Ocean Garden Products (“OGP”) was awarded a preliminary injunction preventing Marktrade, Inc. and Alberto Soler (collectively, “Marktrade”) from imitating, copying, or making unauthorized use of OGP’s trademarks or trade dress. Mark-trade appeals the preliminary injunction. We affirm.
I
OGP markets canned fish and seafood products including Mexican abalone under the “Calmex” brand name. Marktrade markets similar products under the brand names “Sardimex” and “Seamex,” and distributes “Rey Del Mar” canned abalone for export to the Far East. Marktrade uses trade dress similar to OGP’s “Wheel Brand” abalone.
On May 14, 1990, OGP filed a complaint for federal and common law trademark infringement, unfair competition, unfair business practice, dilution, injunctive relief, interference with prospective economic advantage, interference with contract, unjust enrichment, and declaratory relief. On November 14, 1990, OGP filed a motion for a preliminary injunction which was granted in part on December 17,1990. The preliminary injunction enjoined Marktrade from “imitating, copying or making any unauthorized use” of OGP’s trademarks including (1) “Calmex”; (2) “Wheel Brand Ship’s Wheel superimposed over a map of Baja California”; (3) “Wheel Brand Ship’s Wheel superimposed over Chinese characters”; and (4) “any use of the Ship’s Wheel in combination with the use of the color pink, as the background label color along with the color blue as an accent color at the top or bottom of ‘Rey Del Mar’ abalone cans.”
On January 27, 1991, Marktrade appealed the preliminary injunction.
II
A district court’s decision to grant a motion for a preliminary injunction will be upheld unless the court “applied incorrect law, relied on clearly erroneous factual findings, or otherwise abused its discretion.”
NEC Electronics v. Calif. Circuit Abco,
III
Marktrade argues that the district court lacked jurisdiction because the canned abalone OGP complains of “is exclusively harvested, processed, and canned in Mexico by the Cooperatives, which is a Mexican association of Mexican abalone fisherman.” This abalone is sold exclusively in the Far East. OGP contends there is jurisdiction on two grounds. First, OGP alleges that Marktrade’s trademark and trade dress infringement affects United States foreign commerce. Marktrade orchestrates and manages its business from the United States and both OGP and Marktrade are California corporations. Secondly, it claims there is jurisdiction because the goods pass through a United States foreign trade zone in Los Angeles.
In the instant case, we find both extraterritorial jurisdiction, and jurisdiction resulting from shipment through a United States foreign trade zone.
*503 A
The purpose of the Lanham Act is to “regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce ... to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce by the use of reproductions, copies, counterfeits, or colorable imitations of registered marks.” 15 U.S.C. § 1127 (1988). In the instant case, OGP registered its trademark with the U.S. Patent and Trademark Office and was thus protected from infringement under the Lanham Act.
In interpreting the jurisdictional scope of the Lanham Act, the Supreme Court has stated that the Lanham Act provides a “broad jurisdictional grant” that extends to “all commerce which may lawfully be regulated by Congress.”
Steele v. Bulova Watch Co.,
“[T]he Lanham Act’s coverage of foreign activities may be analyzed under the test for extraterritorial application of the federal anti-trust laws set forth in
Timberlane Lumber Co. v. Bank of America National Trust & Savings Ass’n.,
With respect to the first criterion, OGP argues that it is losing millions of dollars in revenues through trademark infringement. We find that “the sales of infringing goods in a foreign country may have a sufficient effect on commerce to invoke Lanham Act jurisdiction.”
Van Doren Rubber Co. v. Mamatech Enterprises, Inc.,
As for the second criterion, OGP claims that Marktrade dilutes OGP’s trademark in the United States. This is not at all clear from the facts of this case. The injury would seem to be limited to the deception of consumers in the Far East. However, both OGP and Marktrade are U.S. corporations, and there is monetary injury in the United States to OGP, which is cognizable under the Lanham Act. 15 U.S.C. §§ 1116, 1117 (1988).
OGP’s claim is also very strong with respect to the third criterion. The third
Timberlane
factor is divided into seven components — these weigh heavily in granting extraterritorial jurisdiction in this case.
