## Facts

- Original Appalachian Artworks, Inc. (OAA) owned the U.S. trademark “Cabbage Patch Kids” and marketed the dolls in the United States using an “adoption” theme that included English-language adoption papers and registration-related benefits.
- OAA, through an agent, licensed Jesmar, S.A., a Spanish manufacturer, to make and sell Cabbage Patch Kids dolls only in specified territories (Spain, the Canary Islands, Andorra, and Ceuta/Melilla).
- The license restricted Jesmar from making, selling, or authorizing sales of the dolls outside the licensed territory and required sales only to purchasers who would not resell outside that territory.
- Jesmar’s dolls were packaged for the Spanish market: the boxes displayed the “Cabbage Patch Kids” mark and an English-language copyright notice with OAA’s U.S. address, but most other packaging text was in Spanish.
- The Spanish-market dolls differed from U.S. dolls in the adoption feature central to OAA’s U.S. marketing, including Spanish-language adoption papers and the absence of the same English-language adoption experience and related interactions.
- Granada Electronics, Inc. purchased Jesmar-made dolls abroad through intermediaries and imported and sold them in the United States without OAA’s consent.
- U.S. Customs permitted entry of the dolls, but OAA sued Granada in federal court for trademark infringement and obtained a permanent injunction.

## Issues

1. Whether importation and U.S. sale of genuine, trademarked gray-market goods that are materially different from the U.S. version constitutes infringement under the Lanham Act.
2. Whether Customs’ admission of the goods precludes a private Lanham Act infringement action by the trademark owner.

## Decision

- The Second Circuit affirmed the district court’s judgment that Granada’s importation and sale of the Spanish-market dolls infringed OAA’s U.S. trademark.
- The court upheld the permanent injunction barring Granada from importing and distributing the Jesmar-made dolls in the United States.
- The court held that Customs’ allowance of entry did not displace or bar OAA’s private trademark infringement remedy.

## Legal Principles

- The Lanham Act can prohibit gray-market imports when goods bearing a genuine mark are materially different from the trademark owner’s authorized domestic goods and the differences are likely to cause consumer confusion.
- Material differences may include product features and associated consumer expectations tied to the trademark owner’s U.S. marketing and post-sale programs, not merely the physical item.
- A trademark owner may enforce territorial control reflected in restrictive foreign manufacturing and distribution licenses to prevent unauthorized U.S. sales that interfere with the owner’s U.S. quality and brand presentation.
- Customs import decisions address regulatory admission and do not adjudicate, waive, or extinguish private trademark rights or Lanham Act causes of action.

## Conclusion

The court held that unauthorized U.S. sale of foreign-market Cabbage Patch Kids dolls created actionable confusion because the goods differed in ways meaningful to consumers, and it confirmed that Customs clearance does not prevent a trademark owner from obtaining injunctive relief under the Lanham Act.


Original Appalachian Artworks, Inc. v. Granada Electronics, Inc., 816 F.2d 68 (2d Cir. 1987)