Medical Device Link.

Originally Published MX July/August 2002

GOVERNMENTAL & LEGAL AFFAIRS

Refurbishers, Beware

Joel D. Covelman

Refurbishers of equipment who use non-factory-original aftermarket parts can be subject to suits for trademark infringement under certain circumstances. All kinds of goods, from watches and computers to industrial machinery and medical equipment, are refurbished and rebuilt by shops not affiliated with the products' original manufacturers.

If the independent repairers replace too many parts with aftermarket substitutes, or make significant modifications to the original products, they could be found to be selling different products, not merely repaired originals. Continued use of the manufacturer's trademark on such refurbished goods could draw a lawsuit for trademark infringement from the manufacturer.

The scope of FDA control of medical product rebuilding and refurbishment is unclear, providing little guidance to either original manufacturers or end-users. During the past decade, FDA has considered revising its compliance policy guide in this area, revised its good manufacturing practices requirements, and posted a rule-making notice—but no regulation has resulted. Thus, both manufacturers and repairers alike must be guided by the law of trademarks (see sidebar).^1–3

As a general proposition of law, a repair, even if accomplished with aftermarket parts, is not a violation of the original manufacturer's trademark rights. The United States Supreme Court held, in the landmark case, that the sale, under the original manufacturer's trademark, of remanufactured or refurbished spark plugs by third parties did not violate federal trademark law so long as the goods were clearly labeled as refurbished or used.⁴ But when the so-called repair is so extensive that it constitutes a materially different product from the one originally manufactured, it may be misleading to the public to leave only the original manufacturer's trademarks on the item to identify its source. A recent case involving refurbished medical endoscopes makes this very point.

A Question of Source

In a case originally filed in 1998 in the District Court for the Southern District of California as Karl Storz Endoscopy–America Inc. v. Surgical Technologies Inc., Storz claimed that Surgical Technologies was infringing the Storz trademark by completely rebuilding endoscopes originally manufactured by Storz, but with aftermarket parts neither made nor approved by Storz.⁵ The refurbished endoscopes continued to display the Storz trademark on a piece of the housing that was not replaced in the remanufacturing process. In addition to trademark infringement under the federal Lanham Act, Storz alleged that the defendants had infringed the trade dress appearance of its endoscopes, and had engaged in unfair competition and unfair business practices under both California state law and federal law.

The essence of trademark infringement is the creation, by the infringer, of likely confusion in the minds of the public as to who makes or sells particular goods. Storz argued that Surgical Technologies was misidentifying Storz as the source of remanufactured endoscopes by keeping the Storz original product labeling on the refurbished goods.

Surgical Technologies argued to the trial court that there was no likelihood of confusion among medical professionals as to the true source of the rebuilt endoscopes, because the used scopes were supplied to Surgical Technologies by their owners, who knew full well what Surgical Technologies was doing. This argument persuaded the trial court, which dismissed the case, but not the United States Court of Appeals for the Ninth Circuit, which reinstated the lawsuit by reversing the earlier granting of summary judgment to the defendants.⁶

While the court of appeals recognized that the hospitals and outpatient surgery centers that had their endoscopes rebuilt might know that Surgical Technologies had done the work, it pointed out that the surgeons who used the rebuilt units might assume they were using Storz originals. If the rebuilt scopes failed to function as well as the Storz originals, surgeons might mistakenly blame Storz, and then pressure hospitals to buy new endoscopes from manufacturers other than Storz.

Intellectual-property lawyers call this kind of misapprehension "postsale confusion" as to the source of goods, because it happens after the goods are first sold. Even though Storz made the initial sale, the potential for injury to its reputation, or to the power of its trademark to identify only its genuine goods, is enough to constitute a trademark infringement. It would have done no good for Surgical Technologies to argue that Storz lost nothing, because Storz could still have obtained an injunction to prohibit misleading use of its trademark, money from the defendant to pay for corrective advertising, and compensation for any damage to its reputation it could show, as well as, if there was willful infringement of the Storz trademark, the ill-gotten profits of Surgical Technologies.

The court of appeals also pointed out that Surgical Technologies received endoscopes to rebuild from intermediaries; therefore, it might not be known to the owners of the scopes who was doing the refurbishing work. Under these circumstances, owners of the endoscopes might be misled by the Storz markings into believing that Storz, or a repairer affiliated with Storz, had done the work.

A Question of Trade

Federal law requires a showing that the infringing use of another's trademark occurred in connection with interstate commerce. This fact prompted Surgical Technologies to argue that it had not used the Storz trademark in any commercial sense. But this argument was also rejected by the court of appeals.

That court responded that repairs made for the end-user's benefit would not violate trademark rights, as a general proposition. But when a refurbishment is so extensive as to become the production of a materially different product from the original, then use of the original manufacturer's trademarks by the refurbisher may be seen as an attempt to commercially trade off of the good name and reputation of the original product, which is a violation of trademark rights. The court of appeals referred to an earlier decision in which an independent refurbisher of Rolex watches was prevented from selling the watches under the Rolex name, because they had been substantially changed through the use of aftermarket replacement parts.

Perhaps the most compelling piece of evidence in the Storz case was an internal Surgical Technologies' memorandum admitting that when it had labeled its refurbished endoscopes with its own trademark (in addition to leaving the original Storz mark in place), its competitors attacked the quality of its work. To avoid this, Surgical Technologies decided to omit its own markings in the hope that its products would be perceived as Storz originals and so not be maligned. This evidence of intent to confuse, along with the other circumstances of the case, was enough to prompt the court of appeals to send the case back to the lower court for trial.

Conclusion

There is no way to know with absolute certainty when a repair has become so extensive as to be the creation of a materially different product from the original. Likewise, there is no way to know with absolute certainty when the sale of a remanufactured item under its original trademark is an impermissible use in commerce of those original trademarks. The best that can be said is that remanufactured goods employing aftermarket parts, and that are not approved by the original manufacturer or that contain significant modifications from the original, should be so labeled. It may be prudent to remove the original manufacturer's name and other trademarks from the remanufactured item, or at least also to affix the repairer's name or trademark, in order to avoid postsale consumer confusion as to the source of the item.

Original equipment manufacturers that tightly control the availability of authorized repair services and parts (consistent with antitrust laws and other laws regulating fair competition) and that promote the use of branded repair parts may find trademark law to be a strong weapon in controlling sales of their products in the used-goods market. This may be of particular interest to manufacturers that see the provision of repair services as a way to boost profits or to maintain customer goodwill. It may also be of benefit to manufacturers that wish to encourage the purchase of new models rather than the repair of older units.

References

1. Reconditioners/Rebuilders of Medical Devices, Compliance Policy Guide 7124.28 (Rockville, MD: FDA, 1987) [rescinded, January 4, 1999].

2. "Medical Devices; Current Good Manufacturing Practice (CGMP) Final Rule; Quality System Regulation," Federal Register, 61 FR:52602–52662, October 7, 1996.

3. 62 FR:67011, December 23, 1997.

4. Champion Spark Plug Co. v. Sanders, 331 US 125, 130 (1947).

5. Karl Storz Endoscopy–America Inc. v. Surgical Technologies Inc., District Court for the Southern District of California, 98-CV0626.

6. 285 F3d 848 (9th Cir 2002), 62 USPQ2d 1273, 2 Cal Daily Op Serv 2937, 2002 Daily Journal DAR 3597.

Joel D. Covelman, JD, is Of Counsel to the law firm of Levin & Hawes LLP (Laguna Beach, CA), which limits its practice to intellectual property, patent, trademark, copyright, trade dress, and related litigation, both domestic and international.

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