See Star-Kist
Absent a determination by the [foreign] court that [the defendant] has a legal right to use the marks, and that those marks do not infringe [the plaintiff's] mark, we are unable to conclude that it would be an affront to [the foreign country’s] sovereignty or law if we affirm the district court’s injunction prohibiting the *504 defendant from injuring the plaintiffs [foreign] commerce conducted from the United States.
American Rice,
We find that we can exercise extraterritorial jurisdiction in this case. As in one lower court case, “[e]ven though no [counterfeit items] entered the United States, the defendants ... were residents of California, [were] subject to the state’s jurisdiction[,] and orchestrated their ... counterfeiting activities from California.”
Van Doren Rubber,
B
We also find that the court has jurisdiction without having to exercise extraterritorial jurisdiction because the infringing goods passed through a United States foreign trade zone. Foreign trade zones are areas within the United States where Congress “established Government-supervised bonded warehouses where imports are stored duty free for prescribed periods.”
Xerox Corp. v. County of Harris,
The scope of subject matter jurisdiction under the Lanham Act is quite broad. It makes actionable the deceptive use in “commerce which may be lawfully regulated by Congress,” marks that are protected by having been registered in the United States Patent and Trademark Office. 15 U.S.C. § 1127. The jurisdictional question this presents is whether Congress has the power to regulate commerce within United States foreign trade zones, or whether it has precluded the reach of the Lanham Act into such zones by withdrawing from them Congress’ relevant regulatory powers.
We hold that instead of withdrawing its power to regulate commerce in these zones, it is apparent that Congress has retained that authority, and delegated *505 its use to a board consisting of the Secretary of Commerce, the Secretary of the Treasury, and the Secretary of the Army. 19 U.S.C. § 81a. Section 81c of the same act states that “[F]oreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs law of the United States ... be brought into [such zones].” 19 U.S.C. § 81c (emphasis added).
A careful analysis of the Code of Federal Regulations on foreign trade zones and trademarks demonstrates why we find infringing goods in these zones are not precluded from the customs law. The Code distinguishes between prohibited and conditionally admissible merchandise. 19 C.F.R. § 146.31 (1991). The regulations state that “[district directors shall not admit prohibited merchandise,” id., which is defined as “merchandise the importation of which is prohibited by law on grounds of public policy or morals, or any merchandise which is excluded from a zone by order of the Board. Books urging treason or insurrection against the U.S., obscene pictures, and lottery tickets are examples of prohibited merchandise.” 19 C.F.R. § 146.1(b)(13). Customs regulations state that “[a]rticles of foreign or domestic manufacture bearing a mark or name copying or simulating a recorded trademark or trade name shall be denied entry and are subject to forfeiture as prohibited importations.” 19 C.F.R. § 133.21(a) (1991). It is reasonable to infer that merchandise that infringes trademarks under section 133.21(a) would be another example of prohibited merchandise under section 146.31.
Thus, Congress has and does exercise the power to regulate commerce — including “merchandise that infringes trademarks”— inside foreign trade zones. Given this fact, entry of infringing goods into a foreign trade zone is a sufficient act in commerce to trigger subject matter jurisdiction in federal courts under the Lanham Act, which, by definition, can only be brought to vindicate marks that enjoy protection in the United States by virtue of proper registration. 1
In pronouncing this rule, we agree with
A.T. Cross
which held that “since the Commerce Clause extends into the foreign trade zone, and the jurisdictional reach of the Lanham Act is coextensive therewith ... the jurisdictional parameters of the Lanham Act reach within the foreign trade zone.”
A.T. Cross,
Our rule does not create plenary federal court jurisdiction over every item that touches a foreign trade zone. Take, for example, a Swiss company selling French goods in Hong Kong, with a trademark not protected in the United States. Should it turn out that the French goods are infringing on an English company’s mark, the fact that the goods stopped in a United States foreign trade zone would be insufficient to establish jurisdiction in a suit brought in our courts by the English company against the Swiss company. The United States has no interest in such a case.
