February 22, 2021

CLIENT ALERT: Lanham Act Challenges to Gray-Market Goods

Trademark holders may face significant issues when goods bearing their marks are manufactured abroad and legally purchased outside the United States, then imported without their consent. These are so-called “gray-market goods.” See Weil Ceramics & Glass, Inc. v. Dash, 878 F.2d 659, 662 n.1 (3d Cir. 1989); K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 285 (1988). The incentive to import gray-market goods into the United States exists because goods intended for certain non-U.S. markets are often cheaper. The products may bear identical trademarks and look very similar to corresponding products authorized for the U.S. market. But the quality may differ—considerably. Gray-market goods may cause a host of problems.

Some of the most pressing problems associated with the unauthorized importation of gray-market products concern regulatory compliance. For example, gray-market products may:

      • Not be labeled in English
      • Lack required information or warnings on labels or packaging; and
      • Contain formulations not approved or intended for the U.S. market

The Food and Drug Administration and other federal and state regulatory bodies may seek to hold the American trademark owner responsible and impose penalties for such violations.

The presence of cheaper gray-market goods may also disrupt relations with authorized U.S. distributors. And consumers who unwittingly buy gray-market goods expecting a certain quality may be severely disappointed. Thus, even if a brand owner manages to stave off sanctions or other immediate disruptions, it can be important take swift action to stop, or at least severely curtail, the importation of gray-market goods.

The primary federal trademark statue in the United States, the Lanham Act, may provide one route to relief. Practical problems, however, such as identifying who is importing the offending goods and determining where they are amenable to suit may prove insurmountable. And in any given case, the costs and risks of litigation may outweigh the expected returns. Nevertheless, for companies facing the unauthorized importation of gray-market goods, pursuing Lanham Act relief is something to consider.

Are Lanham Act claims possible when a defendant acquired the trademark holder’s authorized products (albeit outside of the United States)? The answer, it turns out, is at least sometimes yes. Claims for trademark infringement, false designation of origin and unfair competition, and trademark dilution against defendants selling and distributing unauthorized gray-market goods have all recently survived dismissal. See, e.g., Nestle USA, Inc., et al. v. Ultra Distribuciones Mundiales S.A. DE C.V., et al., No. 5:20-CV-384-DAE (W.D. Tex., Feb. 1, 2021).

If you have a potential gray-market or other Lanham Act issue, contact Elizabeth Brannen.

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