Aggressive American merchants now have a green light to shop the world for bargains. The U.S. Court of International Trade (CIT) ruled Aug. 20 that, despite complaints by manufacturers that they are being hurt by a "gray market," they cannot use the customs laws to exclude cheaper foreign-made products that bear the same trademark as more expensive products sold in the United States. Involved is legitimate merchandise -- not counterfeits -- that the U.S.-trademark owners want confined to overseas markets.
The situation in the recent CIT case was typical. Vivitar Corp. spends a lot of money advertising its photographic equipment in the United States, maintaining a sophisticated distributor network, and backing it with generous warranties. The company also owns overseas subsidiaries that make similar products bearing the Vivitar trademark -- subsidiaries that provide less backup support for their output and sell it for considerably less. The license agreements with those overseas firms do not let them sell in the U.S. market, but some big retailers -- such as K Mart and New York's 47th Street Photo -- have been buying Vivitars abroad, shipping them here, and promoting them at prices well below those charged by stores that buy directly from Vivitar's U.S. operation.
Vivitar had thought that it could keep goods from its low-priced overseas subsidiary out of the country, because the customs law forbids the import of any foreign-made merchandise bearing a trademark owned by a U.S. corporation, unless that corporation okays the import in writing. There's no dispute over the clear fact that Vivitar has given no such consent.
But the Customs Service has never interpreted that provision, inserted in the customs code in 1972, to be as broad as the wording sounds. The U.S.-trademark owner can exclude foreign-made goods only if the overseas producer is a totally separate company, the trade regulators say; the ban doesn't apply if the U.S. firm and the offshore manufacturer are related entities.
Judge Jane A. Restani ruled that the Customs Service read the statute correctly, and that if Vivitar's and other companies' reputations are being unfairly exploited by the cheaper imports, they had better find some way to combat it outside the customs laws. The law protects a U.S. company that buys the rights to a trademark from a foreign firm from having to compete with that firm in the United States, she explained; it does not allow one arm of a corporate enterprise to keep out of the country goods made by another arm of the same business.
The ruling is not the last word in the increasingly heated debate over the gray market. A ruling in May by the U.S. District Court in Manhattan was much more critical of the Customs Service interpretation. The Vivitar decision probably will be appealed, and U.S. manufacturers are sure to carry to Congress their fight for the power to keep out trade-marked goods they never intended for U.S. buyers. But, since the Court of International Trade has primary jurisdiction over trade issues, the Vivitar decision meanwhile carries a lot of weight, and should lead to a lot more overseas bargain-hunting.
In other cases, courts ruled that:
It is not unlawful age discrimination to fashion a retirement bonus scheme that encourages workers to stop working at younger ages. The U.S. Court of Appeals in St. Louis okayed a school-district pension plan that gives an extra one-time $10,000 grant to teachers who retire at 55. The bonus is reduced so that it is $9,500 for those who quit at 56, and only $6,000 for those who stay on until age 61. Any "bona fide employe benefit plan" is exempt from the coverage of the Age Discrimination in Employment Act, and the judges decided that the bonus plan qualifies. (Patterson v. Independent School District, Aug. 29)
Many tax-exempt organizations are entitled to a tax break on the money they make selling ads in their publications. The Internal Revenue Service has been cracking down a lot harder on "unrelated income" of charitable groups, trying to tax the profits of operations that government auditors deem too remote from the purposes stated when the group was granted its tax exemption. A major gray area has been ad revenue from medical journals, and Treasury attempts to collect taxes on such income from The Annals of Internal Medicine, published by the American College of Physicians, shaped up as a key case. The U.S. Court of Claims, focusing on the commercial nature of advertising, sided with the IRS. But now the U.S. Court of Appeals for the Federal Circuit has overturned that ruling. The physician's organization exists primarily to educate its members and, the appellate judges found, ads in the Annals brought doctors important information about new developments. The college's case was helped by the fact that it refused all ads not related to the practice of internal medicine. (ACP v. U.S., Sept. 17)
A town can be held liable for accidents caused by drunk drivers allowed by the police to continue behind the wheel. In general, governments must pay damages for injuries that sharper police work could have prevented only when there is some special duty owed to the individual hurt by the negligence. But the Massachusetts Supreme Judical Court threw out those curbs and established a broader rule that lets accident victims sue when they are injured by a drunk driver who had been stopped by a police officer but not detained. When the threat is as obvious and immediate as the danger of an intoxicated driver, officials have a duty to remove the hazard, the justices ruled. The money impact of the decision is limited, however, because state law limits damages against cities to no more than $100,000. (Irwin v. Town of Ware, Aug. 15)
Auto makers can be forced to recall and repair cars that violate air pollution standards, even when the vehicles exceed what the Clean Air Act envisioned as their "useful life." The statute requires cars to meet emission standards only for 50,000 miles, but by the time the Environmental Protection Agency comes up with proof that a model is violating its regulations, many have been driven farther than that. A 1979 recall of 1975 Pontiacs, for instance, found that 54 percent had been driven more than 50,000 miles. EPA says that as long as the car was spewing out too much pollutant before it hit the 50,000-mile mark, it must be repaired free whenever a recall is undertaken -- even if by then it has many more miles on its odometer. General Motors, however, balked at that interpretation when applied to a recall of 1975 Cadillacs. The U.S. Court of Appeals here sided with the EPA. Applying a 10-week-old Supreme Court precedent, the judges voted 8 to 3 to uphold the agency. The majority reasoned that, since the Clean Air Act is meant to clean up the air, any interpretation that increases the number of polluting cars being repaired "makes good practical sense." (General Motors v. Ruckelshaus, Sept. 7)