Articles

A Black and White View of Grey Markets?

Originally published on April 16, 2010 in Journal of Intellectual Property Law & Practice

This book’s perspectives on gray markets (parallel trade) is clear from its subtitle. The author is a partner at Call, Jensen & Ferrell, specializing in IP litigation and brand protection. While acknowledging that he has produced ‘no spy novel,’ he has provided a very readable, black and white review of the unauthorized grey market in the USA. He focuses in particular on the implications of grey markets for brands, especially due to intermingling with counterfeit goods, and outlines the business and legal strategies that can be employed to protect brands from the grey market.

The author commences by reviewing the industries which face counterfeits and grey markets, from airline and automotive parts to cigarettes and alcohol, also encompassing unbranded goods such as steel and timber. He proceeds to survey the changes to distribution and the grey market resulting from globalization, the internet, and other technological change before considering the economic and social consequences of grey markets. Having introduced his topic, the author then divides the rest of the book into his three main subheadings of prevention, detection, and reaction (principally litigation). Under the heading of prevention, the author considers the need to educate those within the company and distribution chain as well as consumers, government, and the media. This sage advice follows numerous case studies of grey markets which have developed where excessive sales targets and/or insufficient scrutiny resulted in significant supplies of low-cost products reaching the marketplace. Accordingly, the author proceeds to outline a range of strategies which can be used to maintain integrity of the supply chain or otherwise limit the risk of grey markets. These practical strategies provide a useful starting point for considering supply chain management. However, European readers should take care, as some of the (implicit) suggestions, such as a licensing restriction ‘that the dolls . . . could only be sold to those who would agree not to use or resell the licensed products outside of Spain’, while doubtless useful before the courts in the USA, would almost certainly breach what is now Article 101 TFEU (ex-Article 81 EC) as a restriction of competition in Europe.

The author then turns to detection, starting with ‘red flags’ which may suggest grey market activity, such as low pricing, unreasonable spikes in orders or unusual delivery requests, and more specific methods of detecting grey market activity, such as audits, internet monitoring, and trap purchases.

Last but not least, the author considers ‘reaction’, including civil and criminal arbitration, ITC proceedings, and arbitration. This part occupies roughly half of the book and takes the reader through jurisdiction, preliminary remedies (including the risks of brand owner liability where seized goods are grey market rather than counterfeit), discovery, and theories of liability (both against contractual partners and against third-party distributors). Alongside the usual suspects of copyright and trade mark law, there is detailed treatment of tortious interference with contract or with prospective economic advantage. Interestingly for the European reader, the author reviews in some detail the approach of the US courts to various issues which continue to trouble the courts in Europe, such as exhaustion of performance rights, software licensing, and changes to the condition of trade marked goods. He also outlines some state-specific laws which restrict the grey market. However, disappointingly, there is no significant discussion of antitrust or interstate commerce restrictions on liability.

The author concludes with a very brief summary of the approach to grey markets in other key jurisdictions around the globe: Canada, Mexico, Europe, Russia, and China.

Overall, this book provides a clear opposition to grey markets and a practical approach to minimizing the danger posed to brands. Although the ethical approach may seem rather one-sided to Europeans, trained in the fierce protection of parallel trade by the European Commission and courts as part of the drive towards a single market, the book avoids becoming a polemic, maintains a steady focus on the reasons for brand owners to be concerned by grey markets, and provides a broad range of strategies which can be adopted against them in the USA.

(Reviewing David R Sugden’s “Gray Markets: Prevention, Detection and Litigation”) By Christopher Stothers

For more info contact David R. Sugden