Shades of Gray — Market Goods

Robert Godbey

The Tariff Act of 1930 provides U.S. owners of trademarks associated with goods of foreign manufacture with protection against gray markets, by prohibiting anyone else from importing U.S. trademarked goods into the United States without the consent of the trademark owner. Typically this protects a domestic firm that acquires rights from an independent foreign firm to use its trademark in the United States and to sell its foreign manufactured products here.

There is an exception to this rule. If the United States trademark owner and the owner of the foreign rights are the same, articles produced and sold abroad may be imported by anyone. The reason is that the trademark owner itself has put the articles on sale and may not unreasonably restrict the use of the product after it is sold. This exception extends to corporations under common control.

Some years ago, Rolex Watch U.S.A. Inc. (Rolex USA), recorded its ownership of the Rolex trademark with U.S. Customs, and consented to importation of only two articles "bearing the [Rolex] trademark" for personal use and not for sale. Otherwise, Rolex USA objected to the import of such articles by anyone else.

Based upon this, The U.S. Bureau of Customs and Boarder Protection sought to seize and forfeit 83 gray-market Rolex watches in the inventory of Wal-Mart. Wal-Mart argued that Rolex USA and the Swiss owner of the foreign trademark rights were one and the same. The court concluded, however, that they were not under common control. The court also rejected Wal-Mart's argument that it was an innocent owner of the watches, and held that Wal-Mart's ownership of the watches arose only after their unauthorized importation. The court affirmed the seizure of the watches by customs.

In sum, you should be very careful if you are contemplating importing or buying gray-market goods for commercial purposes. Otherwise, like Wal-Mart, you might end up empty handed.

Bob Godbey is a partner in the Honolulu law firm of Godbey Griffiths Reiss. A graduate of the Harvard Law School, he has degrees in electrical engineering and math. He welcomes comments through www.LawHI.com.