A Japanese manufacturer of computer chips, NEC Corporation (NEC-Japan), assigned its United States trademark rights to its California subsidiary, NEC Electronics (NEC-USA). Defendant, CAL Circuit Abco (Abco), engages in "parallel importation" of NEC-Japan's chips: it buys them abroad at the lower prices there prevalent, and then imports and sells them here. NEC-USA sued for trademark infringement under the Lanham Act. On pre-trial motions, the district court held for plaintiff and enjoined defendant from selling any more of the foreign-purchased chips. We denied defendant's emergency motion for a stay, but we granted expedited appeal and now reverse.

NEC-Japan is one of the world's largest manufacturers of computer chips, reporting sales of nearly $2 billion dollars in 1985. NEC-USA is a wholly-owned subsidiary whose control remains primarily vested in the parent; NEC-Japan directors constitute a majority of NEC-USA's board of directors. NEC-USA manufactures some computer chips at its own facilities in the United States, but imports ninety percent of the NEC chips it sells from the parent company.

In 1983, NEC-Japan, owner of the trademark "NEC" in this country and elsewhere, assigned all rights to the mark in the United States to NEC-USA, and duly registered this assignment with the federal Patent and Trademark Office. NEC-Japan continues to market its computer chips outside the United States, evidently at prices substantially lower than those charged here by NEC-USA. Defendant Abco buys these so-called "grey market" chips from a foreign source, imports them, and sells them here in direct competition with NEC-USA. The parties have stipulated that Abco's chips are genuine NEC products.

NEC-USA sued Abco for trademark infringement under sections 32 and 43 of Lanham Act, 15 U.S.C. Secs. 1114, 1125.^[1] NEC-USA alleges that Abco's use of the "NEC" trademark confuses consumers who believe that Abco's sales are authorized by or connected to NEC-USA. The evidence indicates, and the district court found, that some purchasers from Abco mistakenly thought their chips were protected by NEC-USA's servicing and warranties. Based on consumer confusion of this sort, the court granted NEC-USA's motions for partial summary judgment and for a preliminary injunction. Abco appeals both orders.

The district court certified its grant of partial summary judgment for immediate appeal, and we accepted jurisdiction under 28 U.S.C. Sec. 1292(b). We have jurisdiction to review the issuance of a preliminary injunction under 28 U.S.C. Sec. 1292(a)(1).

Our review of summary judgments is de novo. Our review of preliminary injunctions is more deferential: we will uphold the order unless the lower court applied incorrect law, relied on clearly erroneous factual findings, or otherwise abused its discretion. United States v. Akers, 785 F.2d 814, 817-18 (9th Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 107, 93 L.Ed.2d 56 (1986).

Section 32 of the Lanham Act provides the registered owner of a trademark with an action against anyone who without his consent uses a "reproduction, counterfeit, copy, or colorable imitation" of the mark in such a way as "is likely to cause confusion, or to cause mistake, or to deceive."^[2] Similarly, section 43(a) provides for civil liability if goods are marketed bearing "a false designation of origin."^[3] The issue before us is whether a United States subsidiary that sells certain goods in this country can sue under these provisions if another company, such as Abco, buys the parent's identical goods abroad and then sells them here using the parent's true mark. We think not.

Trademark law generally does not reach the sale of genuine goods bearing a true mark even though such sale is without the mark owner's consent. See Monte Carlo Shirt, Inc. v. Daewoo Int'l (Am.) Corp., 707 F.2d 1054, 1057-58 & n. 3 (9th Cir.1983); Diamond Supply Co. v. Prudential Paper Prods. Co., 589 F.Supp. 470, 475 (S.D.N.Y.1984). Once a trademark owner sells his product, the buyer ordinarily may resell the product under the original mark without incurring any trademark law liability. See Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69, 44 S.Ct. 350, 351, 68 L.Ed. 731 (1924). The reason is that trademark law is designed to prevent sellers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing a true mark is sold. See Prestonettes, 264 U.S. at 368-69, 44 S.Ct. at 351; Monte Carlo 707 F.2d at 1058. These principles, without more, would control this case were it not for the Supreme Court's decision in A. Bourjois & Co. v. Katzel, 260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923).

Katzel involved cosmetics that, like NEC computer chips, were manufactured overseas, purchased abroad, and sold here under the manufacturer's trademark without the consent of a United States company which had obtained the American trademark rights and which also imported the goods into this country. The Second Circuit had held, following prior case law, that plaintiff had no claim for trademark infringement because the goods were genuine. See 275 F. 539, 540 (2d Cir.1921). The Supreme Court reversed. NEC-USA argues that Katzel controls our decision here.

