Source: https://www.finnegan.com/en/insights/fighting-gray-market-goods-at-the-itc.html
Timestamp: 2019-04-26 04:34:26+00:00

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Chosen by many brand-name companies, including Duracell, John Deere, and Phillip Morris, the International Trade Commission (Commission) is well-suited to handle Section 337 investigations involving gray market goods. Although more commonly known as a patent forum, the Commission has jurisdiction to handle a broad array of intellectual property matters, including trademark and copyright claims.11 And in practice, the Commission has many attractive qualities which make it more advantageous than the district court in eliminating gray market goods.
In addition to meeting the domestic-industry requirement, a complainant must establish the importation into the United States, the sale for importation into the United States, or the sale within the United States after importation of the gray market goods at issue.29 Proving importation is not particularly difficult, and parties typically enter into a stipulation.
To prove a violation of Section 337 based on the importation and sale of gray market goods, a complainant must show that the imported gray market goods are materially different from their corresponding authorized goods. “A material difference is a difference that consumers are likely to find significant when purchasing the [goods] because such differences would erode the goodwill of the domestic source.”30 The rationale that justifies preventing the importation of gray market goods is a public policy one.31 As a result of the trademark owner building up its brand, the public associates a trademark with goods having certain characteristics and would likely be confused or deceived by goods bearing the same mark but having materially different qualities.32 This consumer confusion could “erode the goodwill achieved by the United States trademark holder’s business.”33 Thus, enforcing trademark rights against gray market imports allows a trademark holder to control the qualities and characteristics associated with its trademark in a particular jurisdiction or territory.
While the threshold for proving materiality is low, a complainant must also establish that all or substantially all of its sales are accompanied by the asserted material difference.38 This “substantially all” requirement recognizes that “the sale by a trademark owner of the very same goods that he claims are gray market goods is inconsistent with a claim that consumers will be confused by those alleged gray market goods.”39 The Federal Circuit has held that 87.4% did not constitute “substantially all” of authorized goods.40 Thus, the threshold is higher for demonstrating that “all or substantially all of [the] sales” include the asserted material difference.
In sum, gray market goods present serious problems for brand-name companies. In addition to detracting from brand-name sales, gray market goods can erode the consumer goodwill garnered by trademark holders. To remedy the situation, the International Trade Commission offers an efficient and effective solution. Compared to district courts, the Commission completes such actions in nearly half the time, more freely awards injunctive relief, and is not constrained by the same jurisdictional limitations.
1 See Hai Li et al, Analysis of gray markets in differentiated duopoly, 54(13) Int’l J. of Production Research 4008, 4008 (2016).
3 See Romana L. Autrey et al, Organizational Structure and Gray Markets, 33(6) Marketing Science 849, 849 (2014).
4 See Mark Schonfeld, Fight Grey Goods with Trade Mark Law, Managing Intell. Prop. 21 (2010). The Federal Circuit defined “gray market goods” in Gamut Trading Co. v. U.S. Int’l Trade Comm’n as goods “legally acquired abroad and then imported without the consent of the United States trademark holder.” 200 F.3d 775, 778 (Fed. Cir. 1999) (citing K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 286–87 (1987)).
5 See Deere & Co. v. Int’l Trade Comm’n, 605 F.3d 1350 (Fed. Cir. 2010).
6 See Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013).
7 See M. Westerman et al, The $7 billion gray market: Where it stops, nobody knows, Business Week, April 15, 1985.
8 See Carol Wolf, Losing $63 Billion to Gray Market is Sleuth Obsession, Bloomberg, April 9, 2009. A 2008 KPMG study estimated that the information-technology sector alone lost $58 billion in global sales each year. See KPMG LLP, Effective Channel Management Is Critical in Combating the Gray Market and Increasing Technology Companies’ Bottom Line: KPMG Gray Market Study Update, https://www.agmaglobal.org/uploads/whitePapers/7-10-08KPMGWhitePaperGrayMarketStudy.pdf.
9 See Deloitte & Touche LLP, When Channel Incentives Backfire: Strategies to help reduce Gray Market risks and improve profitability, https://www.agmaglobal.org/uploads/whitePapers/AGMA%20Deloittte%20When%20channel%20incentives%20backfire%20FINAL%204-14-11.pdf.
10 See Foaad Iravani, Coping with Gray Markets: The Impact of Market Conditions and Product Characteristics, 24(5) Prod. & Oper Mgt. 762, 765 (2014).
