Hokto Kinoko Co. v. Concord Farms, Inc.

In a gray-market goods case, non-organic produce and certified organic produce sold under the same trademark are considered to be materially different from one another when the methods of production and labeling differ.

Hokuto Co., Ltd. (“Hokuto”) is a Japanese corporation that sells a variety of products, including mostly non-organic mushrooms. Hokto Kinoko Co. (“Kinoko”) is a wholly owned subsidiary of Hokuto that produces mushrooms in California and sells certified organic mushrooms in the United States. Hokuto obtained trademark registrations for several marks (“Hokuto Marks”) in both the United States and in Japan. Hokuto then assigned its American trademarks to Kinoko. In 2009, an employee of Kinoko discovered the Japanese grown non-organic mushrooms containing Hokuto Marks mixed in a grocery store display with Kinoko’s organically grown mushrooms. After investigating, Kinoko discovered that Concord Farms (“Concord”), a United States corporation, had been buying Hokuto’s non-organic mushrooms wholesale and selling them in the United States since 2003. Kinoko sued Concord for trademark infringement and won a permanent injunction that prohibited Concord from selling the Japanese mushrooms in the United States. Under de novo review of the district court’s decision, the Ninth Circuit held that because of the considerable differences between the state-of-art mushroom factory in California and the Japanese mushroom factory along with the differences in packaging, the imports were “non-genuine” goods. Next, the panel held that consumers were likely to be confused by the imported goods. The panel disagreed with Concord’s claim that Hokuto’s trademark was cancelled by fraud because Concord failed to put forward any evidence of fraudulent intent. Finally, the panel held that Concord’s claim that Hokuto had abandoned its trademark by failing to establish formal quality control procedures over Kinoko was inaccurate because Hokuto reasonably relied on Kinoko given the two companies’ close working relationship. AFFIRMED.