FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
AU-TOMOTIVE GOLD INC,
Plaintiff-counter-defendant-
Appellant,
v. No. 08-16005
VOLKSWAGEN OF AMERICA, INC.;
AUDI OF AMERICA, INC; D.C. No.
4:01-cv-00162-FRZ
VOLKSWAGEN AKTIENGESELLSCHAFT;
OPINION
AUDI AKTIENGESELLSCHAFT;
CONTINENTAL ENTERPRISES,
Defendants-counter-claimants-
Appellees.
Appeal from the United States District Court
for the District of Arizona
Frank R. Zapata, District Judge, Presiding
Argued and Submitted
November 4, 2009—San Francisco, California
Filed May 6, 2010
Before: John T. Noonan and William A. Fletcher,
Circuit Judges, and Kevin Thomas Duffy,*
District Judge.
Opinion by Judge William A. Fletcher
*The Honorable Kevin Thomas Duffy, United States District Judge for
the Southern District of New York, sitting by designation.
6781
6784 AU-TOMOTIVE GOLD v. VOLKSWAGEN
COUNSEL
Henry Kenneth Kudon, Potomac, Maryland, Dennis A.
Rosen, Tucson, Arizona, for the appellant.
Gregory Eugene Good, GOOD LAW, P.C. Tucson, Arizona,
Thomas R. Lee, Gregory R. Phillips, Scott R. Ryther, HOW-
ARD PHILLIPS & ANDERSEN, Salt Lake City, Utah, for
the appellees.
OPINION
W. FLETCHER, Circuit Judge:
We are asked to decide whether the sale by Au-Tomotive
Gold (“Auto Gold”) of marquee license plates bearing Volks-
wagen badges purchased from Volkswagen constitutes trade-
mark infringement, or whether the sale of the plates is pro-
tected by the “first sale” doctrine. In Au-Tomotive Gold, Inc.
v. Volkswagen of America, Inc. (“Auto Gold I”), 457 F.3d
1062 (9th Cir. 2006), we concluded that Auto Gold’s produc-
tion and sale of automobile accessories bearing Volkswagen’s
trademarks created a sufficient likelihood of confusion to con-
stitute trademark infringement. Id. at 1078. We remanded to
the district court to address Auto Gold’s “first sale” and other
defenses. Id. On remand, the district court granted summary
judgment and a permanent injunction to Volkswagen.
AU-TOMOTIVE GOLD v. VOLKSWAGEN 6785
We affirm. We hold that the “first sale” doctrine does not
provide a defense because Auto Gold’s marquee license plates
create a likelihood of confusion as to their origin.
I. Facts and Proceedings Below
Auto Gold produces and sells automobile accessories for
specific makes of cars. Volkswagen and its subsidiary Audi
are car manufacturers with well-known trademarks. The
trademark at issue in this appeal is the familiar Volkswagen
logo consisting of the letters “VW” inside a circle.
Beginning in the 1990s, Auto Gold produced and sold
products bearing Volkswagen and Audi trademarks without
permission from Volkswagen or Audi. It sold four products:
license plates, license plate frames, key chains, and marquee
license plates. The first three products used replicas of the
companies’ trademarks. However, the marquee license plates
used actual VW badges purchased on the open market from
a Volkswagen dealer. Auto Gold asserts its “first sale”
defense only as to the marquee plates.
The marquee license plates are plain silver or black plates
on which Auto Gold has mounted the VW badges. These
badges are sold by Volkswagen and are ordinarily used as
replacements for the badges found on the hoods or trunks of
Volkswagen vehicles. Auto Gold purchased the badges,
altered them by removing prongs and (in some cases) gold-
plating them, and mounted them on the marquee plates. The
plates were packaged with labels that explained that the plates
were not produced or sponsored by Volkswagen.
Both parties accept for purposes of this appeal that Volk-
swagen had knowledge of Auto Gold’s products as early as
January 1999. In September 1999, a Volkswagen representa-
tive sent a letter to Auto Gold requesting that it cease using
the trademarks. When Auto Gold refused to do so, a Volkswa-
gen representative sent a second letter in October 1999. A
6786 AU-TOMOTIVE GOLD v. VOLKSWAGEN
Volkswagen representative sent a third letter in February
2001.
