Gray Market Products

By Sheila Marie Cruz-Rodríguez, Ferraiuoli LLC

Typically, this involves a third party importing and marketing products under a brand, whose composition and packaging significantly differ from the products that the manufacturer makes available to that market under its own brand. This often occurs with products manufactured with different compositions for different geographic regions to comply with applicable local regulations. Consequently, such actions constitute a trademark infringement under the Lanham Act (15 U.S.C. §§ 1114, 1125(a), and 1124).

It is important to note that while the First Sale Doctrine holds that once a trademark owner authorizes the initial sale, they cannot prevent or control subsequent sales of authentic products bearing the mark, this doctrine does not offer any protection if the products materially differ from the authorized authentic products in the United States. Therefore, the importation and sale of a materially different product make it a product bearing a counterfeit mark. See Johnson & Johnson Consumer Cos. v. Aini, 540 F. Supp. 2d 374, 387 (E.D.N.Y. 2008).

Now, what is the threshold of materiality? Courts, in a non-exhaustive manner, have concluded that products are not authentic and, therefore, a mark has been counterfeited when the following differences are found between the original product and the gray market product:

1. Product characteristics: Chocolates with a composition, presentation, and shape different from the plaintiff's chocolates sold in the United States constitute a material difference in the product's characteristics. See Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 642-43 (1st Cir. 1992).

2. Product packaging: The defendant's resale of a plaintiff's products in packaging different from the original can constitute a material difference. (See Abbott Labs. v. Adelphia Supply USA, 2017 WL 6014330, at *4 (E.D.N.Y. August 14, 2017) (denying a motion to dismiss based on the plaintiff's allegations that the defendant's packaging omitted safety warnings and included potentially false information); Moroccanoil, Inc. v. Perfumes World Com, Inc, 234 F. Supp. 3d 1026, 1031-32 (C.D. Cal. 2017) (where numerous differences between the packaging of the products in question, including violations of FDA labeling regulations, are deemed material). Likewise, if only the product offered by the manufacturer for the specific geographic region provides access to warranties or a customer service channel, these differences become significant.

3. Quality control: Depriving the manufacturer of implementing effective quality control practices in delivering their products to consumers constitutes a material difference. See Monahan Products LLC v. Sam’s East, Inc., 463 F.Supp.3d 128, 141 (D.Mass., 2020).

In conclusion, when faced with these differences that directly affect the product to be acquired, a consumer is indeed confronted with two materially different products that are confusingly similar to each other due to bearing the same mark. Therefore, the importation and commercialization of these materially different products is prohibited.

We emphasize that such prohibition does not apply to the resale of authentic and original products.

This article was originally published in Spanish in Microjuris on February 17, 2023.