If the above cause of action were based, however, on a mark protected by the Lanham Act, then jurisdiction in our federal courts would attach. Section 44 of the Lanham Act allows a foreign national to *506 register a mark even though the mark has never been used in U.S. commerce. 15 U.S.C. § 1126 (1988). It is necessary, however, for the foreign registrant to use the mark in U.S. commerce within a reasonable time or it is deemed abandoned. Thomas J. McCarthy, Trademarks and Unfair Competition, § 19.23 at 924 (2d ed. 1984). Moreover,
if such a foreign registrant does not use the registered mark in United States trade within a reasonable time, the registration is subject to cancellation for abandonment. Under the Lanham Act, non-use for two consecutive years is prima facie evidence of abandonment and is an evidentiary basis for the required use within a “reasonable time” after registration by a foreign resident.
Id. at 924 (citing 15 U.S.C. § 1127 (“Abandonment”)). Even if there is no abandonment challenge, it is necessary to file a section 8 affidavit — showing that a mark has been used in commerce during the fifth year of U.S. registration — before the end of the sixth year. 15 U.S.C. § 1058(a) (1988). Without filing this affidavit, the U.S. registration is automatically cancelled. Given the requirement of a U.S. use for all registered trademarks, a Lanham Act claim, even involving foreign parties, will involve U.S. interests. If the goods that violate the Lanham Act are also shipped through a U.S. foreign trade zone, that is a sufficient act in commerce for subject matter jurisdiction. Therefore, jurisdiction was proper in the district court in the present case.
IV
In granting the preliminary injunction, the district court did not abuse its discretion if OGP demonstrated either “(1) a combination of probable success on the merits
and
the possibility of irreparable injury if relief is not granted or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor.”
First Brands Corp. v. Fred Meyer, Inc.,
A
OGP must prove probable success on the claim that there is a likelihood of confusion as to the source or origin of the goods caused by the similarity of the marks.
Eclipse Assoc. Ltd. v. Data General Corp.,
(1)
Strength of Trademark: “A
strong mark is inherently distinctive, for example, an arbitrary or fanciful mark; it will be afforded the widest ambit of protection from infringing uses.”
Sleekcraft,
(2) Similarity in appearance, sound, and meaning: A comparison between the two labels shows the two labels to be practically identical. The colors are identical, the ship wheels imposed over a map of Baja California are identical. Moreover, given the possibility of intentional infringement, see discussion infra pp. 507-508, it is not surprising that the two labels are so similar.
(3) Class of goods in question: Both products are canned abalone.
(4) Marketing channels: The parties agree that the marketing channels are the same for each product.
(5) Evidence of consumer confusion: Four declarations submitted by OGP — from agents and brokers of OGP in Taiwan and Hong Kong, as well as from an officer for OGP — indicate that many Asian customers who do not speak English purchase on trademark appearance alone. Moreover, there is evidence in the record that OGP’s distributors have been contacted by consumers and buyers to ask if Marktrade’s products were associated with OGP.
Marktrade, in response, submitted a declaration from an employee of a Taiwan trading company that deals with Marktrade products. She claims that due to the amount of counterfeit Calmex abalone on the market, and the high retail price of one can, “consumers have developed skills and knowledge to proper [sic] identify the product including the ‘can code’ of each can they buy at any store.” Marktrade also claims that the confusion that OGP discusses is too speculative. However, as OGP persuasively points out, “[t]he defendant’s suggestion that consumers inspect each can with a magnifying glass and read its ‘can code’ before making a purchase strains their credibility. This is akin to suggesting that American consumers read the computer bar code of each product before they make a purchase in the grocery store.”
(6)
Marktrade’s intent:
This is the most damning element against Marktrade. There is an abundance of evidence that suggests intentional infringement. Indeed, “intent of a defendant in adopting his trade dress is a critical factor, since if the trade dress were adopted with the intent of depriving benefit from the reputation of the plaintiff, that fact alone may be sufficient to justify the inference that there is confusing similarity.”