On April 19, 2001, Auto Gold filed suit seeking a declara-
tory judgment that its activities did not constitute an infringe-
ment or dilution of Volkswagen or Audi trademarks.
Volkswagen and Audi counterclaimed, alleging federal trade-
mark counterfeiting and infringement under § 32 of the Lan-
ham Act, 15 U.S.C. § 1114, false designation under § 43(a) of
the Lanham Act, 15 U.S.C. § 1125(a), trademark dilution
under § 43(c) of the Lanham Act, 15 U.S.C. § 1125(c), and
related state-law claims. Both parties moved for summary
judgment.
The district court granted summary judgment to Auto Gold
on all claims, holding that under the doctrine of “aesthetic
functionality” the trademarks were “functional” and therefore
not protected by trademark law. We reversed. Auto Gold I,
457 F.3d at 1064. We held that “the use of Volkswagen and
Audi’s marks is neither aesthetic nor independent of source
identification.” Id. at 1073. Rather, we held, consumers buy
Auto Gold products because of the products’ identification
with the companies’ brands. Id. at 1073-74. We further held
that Volkswagen and Audi had established an affirmative case
for an infringement claim under § 32 of the Lanham Act. Id.
at 1074-78. We noted that “[t]his case presents an easy analy-
sis in terms of likelihood of confusion.” Id. at 1076. We then
remanded to the district court for consideration of Auto
Gold’s “first sale” and other related defenses. Id. at 1078.
Auto Gold asserted two defenses on remand. It argued that
the marquee license plates are protected under the “first sale”
doctrine because the plates use lawfully acquired VW badges
and because their packaging disclaims any association with
Volkswagen. It also argued that Volkswagen’s claims are
barred by laches.
AU-TOMOTIVE GOLD v. VOLKSWAGEN 6787
The district court rejected Auto Gold’s “first sale” and
laches defenses and granted Volkswagen summary judgment
and a permanent injunction. Auto Gold timely appealed.
II. Standard of Review
We review a district court’s grant of summary judgment de
novo, viewing the evidence in the light most favorable to the
non-moving party. See Universal Health Serv., Inc. v. Thomp-
son, 363 F.3d 1013, 1019 (9th Cir. 2004).
III. Discussion
A. “First Sale” Defense
Auto Gold argues that because it purchased actual VW
badges from a Volkswagen dealer for use on the marquee
license plates, the “first sale” doctrine protects the sale of the
plates. We hold that the “first sale” doctrine does not provide
a defense because the plates create a likelihood of confusion
as to their origin. We do not base our holding on a likelihood
of confusion among purchasers of the plates. Rather, we base
it on the likelihood of post-purchase confusion among observ-
ers who see the plates on purchasers’ cars.
1. Background
The “first sale” doctrine was first introduced in an opinion
by Justice Holmes in Prestonettes, Inc. v. Coty, 264 U.S. 359
(1924). Prestonettes purchased toilet powder and perfumes
produced and trademarked by Coty. Prestonettes incorporated
the Coty products into its own products by combining the
powder with a binder to create a cream and by rebottling the
perfumes into smaller bottles. Id. at 366-67. The Supreme
Court held that Prestonettes did not violate trademark law.
“The defendant of course by virtue of its ownership had a
right to compound or change what it bought, to divide either
6788 AU-TOMOTIVE GOLD v. VOLKSWAGEN
the original or the modified product, and to sell it so divided.”
Id. at 368.
The Court further held that Prestonettes could identify the
components of its products as being Coty trademarked prod-
ucts so long as its labels were not misleading. Id. For exam-
ple, Prestonettes could place a label on the perfume bottles
stating, “Prestonettes, Inc., not connected with Coty, states
that the contents are Coty’s . . . independently rebottled in
New York.” Id. at 367. It rejected Coty’s argument that Pres-
tonettes should not be allowed to use the Coty trademark in
its description of the product because Prestonettes’s products
might be inferior. It wrote, “If the compound was worse than
the constituent, it might be a misfortune to [Coty], but [Coty]
would have no cause of action, as [Prestonettes] was exercis-
ing the rights of ownership and only telling the truth. The
existence of a trademark would have no bearing on the ques-
tion.” Id. at 368. The Court relied on the fact that consumers
would not be confused about the manufacturer of the product.