11 See 19 U.S.C. § 1337(a)(1)(B)–(C).
12 See id.; see also 19 C.F.R. § 210.51(b)(1) (“If the target date does not exceed 16 months from the date of institution of an original investigation, the order of the administrative law judge shall be final and not subject to interlocutory review.”).
13 Dean A. Pelletier, Litigating Trademark Cases at ITC vs. District Court, Law 360, July 17, 2012, https://www.law360.com/articles/359626/litigating-trademark-cases-at-itc-vs-district-court.
14 See 19 U.S.C. § 1337(f)(1). See also Joseph H. Heckendorn et al., Gray Market 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, 276 (2009).
15 See § 1337(d). The Commission freely issues limited exclusion orders, which prohibit importation by “any person” found violating Section 337. See § 1337(d)(1). General exclusion orders, which are not limited to persons found in violation, can be attained in certain limited circumstances. See § 1337(d)(2).
Worldwide, Inc., 522 F.3d 1211, 1228 (11th Cir. 2008).
17 See Colleen V. Chien, Patently Protectionist: An Empirical Analysis of Patent Cases at the International Trade Commission, 50 Wm. & Mary L. Rev. 63, 99 (2008).
18 See Sealed Air Corp. v. U.S. Int’l Trade Commission, 645 F.2d 976, 986 (C.C.P.A. 1981) (holding that complainant need not comply with Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) to attain an exclusion order from the Commission). Complainants must establish personal jurisdiction, however, to attain cease-and-desist orders. See § 1337(f).
20 See § 1337(a)(1); see also Sealed Air Corp., 645 F.2d at 985–86 (requiring in rem jurisdiction to maintain action against five respondents).
21 See Heckendorn, supra note 14, at 277.
23 See In re Certain Excimer Laser Systems for Vision Correction Surgery and Components Thereof and Methods for Performing Such Surgery, Inv. No. 337-TA-419, Pub. No. 3299, Initial Determination at 132–47 (Dec. 1999).
24 See In re Certain Cigarettes I, 337-TA-643, Order No. 19, Initial Determination at 42–43 (Feb. 2009).
25 § 1337(a)(3) (requiring the complainant to show either (A) significant investment in plant or equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.).
26 Inv. No. 337-TA-678, Order No. 34, Initial Determination at 12–19 (Mar. 2010).
27 U.S. Reg. Nos. 3,092,197 and 2,946,045, respectively. See id. at 12–14.
28 In re Certain Energy Drink Products, Initial Determination at 14–21. For a more detailed discussion of the domestic-industry requirement, see William P. Atkins, Appreciating 337 Actions at the ITC: A Primer on Intellectual Property Issues and Procedures at the U.S. International Trade Commission, 5 U. Balt. Intell. Prop. L.J.103, 113–16 (1996).
30 Certain Bearings and Packaging Thereof, Inv. No. 337-TA-469, Comm’n Op. at 10–11 (June 2004).
31 Id. see also Heckendorn, supra note 14, at 272–73 (discussing the “material differences” test).
32 Gamut Trading Co. v. U.S. Int’l Trade Comm’n, 200 F.3d 775, 779 (Fed. Cir. 1999).
36 See In re Certain Energy Drink Prods., Inv. No. 337-TA-678, Order No. 34, Initial Determination at 28 (Mar. 2010) (inability to exercise quality control over gray market energy drinks “material”); In re Certain Cigarettes, Inv. No 337-TA-643, Order No. 19, Initial Determination at 28–31 (Feb. 2009) (inability to exercise quality control over gray market cigarettes “material”); In re Certain Agricultural Tractors Under 50 Power Take-Off Horsepower, Inv. No. 337-TA-380, Comm’n Op. at 16–17 (Mar. 1997) (lack of English-language labels and suitable replacement parts for tractors “material”).
37 See SKF USA, Inc. v. Int’l Trade Comm’n, 423 F.3d 1307, 1312–17 (Fed. Cir. 2005) (affirming the Commission’s determination that post-sale services can alone constitute a “material difference”).
38 See id. The asserted material difference was after-sale services, such as ongoing technical support. See id. at 1312–17.
40 See SKF USA, 423 F.3d at 1317–18. The Commission has determined 96.6% to constitute “substantially all” authorized goods. In re Certain Agricultural Vehicles and Components Thereof, Inv. No. 487, Comm’n Op. (2d Remand) at 27–39 (Apr. 2012).
Reprinted with permission from the IP Litigator, published by Wolters Kluwer. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.

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