Can Gray Market Goods Lawfully Be Sold in the United States?

Gray market goods include products with legitimate trademarks that are intended for sale and use outside the United States, but which are imported and sold in the United States without the consent of the trademark holder or U.S. distributor of like domestic goods. Can gray market goods lawfully be sold in the United States?

 

It depends. 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. Gray market goods that are materially different, however, may violate § 32, 42, or 43 of the Lanham Act, and, if so, cannot be sold in the United States.

 

Section 32(1)(a) of the Lanham Act may be used to sue for trademark infringement where the gray market goods (a) were not authorized for sale in the United States; and (b) differed materially from the authorized versions sufficient to create a likelihood of consumer confusion, mistake, or deception.  See Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 639 (1st Cir. 1992).  Similarly, Section 42 may be used to bar importation of gray market goods not authorized for sale in the United States where the goods are materially different from the authorized versions.  See id., at 639 and note 7.  Finally, Section 43(a)(1) may also be used to sue for false designation of origin “of source, sponsorship or affiliation,” where the gray market goods are materially different from the authorized versions sufficient to confuse consumers. See id., at 639-40.

 

The First Circuit has attempted a synthesis of Lanham Act Sections 32(a)(1), 42 and 43(a)(1), as they apply to importation and sale of gray goods bearing legitimate trademarks.  Liability under these sections “necessarily turns on the existence vel non of material differences between products of a sort likely to create consumer confusion.”  Nestle, 982 F.2d at 640.  “The threshold of materiality must be kept low enough to take account of potentially confusing differences – difference that are not blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations.” Id., at 641.  See also Beltronics USA v. Midwest Inventory Distribution, 562 F.3d 1067, 1074 (10th Cir. 2009) (“So long as resellers of materially different products take the necessary steps to adequately alleviate this confusion and prevent injury to the trademark’s goodwill [] those differences will be unlikely to trigger the liability.”  Moreover, not all differences are material.  See Beltronics, 562 F.3d at 1072-73, citing Iberia Foods Corp. v. Romeo, 150 F.3d 298, 303 (3d Cir. 1998) (“Some differences between products ‘prove so minimal that consumers who purchase the alleged infringer’s goods ger precisely what they believed they were purchasing [and] consumers’ perceptions of the trademarked goods are not likely to be affected by the alleged infringer’s sales.’”

 

Materiality must be undertaken “on a case by case basis,” see Nestle, 982 F.2d at 641, and must include “an examination of the products and markets at issue, see Brilliance Audio, Inc. v. Haights Cross Communications, Inc., 474 F.3d 365, 371 (6th Cir. 2007). 

 

Courts have found that sale of gray market goods violates the Lanham Act either because the goods are not genuine, see Zino Davidoff SA v. CVS Corp., 571 F.3d 238, 243-246 (2d Cir. 2009) (removal of unique production codes used for quality control rendered product not genuine), accord Polymer Tech. Corp. v. Mimram, 37 F.3d 74, 78 (2d Cir. 1994) (goods are not genuine if they do not conform to the trademark holder’s quality control standards), or because they are materially different than their U.S. counterparts, see id., at 246 (damaged packaging from removal of codes constituted a material difference); Bourdeau Bros. v. Int’l Trade Comm’n, 444 F.3d 1317, 1323 (Fed. Cir. 2006) (differences in safety features of forage harvesters considered material); Beltronics, 562 F.3d at 1073 (radar detectors with original serial numbers used for warranty claims and service commitments removed were materially different).

 

Courts have applied the “material difference” test to exclude or find infringing gray goods that are physically different, and/or different in non-physical attributes.  See, e.g., Zino Davidoff, 571 F.3d at 246 (damaged packaging); Nestle, 982 F.2d at 9-10 (differences in quality control, packaging, ingredients and price of chocolates); Beltronics, 562 F.3d at 1073-75 (insufficiently disclosed differences in warranties and service commitments of radar detectors); Bourdeau Bros., 444 F.3d at 1323 (differences in safety features of footage harvesters); Davidoff & CIE, SA v. PLD Int’l Corp., 263 F.3d 1297, 1303-04 (11th Cir. 2001) (etching glass to remove batch codes on bottles of fragrance products); Gamut Trading Co. v. U.S. Int’l Trade Comm’n, 200 F.3d 775, 782 (Fed. Cir. 1999) (differences in labeling, service, parts and structure of tractors); Martin’s Herend Imports, Inc. v. Diamond & Gem Trading USA, Co., 112 F.3d 1296, 1302 (5rh Cir. 1997) (individual porcelain pieces by same manufacturer not offered in United States); Original Appalachian Artworks, Inc. v. Granada Electronics, Inc., 816 F.2d 68, 73 (2d Cir. 1987) (adoption papers for Cabbage Patch Kids Dolls were in Spanish and U.S. fulfillment centers would not process them); but see Iberia Foods, 150 F.3d at 303 (specific differences in quality control insufficient to be material).

 

If you have an issue or question about gray market goods, one the lawyers at The Toikka Law Group, LLP would be pleased to assist you.

 

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