“A trade-mark only gives the right to prohibit the use of it so
far as to protect the owner’s good will against the sale of
another’s product as his.” Id.
[1] Application of the “first sale” doctrine has generally
focused on the likelihood of confusion among consumers. In
Sebastian Int’l, Inc. v. Longs Drug Stores Corp., 53 F.3d
1073, 1077 (9th Cir. 1995), we held that the “first sale” doc-
trine protected Longs when it purchased Sebastian hair prod-
ucts from a distributor and sold them in its own store despite
Sebastian’s efforts to allow only “Sebastian Collective Mem-
bers” to sell the products. We recognized the principle that
“the right of a producer to control distribution of its trade-
marked product does not extend beyond the first sale of the
product.” Id. at 1074. We emphasized that this rule “preserves
an area of competition by limiting the producer’s power to
control the resale of its product,” while ensuring that “the
consumer gets exactly what the consumer bargains for, the
genuine product of the particular producer.” Id. at 1075.
AU-TOMOTIVE GOLD v. VOLKSWAGEN 6789
We also applied the “first sale” doctrine in Enesco Corp. v.
Price/Costco Inc., 146 F.3d 1083, 1084-85 (9th Cir. 1998), in
which Costco purchased porcelain figurines manufactured by
Enesco, repackaged them in allegedly inferior packaging, and
sold them in its own stores. We held that Costco could
repackage and sell the Enesco figurines, but that it was
required to place labels on the packages that disclosed to the
public that Costco had repackaged Enesco’s original product.
Id. at 1086 (citing Prestonettes, 264 U.S. at 367-69). We
rejected Enesco’s argument that it would be harmed, even
with this disclosure, because of the poor quality of the pack-
aging. “The critical issue is whether the public is likely to be
confused as a result of the lack of quality control.” Id. at
1087.
A number of district courts have applied the “first sale”
doctrine in cases where the defendants incorporated the trade-
marked product into a new product. See, e.g., Alexander Bin-
zel Corp. v. Nu-Tecsys Corp., 785 F. Supp. 719 (N.D. Ill.
1992) (defendant manufactured welding gun using some parts
bearing trademark of competitor); Major League Baseball
Players Ass’n v. Dad’s Kid Corp., 806 F. Supp. 458
(S.D.N.Y. 1992) (defendant used three baseball trading cards
bearing trademarks to create 3D playing card); Scarves by
Vera, Inc. v. Am. Handbags, Inc. 188 F. Supp. 255 (S.D.N.Y.
1960) (defendant used towels bearing plaintiff’s trademark to
create handbags). In these cases, the courts focused on the
possibility of confusion as the dispositive factor. See Alexan-
der Binzel Corp., 785 F. Supp. at 724 (finding that “defen-
dants did all that was required of them to diminish customer
confusion by packaging their product with the Nu-Tecsys
name and logo”); Dad’s Kid Corp., 806 F. Supp. at 460 ( find-
ing “no likelihood that anyone will be confused as to origin”);
Scarves by Vera, Inc., 188 F. Supp. at 258 (issuing injunction
requiring further labeling because the court found “that the
average purchaser would be misled” otherwise).
[2] A separate line of cases further illustrates the central
role of the likelihood of confusion, including post-purchase
6790 AU-TOMOTIVE GOLD v. VOLKSWAGEN
confusion, in trademark infringement claims. In this line of
cases, we have held that producers committed trademark
infringement by selling refurbished or altered goods under
their original trademark. None of these cases directly
addressed the “first sale” doctrine, but they establish that
activities creating a likelihood of post-purchase confusion,
even among non-purchasers, are not protected.
[3] In Karl Storz Endoscopy-America, Inc. v. Surgical
Tech., Inc. (“Surgi-Tech”), 285 F.3d 848, 852-53 (9th Cir.
