Legal Briefs Podcast: What Are Gray Market Goods, Really?

Gray market goods get blamed for almost everything, but the legal definition is narrower than most brands assume. Jeremy Richardson clears up the confusion and explains how brands can actually stop them.

"Gray market" gets used as a catch-all for almost any unwanted sale, but Jeremy Richardson opens this episode by narrowing the term to its actual legal meaning: genuine, trademarked goods that were intended for sale abroad, then imported into the US and sold in competition with the authorized domestic product, generally without the trademark owner's permission. It's not counterfeit, and it's not stolen; it's real product that was simply never meant for this market.

The problem, from a brand's perspective, is real: gray market goods undercut pricing, disrupt authorized distribution relationships, and can damage the goodwill built into a domestic trademark. The good news is that the first sale doctrine's material-difference exception applies squarely here: if the gray market version lacks a US warranty, uses different labeling, or otherwise differs from what was meant for domestic sale, a trademark infringement claim is available, potentially with injunctive relief, damages, and attorney's fees. Jeremy also runs through practical prevention: differentiated packaging, colors, languages, and warranties by region, plus distribution and retail agreements that explicitly prohibit cross-border diversion of otherwise-legitimate product.

• Legal definition: genuine trademarked goods intended for sale abroad, imported into the US without the trademark owner's permission, competing with the authorized domestic product.
• Not counterfeit, not stolen, which is exactly why the confusion around the term causes so many brand owners to misuse it.
• The remedy: a trademark infringement action under the material-difference exception to the first sale doctrine, potentially with injunctive relief, damages, and attorney's fees.
• Prevention: region-specific packaging, colors, labeling/language, warranties, and bundling, plus distribution/retail agreements that explicitly prohibit cross-border diversion.

Full Episode Transcript

[00:00] Welcome to MapTrap's legal briefs, the podcast where we explore specific strategies and tactics used by brands to protect their pricing, distribution, and intellectual property rights. The information in this podcast is provided for general informational purposes only. It is not legal advice. Listening to this podcast does not create an attorney-client relationship between you and MapTrap's guest presenters. Listeners should seek legal advice from a lawyer licensed in the listener's state. Audi and welcome to MapTrap'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 Freeborn's consumer products industry team. Howdy Jeremy.

[00:56] Hello, Ron. Nice to hear you again. Yep, you too. I can't wait to get into this one because it's an interesting topic. Gray market sales. That's what we're going to talk about. A lot of our clients talk about gray market. As a matter of fact, the term gray market I think has been overused and bastardized, really, to make it into its 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 that you'll be able to give our listeners a bit of a better understanding so that we don't misuse this term gray market goods. Sure, yes, I like this topic too. This should be fun. I figured I would 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. When I got to the cash register, or the salesperson really to talk about it and saw the price which I knew was going to be expensive. 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 a hundred bucks and I said, how are you going to do that?

[02:31] 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 a hundred bucks. And I said, wow, that's pretty cool. But it really is legitimate. It's 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 great market goods?

[03:09] And the answer from a legal perspective is, great 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, great 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?

[03:58] And from a brand owner's perspective, it can be a problem because great 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 good will that consumers have associated with the US trademark. So that can be very damaging to a brand when great market goods are being sold here.

[04:39] Thank you for that. But so what can we do as brand owners to prevent the sale of a brand market?

[04:46] 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 brand market goods. A trademark owner is entitled to intractive relief, entitled to damages, potentially even destruction orders, and sometimes most importantly an award of attorneys fees so that the brand owner really doesn't go deep, deep out of pocket on enforcing its trademark rights. Okay, thanks for that definition that clears that up for me and probably for our listeners. But here's a question. So 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 a way that it was sold to you?

[05:41] Yes. 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 great market goods were not intended to be sold in the US and there are 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 trademark owner certainly can bring an action for trademark infringement again. Material difference those goods were not intended to be sold to US consumers. 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 a hundred 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. Does the first sale doctrine going to apply to this?

[07:03] 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, 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 those differentiate the goods and 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 retail 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. 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, email them to legalbriefs at maptrap.com. For more information about how maptrap can help you with your online brand protection needs, visit www.maptrap.com.