The ITC Makes Litigation Involving Gray Market Goods Less Gray

Most people have heard a friend’s story or seen something on the internet about purchasing designer goods for ridiculously low prices.  Often, the designer products being offered for sale involve either counterfeit goods or lesser quality versions purchased overseas.[1]  Foreign versions of U.S. goods can be purchased for significantly less than their U.S. counterparts because the goods are of lesser quality and/or cost less to produce.[2]  These designer products purchased overseas are known as “gray market goods” when they are imported into the United States and resold without permission of the U.S. trademark holder.[3]

Unlike counterfeit goods,[4] gray market goods are created with the permission of the U.S. trademark holder. Gray market goods are manufactured goods with authentic trademarks that are affixed abroad under the authority of the U.S. trademark holder by an authorized foreign subsidiary or licensee.[5]  Some argue that gray market goods are a form of free-market trade and should be permitted to be sold.[6]  During economic downtimes, the demand for gray market goods increases.[7]  The option of gray market goods provides consumers an alternative or substitute version of the real product.

However, from a trademark holder’s perspective, the sale of gray market goods creates unfair competition and a risk of consumer confusion.  Gray market goods are often cheaper than their U.S. counterparts due to cheaper materials of lesser quality.[8]  Due to the difference in quality, the sale of gray market goods deprives trademark owners of the ability to control the quality and distribution of their product.[9]  The Ninth Circuit recently recognized this harm by allowing national food retailer, Trader Joe’s, to sue a gray market importer, Pirate Joe’s, for reselling its products.[10]  Further, a consumer unaware of a good’s origin could be confused by the good’s inferior quality.[11]  Consumer confusion caused by gray market goods can harm a trademark holder’s reputation and product sales.[12]  As such, U.S. trademark holders have a direct interest in preventing the importation of gray market goods into the U.S.

U.S. trademark holders have remedies available under the Lanham and Tariff Act to enjoin the sale of gray market goods.  Individual plaintiffs and the U.S. Office of Customs and Border Protection (“CBP”) have the authority to confiscate imported goods unlawfully using a registered United States trademark.[13]  Through these statutes, private parties may seek to enjoin the sale and importation of gray market goods.

Matters involving gray market goods can be time sensitive matters for clients trying to enjoin gray market importers and clients whose goods have been mistakenly seized.[14] The seizure of goods or the amount of time spent combating gray market goods can result in economic losses.[15] This problem is exacerbated by the uncertainty of how long litigation can last in federal court actions.[16] As such, resolving matters involving gray market goods quickly can be a primary concern for clients.

However, issues of uncertainty can be mitigated by filing in specialized venues, like the International Trade Commission (“ITC”),[17] which frequently hears cases involving gray market goods.[18] The ITC provides trademark holders a variety of resources to clients that help provide faster resolutions from judges and commissioners experienced in complex trademark disputes.[19] Further, the ITC provides other benefits such as no personal jurisdiction limitations, fast relief, powerful remedies, the ability to sue multiple parties in a single action, parallel actions in federal court, and nearly unlimited discovery.[20]  Because of the ability to obtain quick resolutions against multiple parties, actions to enjoin the importation of gray market goods in the ITC cost less than federal court actions.[21]

For more information on filing actions involving gray market goods with the ITC, be sure to check out the following RIPL publications on the ITC, its procedures, and benefits:

• Joseph H. Heckendorn & Lyle B. Vander Schaaf, Gray Market Trademark Infringement Actions at the U.S. International Trade Commission: The Benefits of the Forum and Analysis of Relevant Cases, 8 Marshall. Rev. Intell. Prop. L. 271 (Winter 2009).
• Jay H. Reiziss, The Distinctive Characteristics of Section 337, 8 Marshall Rev. Intell. Prop. L. 231 (Winter 2009).
• Merritt R. Blakeslee, Post-Litigation Enforcement of Remedial Order Issued by the U.S. Int’l Trade Commission in Section 337 Investigations, 8 Marshall. Rev. Intell. Prop. L. 248 (Winter 2009).
• Carl C. Cherneski, The Role of the Office of the Admin. Law Judges Within the United States International Trade Commission, 8 Marshall Rev. Intell. Prop. L. 216 (Winter 2009).

[1] 5 Thomas J. McCarthy, McCarthy on Trademarks and Unfair Competition § 29:46 (4th ed.).

[2] Id. The lower cost of foreign versions of U.S. products can be attributed to lower production costs (i.e.. labor, materials, advertising, distribution, etc.) and governmental regulations. Id.

[3] Id. (noting that gray market goods are sometimes referred to as “parallel imports.”)

[4] Counterfeit goods are unauthorized reproductions or imitations of products which have identical U.S. trademarks affixed without the authority of the trademark owner. 2-5 Anne Gilson LaLonde, Gilson on Trademarks § 5.20 (Matthew Bender 2017).

[5] Id.

[6] Id.

[7] Id.; Colleen J. Orscheln, Bad News Birkins: Counterfeit in Luxury Brands, 14 J. Marshall Rev. Intell. Prop. L. 249, 257 (2015) (exploring the arguments for allowing the sale of gray market goods).

[8] McCarthy, supra note 1.

[9] See Id.

[10] Trader Joe’s Co. v. Hallatt, 835 F.3d 960, 971 (9th Cir. 2016) (recognizing that the defendant’s “poor quality control practices and inflated prices” caused the plaintiff reputational harm); see also Christopher Mele, Pirate Joe’s, Maverick Distributor of Trader Joe’s Products, Shuts Down, New York Times (June 8, 2017), https://www.nytimes.com/2017/06/08/business/pirate-joes-trader-joes-vancouver.html?mcubz=3.

[11] Id; McCarthy, supra note 1.

[12] See Trader Joe’s Co., 835 F.3d at 971.

[13] 19 U.S.C. §§ 1337, 1526; 15 U.S.C. §§ 1114, 1124, 1125; Joseph H. Heckendorn & Lyle B. Vander Schaaf, Gray Market Trademark Infringement Actions at the U.S. International Trade Commission: The Benefits of the Forum and Analysis of Relevant Cases, 8 J. Marshall. Rev. Intell. Prop. L. 271 (Winter 2009).

[14] Heckendorn, supra note 13 at 274-75.

[15] Trader Joe’s, Co., 835 F.3d at 969-72; Thomas J. Bacon, Caveat Bibliothetica: The First Sale Doctrine and the Future of Libraries After Omega v. Costco, 11 J. Marshall Rev. Intell. Prop. L. 414, 430 (Winter 2011).

[16] Heckendorn, supra note 6 at 274-75.

[17] According to the leading treatise on trademarks, the ITC has been a preferred venue for trademark enforcement actions under the Tariff Act. Id. at 271 (citing 19 U.S.C. § 1337; McCarthy, supra note 1 at §29:55.

[18] Id. at 271, 278-79.

[19] Id.

[20] Id. at 273.

[21] Heckendorn, supra note 13 at 278-79 (explaining how trial costs associated with ITC investigations are significantly less than federal court actions).