2002), Surgi-Tech repaired Storz endoscopes at the request of
hospitals that owned them. Surgi-Tech sometimes rebuilt the
endoscopes, replacing every part and “retaining only the
block element bearing Storz’s trademarks.” Id. at 852. At an
earlier time, Surgi-Tech had etched its own mark into rebuilt
endoscopes to make clear what it had done, but Surgi-Tech
had stopped that practice. Id. Storz submitted evidence of
confusion on the part of surgeons who were not the purchas-
ers of the endoscopes but who used them and mistakenly
blamed Storz when they malfunctioned. Id. at 855. We held
that there was a triable issue of fact on Storz’s trademark
infringement claim, even though there was no claim of pur-
chaser confusion. Id. at 853-55. We relied entirely on the pos-
sibility of confusion among non-purchasers, noting that such
confusion “may be no less injurious to the trademark owner’s
reputation than confusion on the part of the purchaser at the
time of sale.” Id. at 854 (citation omitted).
We also relied on the likelihood of non-purchaser confu-
sion in Rolex Watch, U.S.A., Inc. v. Michel Co., 179 F.3d 704
(9th Cir. 1999). The defendant sold used Rolex watches that
had been “reconditioned” or “customized” with non-Rolex
parts. Id. at 707. We agreed with the district court that “reten-
tion of the original Rolex marks on altered ‘Rolex’ watches
. . . was deceptive and misleading as to the origin of the non-
Rolex parts, and likely to cause confusion to subsequent or
downstream purchasers, as well as to persons observing the
product.” Id. at 707.
AU-TOMOTIVE GOLD v. VOLKSWAGEN 6791
In both Surgi-Tech, 285 F.3d at 852, and Rolex, 179 F.3d
at 707, we made clear that the defendants did not deceive the
direct purchasers of the products. Rather, in both cases, we
found trademark infringement based on a likelihood of confu-
sion on the part of non-purchasers.
2. Application to the Marquee Plates
[4] We held in Auto Gold I that the marquee license plates
create a likelihood of post-purchase confusion on the part of
observers of the plates. “Shorn of their disclaimer-covered
packaging, Auto Gold’s products display no indication visible
to the general public that the items are not associated with
Audi or Volkswagen. The disclaimers do nothing to dispel
post-purchase confusion.” Auto Gold I, 457 F.3d at 1077-78.
It is likely that a person on the street who sees an Auto Gold
marquee license plate with a VW badge will associate the
plate with Volkswagen. Indeed, customers buy marquee
license plates principally to demonstrate to the general public
an association with Volkswagen. “The demand for Auto
Gold’s products is inextricably tied to the trademarks them-
selves.” Id. at 1074.
[5] Auto Gold, however, maintains that the likelihood of
post-purchase confusion does not matter. Auto Gold argues,
first, that confusion among non-purchasers is irrelevant in
“first sale” cases. However, Auto Gold cannot point to any
case in which a court has held that the “first sale” doctrine
applies when there is a likelihood of post-purchase confusion.
In Prestonettes, there was no suggestion that a third-party
could be confused about, or even be aware of, the origin of
the facial cream or perfume used by a purchaser. Likewise,
there was no possibility of post-purchase confusion as to the
origin of the hair products in Sebastian or the porcelain figu-
rines in Enesco.
In each case in which a court has applied the “first sale”
doctrine, the court either had good reason not to be concerned
6792 AU-TOMOTIVE GOLD v. VOLKSWAGEN
with post-purchase confusion or took steps to avoid address-
ing the issue. In Alexander Binzel Corp., the court noted that
Binzel sold its parts to be incorporated into welding guns pro-
duced by other manufacturers. The defendant’s “use of Binzel
nozzles is fully consistent with Binzel’s profit motive as well
as the manner Binzel has chosen ‘to control its product’s rep-
utation.’ ” 785 F. Supp at 723. In Dad’s Kid Corp., the court
noted that baseball trading cards are regularly repackaged,
displayed, or mounted, and that there was therefore “no likeli-
hood that anyone will be confused as to origin by reason of
Dad’s Kid’s treatment of genuine cards.” 806 F. Supp. at 460.
