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.” [1] “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.” [2] 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.” [3] 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. [4]

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:

• The merchandise may not come with a U.S. manufacturer's warranty;
• The instructions or warranty may be written in a foreign language;
• The price will probably be lower than the manufacturer's suggested price;
• The merchandise may not be able to be determined by a registration number;
• For automobiles, check the vehicle identification number ("VIN") with the manufacturer's authorized representative;
• The merchandise may not be eligible for rebate;
• The specifications of the merchandise may not comply with U.S. regulatory requirements.[5]

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. [6] 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. [7] “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.” [8] 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. [9]

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. [10

​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.

[1] https://apps.americanbar.org/buslaw/blt/2009-11-12/mendelsohn-stanton.shtml

[2] 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).

[3] n1 (emphasis added).

[4] See 19 C.F.R. § 133.23.

[5] https://www.bbb.org/new-york-city/get-consumer-help/articles/gray-market-goods/

[6] n1 (referencing 15 U.S.C. § 1114; 15 U.S.C. § 1124; and 15 U.S.C. § 1125).

[7] n6.

[8] Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 640 (1st Cir. 1992).

[9] n8, at 641.

[10] See 19 U.S.C. § 1337(d) and (f).