First Brands,
According to John Filóse, an officer at OGP, the Rey Del Mar label was very distinguishable from OGP’s merchandise until April or May of 1989 — about the time Soler and Marktrade became involved with the Mexican Federation of Cooperatives, who are the packagers of the abalone. Moreover, there is some evidence that Marktrade was directly involved in counterfeiting OGP’s labels'. A representative of OGP discovered counterfeit Calmex labels that were traceable to Marktrade as the exporter of the cans from the United States.
Marktrade disputes this evidence and, in effect, blames the Mexican Federation of Cooperatives. Marktrade also claims that OGP knew of the counterfeiting and failed to do anything about it because it welcomed the greater name recognition.
However, there was other evidence of intentional infringement. In January, 1990, Soler and some associates from the packing plants met with an import/export business in Hong Kong. An officer of that company, H.F. Chu, submitted a declaration where he described a meeting he had with Soler where Soler laid out his plan for taking over the abalone market:
During the meeting, it was also stated in Mr. Soler’s presence that in 1990 they would pack the Rey Del Mar brand in a lithographic tin can which closely resembles the Calmex trade dress can; they would imprint on the top of the Rey Del Mar lithographic tin can OGP’s Ship’s Wheel trademark logos in red to copy OGP’s trademarks; that they would imprint a Ship’s Wheel identical to OGP’s trademark on the top of the lids, in the same location as OGP’s trademark Ship’s Wheel in order to exactly copy OGP’s *508 trade dress cans and trademark logos onto the Marktrade Rey Del Mar cans.
The appearance of Marktrade’s cans, with trade dress similar to OGP’s cans, corroborates the declaration. Clearly, there was substantial .evidence for the district court to find the possibility of bad faith.
Assuming that only some of the allegations are true, OGP has established probable success on the merits of this case. Given the above six factors, the balance of hardships tips sharply in OGP’s favor and it would have been an abuse of discretion for the district court not to grant the preliminary injunction.
Marktrade also argues that OGP cannot succeed on its trade dress infringement claim. OGP would have to show a likelihood of success on the claim that its trade dress is (1) nonfunctional, (2) has acquired a secondary meaning, and (3) is likely to be confused.
First Brands,
Marktrade first claims that the color pink is not protectable. This argument has no merit. OGP only wants to protect the color in combination with its Ship’s Wheel trademark. Marktrade also has not shown that the trade dress in the instant case is functional. “[A] product feature is functional if it is essential to the [product’s] use ... or if it affects the cost or quality of the article.” Id. at 1381. Unlike the shape of a bottle, which might be functional, the picture of a wheel is not functional. It does not affect the cost or quality of the abalone inside the can. The entire trade dress, taken as a whole — including color and shape of trademark — in the instant case, is nonfunctional.
Secondary meaning is established through depositions which discuss the association consumers have with the Wheel Brand trademark. Moreover, OGP has a likelihood of success on the claim that the copying of the Calmex trademark was intentional, and this supports an inference of secondary meaning.
Vision Sports, Inc. v. Melville Corp.,
Likelihood of confusion was discussed above. See supra pp. 506-508. On balance, the district court’s preliminary injunction, based on trademark or trade dress infringement, was not clearly erroneous.
Marktrade argues that laches should have prevented the preliminary injunction. This claim has no merit. While laches may bar injunctive relief,
Clamp Mfg. Co. v. Enco Mfg. Co., Inc.,
As discussed above, OGP’s trademark is strong. OGP first learned of Marktrade’s plan to produce similar labels after the meeting with Chu in January, 1990. There was no actual infringement until late spring or early summer of 1990 and OGP distributors only started to see the infringing cans on the market in the late summer or early fall of that year. The complaint was first filed on May 10, 1990. Clearly laches does not apply with respect to the filing date.
Marktrade, however, also complains that OGP waited over six months from the filing of its complaint to move for the preliminary injunction. Marktrade is unable to demonstrate that any harm resulted from the delay because much of the delay during this period was due to extensions requested by Marktrade. Moreover, these extensions were granted to allow for settlement negotiations. Laches does not bar relief.
