Articles/Newsletters
Trademark Law Provides U.S. Companies With A Remedy Against Gray Market GoodsA gray market good is an authentic, branded product manufactured for sale abroad which is then diverted or imported into the U.S. market to compete against a domestic, like branded version of the same product. By definition, gray market goods are characteristically different from their U.S equivalents and thus may cause confusion among U.S. consumers who are accustomed to the domestic version of the product. Unexplained, such confusion can erode goodwill because consumers ignorant that they are using a foreign product may unknowingly transfer any dissatisfaction with that foreign product to the domestic version that they are accustomed to buying. Gray marketing also disrupts price structure and marketing because gray market goods are commonly sold at discount prices outside normal distribution channels. Thus, gray marketing presents particular challenges to manufacturers and their distributors who sell branded goods in the U.S. market that are characteristically different from foreign counterparts that bear the same trademark. The importation and sale of gray market goods that are “materially different” from their U.S. equivalents may constitute trademark infringement. Indeed, an unauthorized importation may well turn an otherwise “genuine” product into a “counterfeit” one. In other words, the unauthorized importation and sale of materially different merchandise can constitute trademark infringement because a difference in products bearing the same name confuses consumers and impinges on the local trademark holder’s goodwill. Courts have kept the threshold of “materiality” quite low. Slight differences in product composition, even in the amount or type of a single ingredient, have been found to be “material.” Likewise, a foreign good sold in the U.S. that is characteristically the same as its U.S. equivalent but which, by reason of its domestic sale, loses warranty coverage or technical support, has been deemed to be “materially different.” Similarly, differences in quality control standards, price, labeling, product configuration, and in regulatory approval have all been found to be “material.” There is an important caveat, however. Materiality is measured not just by differences in the products themselves but also by the nature of the trademark registrant’s own sales. If a manufacturer routinely sells in the United States, parallel to the sale of his U.S. goods, “materially different” foreign versions of his product, a third party’s sale of the same foreign merchandise is not actionable. Trademark law is grounded on the notion of customer confusion and if a manufacturer sells different versions of the same product under the same trademark to U.S. consumers, he cannot later complain that U.S. consumers may be misled by third party sales of the same “materially different” foreign product. Thus, to establish trademark infringement by reason of a third party’s sale of like branded but materially different foreign product, a U.S. trademark registrant must not himself or herself be selling domestically the same foreign product of which he or she complains. In conclusion, U.S. trademark law is an effective weapon against gray marketing provided that the foreign goods at issue are materially different from their like-branded domestic equivalents and are not themselves being sold by the trademark registrant and his or her licensees in the United States. |