In Scarves by Vera, Inc., the court noted that the plaintiff’s
trademark could be seen on some of the defendant’s bags. It
therefore insisted that a disclaimer label be sewn into the bag
“near the clasp, and plainly visible to anyone opening the
handbag.” 188 F. Supp. at 256-258.
[6] Post-purchase confusion creates a free-rider problem.
Auto Gold contends that in “first sale” cases “the element of
‘free-riding’ present in other post-purchase confusion cases
disappears because the producer has paid the price asked by
the trademark owner for the ‘ride.’ ” This contention misses
the point. When a producer purchases a trademarked product,
that producer is not purchasing the trademark. Rather, the pro-
ducer is purchasing a product that has been trademarked. If a
producer profits from a trademark because of post-purchase
confusion about the product’s origin, the producer is, to that
degree, a free-rider.
For example, a producer may purchase non-functioning
Rolex watches and refurbish them with non-Rolex parts, leav-
ing only the original casing. Even if the producer adequately
explains the nature of the refurbished watches to purchasers,
the producer nonetheless infringes on Rolex’s trademarks by
profiting from the Rolex name. In such a case, the purchasers
buy the watches in order to make others think that they have
bought a true Rolex watch. See Rolex Watch, 179 F.3d at
707-10. The same holds true for new but relatively cheap
AU-TOMOTIVE GOLD v. VOLKSWAGEN 6793
products that prominently display a well-known trademark. If
the producer purchases such a trademarked product and uses
that product to create post-purchase confusion as to the source
of a new product, the producer is free-riding even though it
has paid for the trademarked product.
[7] Next, Auto Gold argues that there is no trademark
infringement because its marquee plates are of high quality.
But likelihood of confusion, not quality control, is “the ‘key-
stone’ of trademark law.” Westinghouse Elec. Corp. v. Gen.
Circuit Breakers & Elec. Supply Inc., 106 F.3d 894, 900 (9th
Cir. 1997). Courts have consistently held for plaintiffs where
there is a possibility of confusion, even where defendants are
not selling lower quality goods. See, e.g., Levi Strauss & Co.
v. Blue Bell, Inc., 632 F.2d 817, 821-22 (9th Cir. 1980)
(pocket tabs on Wrangler jeans infringed upon Levi’s trade-
mark by creating a likelihood of post-purchase confusion
despite no contention that Wrangler jeans were of lower qual-
ity); Bulova Watch Co. v. Allerton Co., 328 F.2d 20, 22-25
(7th Cir. 1964) (producer must remove “BULOVA” trade-
mark from Bulova watch movement incorporated into non-
Bulova watch case due to possible confusion, even though the
producers’ actions did “not adversely affect the movement”).
Similarly, courts have consistently held for defendants where
there was no possibility of confusion, despite the fact that the
defendants may have lowered the quality of goods. See, e.g.,
Prestonettes, 264 U.S. at 367; Enesco Corp., 146 F.3d at
1087.
[8] Finally, Auto Gold argues that the public interest is
served by the competition that results from the availability of
its products. It may be true that Auto Gold’s activities serve
to reduce the price paid by consumers for marquee plates. But
trademark law protects trademark holders from the competi-
tion that results from trademark infringement, irrespective of
its effect on prices. See Inwood Labs., Inc. v. Ives Labs., Inc.,
456 U.S. 844, 854 n.14 (1982) (“By applying a trademark to
goods produced by one other than the trademark’s owner, the
6794 AU-TOMOTIVE GOLD v. VOLKSWAGEN
infringer deprives the owner of the goodwill which he spent
energy, time, and money to obtain.”); Int’l Order of Job’s
Daughters v. Lindeburg & Co., 633 F.2d 912, 915 (9th Cir.
1980) (recognizing trademark infringement as a type of unfair
competition).
[9] We therefore conclude that the district court correctly
granted summary judgment to Volkswagen on its trademark
infringement claim.
B. Laches
Auto Gold argues that the district court erred in granting an
injunction because, it contends, there is a material question of
fact as to whether Volkswagen’s claim is barred by laches.
We disagree.
