With the global marketplace continuing to expand at an exponential rate, it has become increasingly more difficult for brand owners to control the distribution channels for their goods. Consequently, this has enabled a market for “gray market goods” to rapidly develop.
Gray market goods are goods that are legitimately produced and sold in a foreign country under the authorization of the U.S. brand owner, “but which are imported and sold in the United States without the consent of the U.S. distributor of like domestic goods.” “Although the goods are genuine in that they bear an authentic, rather than a copied or simulated mark, they may have been produced for foreign markets and consequently may be of an inferior quality to that of the product in which the trademark owner has developed a good-will and reputation in the U.S. market.” Moreover, sellers of gray market goods are often able to offer them for sale at a lower price than domestic authorized goods – directly harming the market for domestic authorized goods.
“Unlike counterfeit (black market) goods . . . gray [market] goods may be lawfully sold in the United States if they are identical to their U.S. cousins.” However, there are steps that a brand owner can take to limit the importation of gray market goods into the U.S.
Protecting Yourself Against the Gray Market
Brand owners should take advantage of the ability to record their trademarks with U.S. Customs and Border Protection (“CBP”), so that CBP can assist in preventing the importation of gray market goods. While a recorded trademark alone will not result in CBP stopping gray market goods from entering the United States, brand owners are also able to apply for Lever Rule protection, if they are able to identify physical material differences between the U.S. authorized goods and the gray market goods entering the U.S.
Knowing what to look for to identify gray market goods, and to subsequently show a material difference, is therefore key. While this list provides a good starting point of what to look for to identify gray market goods, it should not be construed as exhaustive:
Further Enforcement Options
Some further enforcement options include: sending cease and desist letters, initiating infringement actions, and instituting a Section 337 proceeding at the International Trade Commission (“ITC”).
For instance, the Lanham Act offers a number of remedial measures to those who are harmed by the distribution of unauthorized gray market goods. Such measures include seeking an order of exclusion, and various monetary relief measures, such as disgorgement of profits. As is the case with CBP recordation, in order to be awarded any form of relief under the Lanham Act, it must be proven that a material difference exists between the authorized and gray market goods. “In such cases, a material difference between goods simultaneously sold in the same market under the same name creates a presumption of consumer confusion as a matter of law.” Pursuant to Societe Des Produits, when a manufacturer is able to show that the unauthorized goods have even a single material difference, the distribution of those goods in the U.S. marketplace is unlawful.
A Section 337 proceeding at the ITC is also an attractive option for brand owners, as it is often quicker than bringing a District Court case. Moreover, after finding infringement, the Commission can offer the following injunctive remedies: a cease-and-desist order, providing a complete injunction against sales-related activity in the United States; and an exclusion order, prohibiting the infringing goods from entering the U.S.
If you are a brand owner and are affected by the importation of gray market goods, contact our office to learn more about your options in obtaining relief.
This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws.
 Donna M, Lach, Note and Comment: The Gray Market and the Customs Regulation – Is the Controversy Really Over After K Mart Corp. v Cartier, Inc.?, 65 Chi.-Kent L. Revi. 221, 221 (1989).
 n1 (emphasis added).
 See 19 C.F.R. § 133.23.
 n1 (referencing 15 U.S.C. § 1114; 15 U.S.C. § 1124; and 15 U.S.C. § 1125).
 Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 640 (1st Cir. 1992).
 n8, at 641.
 See 19 U.S.C. § 1337(d) and (f).
On February 19, 2019, the Coalition for Acetone Fair Trade filed an anti-dumping (“AD”) petition on behalf of AdvanSix Inc., Altivia Petrochemicals, LLC, and Olin Corporation, challenging imports of acetone from Belgium, Korea, Saudi Arabia, Singapore, South Africa, and Spain.
Dumping occurs when exporters of a product, in this case acetone, price that good in the U.S. market for less than normal value, or below cost of production. The petition—filed with both the International Trade Commission and the U.S. Department of Commerce—enables the U.S. government to investigate whether exporters from the listed countries have been dumping acetone into the U.S. market. Upon a finding that there is in fact dumping, and that there is a “material injury” or “threat of a material injury” to the domestic industry as a result of the dumping, the U.S. government can impose AD duties on those affected goods.
The filing of this petition came days before AdvanSix held their Q4 2018 earnings conference call (on February 22, 2019) – during which Erin Kane, AdvanSix President and Chief Executive Officer, stated: “Elevated levels of imports into the U.S. as well as aggressive trading activity have put continued pressure on regional pricing and spreads.” In the event AD duties are imposed, it would be the importers of acetone from the listed companies and countries who are affected most within the U.S. market.
Scope of the Petition
Acetone covered by this petition is acetone of all grades of liquid or aqueous acetone. Acetone is also known under the International Union of Pure and Applied Chemistry (“IUPAC”) name propan-2-one. In addition to the IUPAC name, acetone is also referred to as β-ketopropane (or “beta-ketopropane”), ketone propane, methyl ketone, dimethyl ketone, DMK, dimethyl carbonyl, propanone, 2-propanone, dimethyl formaldehyde, pyroacetic acid, pyroacetic ether, and pyroactic spirit. Acetone is an isomer of the chemical formula C3H6O, with a specific molecular formula of CH₃COCH₃ or (CH₃)₂CO.
The scope includes acetone that is combined or mixed with other products, including, but not limited to: benzene, diethyl ether, methanol, chloroform, and ethanol. For such combined products, only the acetone component is covered by the scope of these investigations. Acetone that has been combined with other products is included within the scope, regardless of whether the combining occurs in third countries.
Acetone that is otherwise subject to these investigations is not excluded when commingled with acetone from sources not subject to these investigations. Only the subject merchandise component of such commingled products is covered by the scope of these investigations. The Chemical Abstracts Service (“CAS”) registry number for acetone is 67-64-1.
The merchandise covered by these investigations is currently classifiable under Harmonized Tariff Schedule of the United States (“HTSUS”) subheadings 2914.11.1000 and 2914.11.5000. Although these HTSUS subheadings and CAS registry number are provided for convenience and customs purposes, the written description of the scope of these investigations is dispositive.
Alleged Dumping Margins
The petitioners allege the following dumping margins:
If you have any questions regarding this investigation and how it may impact your future imports, please do not hesitate to contact us.
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