Transcript:


Ron:  Howdy and welcome to MAPP Trap’s, Legal Briefs. Joining us today by phone, as usual, is Jeremy Richardson, a partner in the New York Office of Freeborn and Peters. Jeremy's practice focuses on consumer product manufacturers. He leads Freeborns consumer products industry team howdy.

Jeremy: Hello, Ron. Nice to hear you again.

Ron: Yeah, you too. I can't wait to get into this one because it's an interesting topic: Gray market sales. It’s a topic that a lot of our clients talk about. But the term gray market, I think has been overused and bastardized really, to make it into this catch-all that describes almost any undesired sale. 

Some brands think it's just unknown sellers or gray market sellers and it has to do with them being unidentifiable. Still others call counterfeit goods, gray market goods. But I know that legally there's a specific meaning for it, so I'm hoping you'll be able to give our great listeners a bit of a better understanding so that we don't misuse this term: gray market goods.

Jeremy: Yes, I like this topic, too. This should be fun and I figured I’d start with a personal story. A couple of years ago I was in the market for a digital SLR camera and I went to one of my favorite camera stores here in New York City to buy my digital SLR. And when I got to the cash register, or you know, the salesperson really, to talk about it and saw the price, which I knew was going to be expensive. So, the salesperson said to me, “well, you know, great camera. Happy that you're going to buy this. But you know, I could save you 100 bucks.” 

And I said, “how are you going to do that?” 

And he said, “well, we have the same product. It's really the identical item, a couple minor differences is it doesn't come with the US warranty, and the reason is the product was not meant for sale in the US, but it's the same thing otherwise and you'll save 100 bucks.” 

And I said, “wow, that's pretty cool, but it really is legitimate? It's are not counterfeit goods. It's not, you know, stolen or anything like that?”

“No, no, it was just intended for sale in a different country. The manuals may be in a different language, but otherwise the camera will function exactly the same.” 

So, this is where we get into what are gray market goods. And the answer from a legal perspective is gray market goods are legitimate goods that were intended to be sold abroad, in our case outside of the United States, but then are subsequently imported into the US and they're generally sold in competition, you know, side by side, or maybe not, but in competition with the legitimate US product. And generally, not with the permission of the trademark owner. 

So, you know again, gray market goods, legitimate goods, real trademark, but not intended for sale in the US. That is really the baseline definition and some people may say, “so, why is that a problem?” And from a brand owner's perspective, it can be a problem because gray market goods can undercut the market for the genuine US version. It can disrupt pricing, it can disrupt relationships in the territories where the goods are sold. And perhaps most importantly, it can really damage the goodwill that consumers have associated with the US trademark so that can be very damaging to a brand when gray market goods are sold here.

Ron: Thank you for that. But so, what can we do as brand owners to prevent the sale of gray market goods?

Jeremy: Well, this is where our friend the trademark law comes back in to protect brand owners. Especially those that have federally registered trademarks. You can bring an action for trademark infringement against a seller of gray market goods. A trademark owner is entitled to injunctive relief. Entitled to damages: potentially, even destruction orders and sometimes, most importantly, an award of attorney’s fees so that the brand owner really doesn't go deep, deep out of pocket on enforcing its trademark rights.

Ron: OK, thanks for that definition that clears that up for me, and probably for our listeners.  But here's a question, let's just say I am the manufacturer of that SLR camera you talked about. What could I do as the owner of that brand to prevent that it gets sold in the way that it was sold to you?

Jeremy: So, the First Sale Doctrine again applies here. The First Sale Doctrine says that where there are material differences the trademark owner can bring a trademark infringement action. So, if the gray market goods were not intended to be sold in the US and their material differences, such as a lack of a warranty, maybe the product is made differently in many cases, gray market goods that were intended to be sold in a different country, maybe a developing country, might be manufactured to be sold at a lower price and therefore doesn't include all the same features. The gray trademark owner certainly can bring an action for trademark infringement. Again, material differences. Those goods were not intended to be sold to U.S. consumers.

Ron: But even though it's gray market, maybe I didn't know that when I bought it, and maybe they didn't explain it to me like they explained it to you. So, I bought a half a dozen of them because they're 100 bucks cheaper, or maybe even I bought 20 of them and I'm going to stick them up on my Amazon store because I can make more money. I own it. I bought it so is the First Sale Doctrine going to apply to this?

Jeremy: Yeah, I wanted to give a few tips for brand owners to prevent, or at least limit gray market goods being sold in the US. A couple of things that brand owners can do is have different packaging for different markets. It could be using different colors. Certainly, in many cases you have to use different languages in different countries. The labeling could be different, the warranties could be different. There may be rebates or there may be add-ons. There may be products that you want to bundle in certain countries but not others. 

And of course, you know, quality control. You want to have the appropriate level of quality control depending upon the price of the product, and it may be in US that you have higher or different quality control levels. But all of those differentiate the goods and if gray market goods don't meet the same level of product specifications that the US market has you can definitely bring a trademark infringement action. 

And then the last point that I did want to make is another way to prevent or at least try to limit gray market goods is to have contracts, distribution agreements with your distributors, and retailer agreements with your retailers that prevent or prohibit the sale of gray market goods or the shipping from one country to another of your otherwise legitimately branded products.

Ron: That's a great one to end it on because so many of our clients work with wholesale distributors, foreign distributors, Canadian, European, wherever. That's something that we're going to mention to them to add to their agreements. So, thank you again. Great information. I hope our listeners got something out of it and I will talk to you in another episode of Legal Briefs. If you'd like to submit a question or topic for a Legal Briefs podcast, e-mail them to legalbriefs@mapptrap.com. For more information about how map trap can help you with your online, brand protection needs, visit www.mapptrap.com.