It is common knowledge that U.S. customers are willing to pay a higher price for products from valued, well-known brands. There is a price disparity between the amount of money U.S. consumers are willing to spend versus the amount foreign customers are willing to spend on the same product. These higher prices create a good domestic market for products, but it also incentivizes the selling of items referred to as grey market goods. Grey market goods or parallel market goods, are genuine and non-counterfeit trademarked products that are imported from one market and sold in another market – which the manufacturer did not intend for sale – at a below market price.
Parallel imports can range from luxury products such as handbags to utilitarian items such as prescription drugs. Instead of buying products from a manufacturer in the United States and selling them at the manufacturer’s suggested retail price (MSRP), dealers and resellers will import grey market goods so they may retain a higher profit. The seller imports items buy items manufactured in a foreign country at a lower price, and sell it at a high price in the United States. Though the grey market does benefit resellers by cutting costs, it also creates problems for domestic manufacturers, such as loss of profits.
International Trade Commission
Regulating the sale of grey goods to the minimum is difficult but possible. Taking aggressive action against resellers and agents is an option. Brand owners with U.S. trademarks have a legal advantage and can prosecute the distributor of grey goods in court. Grey market imports may be nearly identical to the material being infringed on, so grey market trademark infringement actions are fairly difficult to win in district court.
However, the most efficient way to remedy parallel imports is to go through the U.S. International Trade Commission. The Commission has broad injunctive power to stop products at the border, and can provide powerful injunctive relief against imports that infringe patents, trademarks, and copyrights. The Commission is well known for its time efficient manner in settling cases.
The ITC is preferred over federal court because in federal district court, the litigation of a case may not go to trial until years after it’s filed. When the party accused of distribution of grey goods does not respond within 20 days, a default can be sought. A default judgment is a judgment made when one party in the case fails to respond to summons or appear in court. Default is the most common form of response when dealing with grey market litigation. The selling of grey goods can be detrimental to the profits of a company and other trademark holders; therefore it is essential to stop the parallel market as soon as possible. The ITC is an under-utilized resource that can provide quick relief for trademark holders when their rights are infringed upon by the selling of grey goods.
Regulating Grey Goods
Section 337 of the Tariff act of 1930 prohibits importation of goods that infringe a common law trademark. The owner of the trademark must establish that the grey market goods are materially different from the products offered by the trademark owner and prove that the goods are not genuine. Material differences can be based on anything from physical differences to different warranty. Differences could even be the language of warning stickers on the product. There should be proof that there is a likelihood of confusion for a consumer due to the similar material.
Clothing is a widely distributed grey good. For example, a large portion of profits made by Abercrombie & Fitch comes from buyers who buy an enormous amount of clothing in the United States to resell in China at a higher price. In response, the company enacted a policy of allowing each customer to buy only selling 20 items of clothing a day. The grey good market for clothing has become extremely prominent, and as a result, many retail companies have enacted policies to discourage the distribution of grey goods.
Intellectual property rights holders have the ability to control the distribution of their products, therefore grey goods is a violation of the law. Although grey goods may be a good option to those who want to save money, they come at the expense of another individual’s intellectual property rights.