summary judgment, holding that the repair and refurbishment of endoscopes is not necessarily an unlaw-- ful use in commerce under the Lanham Act and that plaintiff failed to demonstrate a likelihood of confusion.

Reversing, the Ninth Circuit noted that Lanham Act claims require a plaintiff to show a defendant used plaintiff's trademark in commerce and that the use was likely to confuse customers as to the product's source.

Addressing the "use in commerce" element, the court noted that a mark is used in commerce when (1) it has been placed on the products and (2) the products are sold or transported in commerce. The court agreed with plaintiff that, because defendant, in some cases, replaced every essential part of an endoscope and then simply attached the scope to the original base bearing plaintiffs trademark, this transaction was equivalent to a sale. If a reconstructed product still bearing the original manufacturer's trademark is so altered as to be a different product from that of the original, the repair transaction constitutes a use in commerce because the repair company is trading on the goodwill of the trademark holder, the court explained.

In this case, defendant sometimes discarded every important part of an endoscope, rebuilt the product, and attached it to a base bearing plaintiff's trademark. Consequently, downstream consumers-the doctors who ultimately used the scopes-were potentially deceived about the scope's origin. Thus, where defendant reconstructed a different product associated with plaintiff's trademark, there was a use in commerce, the court concluded.

Likelihood of confusion, the court said, exists where consumers are likely to assume a mark is associated with another source because of similarities between two marks. The court found that, although surgeons at hospitals are not the purchasers of endoscopes, they are the people who ultimately handle the scopes. Plaintiff submitted evidence of actual confusion on the part of surgeons as to whether malfunctioning endoscopes were original Storz scopes or had been repaired or rebuilt by another company. It is also undisputed that defendant repaired and rebuilt Storz scopes without placing its own mark on the scopes. Thus, likelihood of confusion has been established.

Accordingly, the court remanded the case for further proceedings.

Plaintiff's Counsel

Mark R. Kravitz, New Haven, Conn.