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Gray Market Trademark Infringement

Importing Gray Market Goods: An Overview of U.S. Trademark Law

By Blog, Intellectual Property Law, Litigation

“Gray market” is the phrase used to describe the sale of new, used, surplus and refurbished products through unauthorized resellers or channels. Gray market goods, also commonly referred to as “parallel imports,” may be considered unlawful when imported to the United States and sold in competition with authorized U.S. distributors.
The general rule followed by the courts is that identical goods sold in an unauthorized manner are not genuine for purposes of the Lanham Act, which regulates U.S. trademarks.  For instance, in Caterpillar, Inc. v. Nationwide Equipment, 877 F. Supp. 611 (M.D. Fla. 1994), the court placed particular emphasis on a manufacturer’s inability to maintain quality control over an unauthorized distributor’s sale of its products.  In Caterpillar, the defendant sold, without authorization, products manufactured using Caterpillar’s components and trademarks.  Defendants obtained certificates of origin from Caterpillar for the component parts of the machinery but used those certificates to represent falsely that the machines were Caterpillar. The court determined that the wide variance in quality control in the manufacturing process contributed to a presumption of customer confusion. The defendant’s deceptive business practices did not help its cause.
To minimize the risk of liability a gray marketer must minimize the likelihood customer confusion over whether the goods sold are backed by an authorized dealer’s good will and the manufacturer’s warranty. Gray marketers should advise prospective purchasers that the goods being offered are not simply the same goods offered by authorized dealers, but at lower prices, and that the product is not covered by any applicable warranties.  Gray marketers should also avoid procuring goods and redistributing them in territories that are already covered by exclusive distribution agreements – the existence of the exclusive agreement is strong evidence that the manufacturer never intended that the goods be resold in these territories. Under these circumstances, gray marketers may face related tort claims for knowingly interfering with or circumventing existing distribution agreements.
The range of “unauthorized” conduct that can turn the resale of otherwise genuine goods into a Lanham Act violation or other liability is great.  To the extent that gray marketers engage in deceptive practices in addition to committing the mistakes described above, courts will likely interpret the Lanham Act more liberally to impose liability.
Andrew P. Holland, Litigation Group