We disagree. Parsing Justice Holmes's characteristically laconic opinion, we discern two rationales for the holding in Katzel. First, the American company that acquired the mark had made an arm's-length contract with the manufacturer--it had paid "a large sum" for the trademarks and the goodwill associated with them, 260 U.S. at 690, 43 S.Ct. at 245--which was clearly intended to prohibit the manufacturer from selling its goods directly in this country. "After the sale the French manufacturers could not have come to the United States and have used their old marks in competition with the plaintiff." Id. at 691, 43 S.Ct. at 245. The Court was not prepared to permit the manufacturer to "evade" this restriction by selling to middlemen abroad for sale in the United States, thus to deprive the American mark owner of the entire benefit of its bargain. Id. at 691-92, 43 S.Ct. at 245.

Second, because the manufacturer had forgone all its rights to its trademark in this country, the American owner of that mark now had complete control over and responsibility for the quality of goods sold under that mark. See id. at 692, 43 S.Ct. at 245. Plaintiff American owner might have chosen to sell a different product under the assigned mark; the foreign producer might have begun selling an inferior product abroad. With respect to sales in this country, plaintiff had become the true source of the trademarked goods, and the value of plaintiff's trademark could have been entirely destroyed by the importation of foreign-purchased goods whose quality and contents were beyond its control. It was thus "not accurate" to say that a parallel importer's use of the mark would "truly indicate[ ] the origin of the goods." Id.

Both these rationales presuppose the American owner's real independence from the foreign manufacturer, and courts interpreting Katzel have repeatedly emphasized this factor. The Supreme Court itself has characterized Katzel as a case in which the defendant distributor sought to market goods "of one make under the trade mark of another." Champion Spark Plug Co. v. Sanders, 331 U.S. 125, 128, 67 S.Ct. 1136, 1138, 91 L.Ed. 1386 (1947). This court has noted that Katzel "did not involve the plaintiff's 'genuine' goods but rather goods produced by the owner of plaintiff's trademark in a foreign country," and that in Katzel "the plaintiff could [have] suffer[ed] from inability to control the quality of the foreign producer's goods." Monte Carlo, 707 F.2d at 1057 n. 3.

Finally, the Second Circuit, in a recent grey-marketeering case where the American mark holder was (like NEC-USA) a subsidiary of the foreign manufacturer, noted that the plaintiff in Katzel was "an independent domestic trademark owner [which had] purchased the U.S. trademark rights," and limited Katzel to its "special facts." Olympus Corp. v. United States, 792 F.2d 315, 321-22 (2d Cir.), petition for cert. filed, 55 U.S.L.W. 3372 (U.S. Nov. 6, 1986) (No. 86-757). That is, the Olympus court concluded that section 42 of the Lanham Act, 15 U.S.C. Sec. 1124, barring importation of goods that "copy or simulate" a trademark, did not apply to genuine goods except in cases presenting the same "equities" as Katzel. Id. We think this conclusion correct for sections 32 and 43 of the Lanham Act as well. Where the American trademark owner is a wholly-owned and controlled subsidiary of the foreign manufacturer, neither of the Katzel rationales applies.

Under these circumstances, NEC-Japan would not be "evading" any terms of its trademark assignment to NEC-USA by selling its computer chips to American distributors abroad. NEC-USA is not losing any benefits for which it bargained and which it might have legitimately expected NEC-Japan not to circumvent. In fact, NEC-Japan may at any time begin marketing its products here on its own, simply by causing NEC-USA to consent to such marketing or to return the trademark rights to the parent. Moreover, because NEC-Japan and NEC-USA are commonly controlled, there is no danger to the latter in being unable to control the quality of the former's products. In this situation, we cannot say that Abco is selling goods "of one make under the trade mark of another." See Champion Spark Plug, 331 U.S. at 128, 67 S.Ct. at 1138. Nor is it inaccurate to say that the mark "NEC" on Abco's products truly designates the chips as having been manufactured under the control of NEC-Japan, even if the mark has become associated here with NEC-USA. If, as NEC-USA alleges, Abco sales agents mislead their buyers about the availability of NEC-USA servicing, then Abco may be liable in contract or tort, but not in trademark.^[4]

If NEC-Japan chooses to sell abroad at lower prices than those it could obtain for the identical product here, that is its business. In doing so, however, it cannot look to United States trademark law to insulate the American market or to vitiate the effects of international trade. This country's trademark law does not offer NEC-Japan a vehicle for establishing a worldwide discriminatory pricing scheme simply through the expedient of setting up an American subsidiary with nominal title to its mark.

The grant of partial summary judgment is REVERSED, the preliminary injunction VACATED, and the case REMANDED for further proceedings on the remaining claims.