“[T]he party asserting laches . . . must show that (1) [plain-
tiff’s] delay in filing suit was unreasonable, and (2) [defen-
dant] would suffer prejudice caused by the delay if the suit
were to continue.” Jarrow Formulas, Inc. v. Nutrition Now,
Inc., 304 F.3d 829, 838 (9th Cir. 2002). A court must find
both factors for a suit or remedy to be barred by laches. Id.
[10] If a Lanham Act claim “is filed within the analogous
state limitations period, the strong presumption is that laches
is inapplicable; if the claim is filed after the analogous limita-
tions period has expired, the presumption is that laches is a
bar to suit.” Id. at 837. Because the Lanham Act does not
have its own statute of limitations, we borrow the most analo-
gous statute of limitations from state law in order to determine
whether the plaintiff’s delay in filing suit was reasonable. Id.
at 835-36.
[11] The parties disagree over which Arizona statute of
limitations should be applied to a laches defense to a claim
under Lanham Act § 32, 15 U.S.C. § 1114(1)(a) (trademark
infringement). Volkswagen argues that the three-year fraud
AU-TOMOTIVE GOLD v. VOLKSWAGEN 6795
statute of limitations under Ariz. Rev. Stat. § 12-543(3)
applies to all Lanham Act claims. Auto Gold argues that the
applicable limitations period is either one year, as liability
created by statute under Ariz. Rev. Stat. § 12-541(5), or two
years, as injury to property under Ariz. Rev. Stat. § 12-542(3).
We have not previously decided which statute of limitations
applies to Lanham Act claims in circumstances where an Ari-
zona statute of limitations would be applicable.
In Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 191
(2nd Cir. 1996), the court applied New York’s fraud statute
of limitations to a claim under § 43(a) of the Lanham Act, 15
U.S.C. § 1125(a) (false designation). The court held that the
fraud statute was most analogous because “intent and fraud
play an important role in all Lanham Act claims.” Id. It noted
that “Section 45 of the Lanham Act explicitly states that the
federal policy underlying the Act is, inter alia, ‘to protect per-
sons engaged in . . . commerce against unfair competition’
and ‘to prevent fraud and deception in such commerce.’ ” Id.
(emphasis in original). This circuit similarly has applied Cali-
fornia’s fraud statute of limitations to Lanham Act claims in
California. See Surgi-Tech, 285 F.3d at 857 (applying fraud
statute of limitations to § 32 and § 43(a) claims); Jarrow For-
mulas, Inc., 304 F.3d at 838 (parties agreed that California’s
fraud period applied). At least one district court has applied
Oregon’s fraud statute of limitations to a § 43(a) claim in that
state. See Collagenet, Inc. v. XAP Corp., 483 F. Supp. 2d
1058, 1062 (D. Or. 2007).
A district court in Arizona recently applied the three-year
limitation period for fraud of Ariz. Rev. Stat. § 12-543(3) to
a Lanham Act claim. Ranch Realty, Inc. v. DC Ranch Realty,
LLC, 614 F. Supp. 2d 983, 989 (D. Ariz. 2007). The court
noted, “Arizona’s directly analogous law is its state trademark
law, which . . . does not contain a statute of limitations.” Id.
The court held that the one-year period for liability created by
statute does not apply because that period applies only to lia-
bilities that did not exist under common law. Id. “Even with-
6796 AU-TOMOTIVE GOLD v. VOLKSWAGEN
out the Arizona state trademark law, liability would exist
under a common law tort theory.” Id. (citing Panavision Int’l,
L.P. v. Toeppen, 141 F.3d 1316, 1321 (9th Cir. 1998)). Rely-
ing on cases applying the fraud statute of limitations in Cali-
fornia and New York, it held that “the weight of authority
supports application of the three-year limitation for fraud.” Id.
[12] We agree and hold that Arizona’s three-year statute of
limitations for fraud applies to Lanham Act claims. Volkswa-
gen first discovered Auto Gold’s activities in January 1999.
It filed suit in April 2001. Because Volkswagen filed suit
against Auto Gold less than three years after it first received
notice of Auto Gold’s activities, Volkswagen’s suit for an
injunction is not barred by laches.
Conclusion
For the forgoing reasons, we affirm the district court’s
grant of summary judgment and a permanent injunction to
Volkswagen.
AFFIRMED.