Finally, Marktrade argues that the harm to it would be great, and that a preliminary injunction would “be in clear conflict with the competitive need of the canned seafood industry to have freedom to use the color *509 ‘pink.’ ” This argument has no merit, for the preliminary injunction does not prevent the use of pink on seafood cans. It merely prevents Marktrade from using “a Ship’s Wheel in combination with the use of the color pink as a background color.”
B
Marktrade claims that the district court failed to make the findings of fact required by Fed.R.Civ.P. 52(a). This argument has no merit. “Rule 52(a) has been amended to revise its penultimate sentence to provide explicitly that the district judge may make the findings of fact and conclusions of law required in nonjury cases orally.” Federal Civil Judicial Procedure and Rules 145 (Revised 1991 edition) (Notes of the Advisory Committee on 1988 Amendments). The district court’s tentative ruling stated that “[ajpplying the six-factor test articulated by
Century 21 Real Estate Corp. v. Sandlin,
Even if we were to find that the court’s statements were not sufficient to satisfy Rule 52(a), “[fjailure to comply with Rule 52(a) does not require reversal unless a full understanding of the question is not possible without the aid of separate findings.”
Vance v. American Hawaii Cruises, Inc.,
The Ninth Circuit has, since 1985, taken a finding of a likelihood of confusion to be a factual finding to be overturned only if clearly erroneous.
See Levi Strauss & Co. v. Blue Bell, Inc.,
C
Marktrade argues that the preliminary injunction is overbroad. It alleges that the injunction should not include the Calmex trademark. It claims that the wording of the injunction could prevent it from using the “Sardimex” and “Seamex” trademarks. Marktrade’s allegation is based on the following: (1) the hearing for the preliminary injunction included no ruling on whether “Sardimex” and “Seamex” were confusingly similar to OGP’s “Calmex”; (2) OGP did not raise this allegation as a basis for its motion for preliminary injunction; (3) OGP’s admission in its motion to dismiss that “OGP has not alleged that defendants’ ‘Sardimex’ and ‘Seamex’ trademarks literally infringe on OGP’s ‘Calmex’ trademarks.”
OGP’s reply is that “[t]he district court did not enjoin defendants from using the ‘Seamex’ and ‘Sardimex’ marks and defendants remain free to do so pending the outcome of the trial.” OGP’s reading of the order is correct. Marktrade is not restrained from using “Sardimex” or “Sea-mex” — in fact those names are not mentioned at all in the order for preliminary injunction. Marktrade is only restrained in this injunction from using “trade dress confusingly similar to plaintiff’s CALMEX ‘Wheel Brand’ abalone, including without limitation, any use of a Ship’s Wheel in combination with the use of the color pink as the background label color along with the color blue as an accent color at the top or bottom of ‘Rey Del Mar’ abalone cans.” There is, therefore, no merit to its argument. Marktrade is not restrained, in this injunction, from using “Sardimex” or “Sea-mex.”
Y
OGP requested attorney’s fees claiming that the appeal by Marktrade was frivolous *510 and interposed in bad faith. We would grant this award under Fed.R.App.P. 38 (“If a court of appeals shall determine that an appeal is frivolous, it may award just damages and single or double costs to the appellee”), or Fed.R.App.P. 46(c) (“A court of appeals may ... take any appropriate disciplinary action against any attorney who practices before it”).
In the instant case, the issue of jurisdiction in a foreign trade zone had not been decided by the Ninth Circuit. The appeal was, therefore, not frivolous.
VI
We find that the district court had jurisdiction to order the preliminary injunction. We find both that the court had extraterritorial jurisdiction and that the court had jurisdiction because the goods were shipped through a foreign trade zone. Moreover, the district court’s granting of the injunction and finding of a likelihood of confusion between the trademark and trade dress of OGP and Marktrade were not clearly erroneous. Finally, the claim that the preliminary injunction was overbroad is meritless.
AFFIRMED.
Notes
. Marktrade argues that under
Xerox,
. In fact, the Ninth Circuit has announced several tests. There is the six-factor test used in the instant case, a five-factor test,
see Rodeo Collection, Ltd.
v.
West Seventh,