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In the first decision on the subject, the 9th U.S. Circuit Court of Appeals has ruled that repair shops can violate trademark law when a substantially different product is returned — even if the owner is fully aware of the repairs. The case was won April 4 by Mark R. Kravitz, the top appellate talent at New Haven, Conn.’s Wiggin & Dana on behalf of Karl Storz Endoscopy-America. It reversed a trial court ruling that Storz had no case because the hospitals, as owners of the scopes, were fully aware of repairs they commissioned. But if doctors are confused as “consumers” of the rebuilt tools, the 9th Circuit ruled, that’s enough to create confusion “in commerce” in violation of the Lanham Act. For the past 50 years, the Karl Storz company has been known for superior optics in precision endoscopes. The tools consist of a long thin metal tube packed with lenses and optical fiber. They allow inspection of body cavities and large blood vessels without invasive surgery. The scopes cost thousands of dollars, and hospitals initially sent them back to the Storz company for repairs. BAD FOR GOOSE In 1984, a Florida company called Surgi-Tech became the first competitor repairing Storz scopes. Over time, more than 50 others joined the repair and rebuilding business. At first, Storz was puzzled when physicians complained about the quality of some endoscopes. After checking, it became clear they were poorly rebuilt versions. It was hard to tell who did the work. Initially, Surgi-Tech engraved its own logo on tools it repaired, but in May 1996, wrote its customers that it would stop doing so. Some competitors were bad-mouthing its work, Surgi-Tech explained in that letter. Perhaps unaware it was foreshadowing the complaint Storz would make, Surgi-Tech wrote that if subsequent repairers did shoddy anonymous work on a Surgi-Tech re-branded scope, it would be the only “visible culprit.” Thereafter, Surgi-Tech and other rebuilders left only the prominent Karl Storz logo engraved on the tool handle. This was all the doctors saw when unwrapped, sterilized tools appeared in hospital operating rooms. Storz sued to halt the damage to its reputation, alleging Lanham Act violations and infringement of its mark. A California district court held that since the hospitals knew all about the repairs, there could be no confusion. Storz appealed promptly. Kravitz argued in Pasadena, Calif., before Alex Kozinski, Sidney R. Thomas and District Judge Ronald M. Whyte. He convinced the panel to reverse, citing the fact that in 1962 amendments to the Lanham Act, Congress specifically rejected the idea that only “purchasers” need protection from trademark confusion. The act refers to “consumers” — a point not lost on the 9th Circuit. NOT BRAND NEW Whyte, writing for a unanimous panel held, “If the reconstructed product still bearing the original manufacturer’s trademark is so altered as to be a different product from that of the original manufacturer, the repair transaction involves a ‘use in commerce.’ The repair company in that situation is trading on the goodwill of, or association with, the trademark holder.” The panel limited its decision to commercial repair and rebuilding situations, noting that it is no violation for a machine owner to make repairs with aftermarket parts. Citing a 1998 Kansas case triggered by Norwalk-based U.S. Surgical against Orris, Inc., the acts of cleaning, sterilizing and sharpening a surgical tool did not “use” the U.S. Surgical trademark “in commerce.” In fact, that court wrote, “U.S. Surgical cannot point to a single case in which the repair of a trademarked item alone is sufficient to subject the defendant to trademark of unfair competition liability.” Kravitz, commenting after the case, said the U.S. Surgical and Storz cases are opposite ends of the spectrum. In Storz’s case against Surgi-Tech, Storz alleged that 20 percent of the repair jobs were “complete rebuilds” in which Surgi-Tech, using its own repair parts, “in some cases replaced every ‘essential’ part of a scope and then simply attached this ‘new’ scope to the old base bearing Storz’s trademark.” The general test outlined by the court examines the “nature and extent to the alterations, the nature of the device and how it is designed [and] whether end users of the product are likely to be misled as to the party responsible for the composition of the product.”

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