It depends. “Gray market” goods are those goods that are sold outside of the brand owner’s authorized distribution channels. Although a trademark owner may consider them “bootleg,” “gray market” goods are actually legally acquired abroad and then imported into the United States without the trademark owner’s consent. These actions do not legally infringe the trademark under the Lanham Act unless the “gray goods” undermine the owner’s goodwill or leave the consumer in a state of “legal confusion.” If the “gray market” goods are “materially different” from the trademark owner’s goods, then courts have found “legal confusion.”
The Cabbage Patch Kids dolls were at the heart of a dispute in the case entitled, Original Appalachian Artworks v. Granada Electronics, 816 F.2d 68 (2d Cir. 1987). A Spanish importer/distributor sold Spanish Kids dolls in the United States. The Second Circuit found that the Spanish-language birth certificates, adoption papers and instructions for the Spanish Kids dolls were “materially different” from those same English-language documents for the Cabbage Patch Kids dolls. It was likely that the consumer would be confused. Accordingly, the Cabbage Patch Kids trademark owner obtained a permanent injunction prohibiting the Spanish importer/distributor from selling the Spanish Kids dolls in the United States.
With the increasing global nature of our economy, “gray market” infringement claims will likely increase in the years to come. Courts have found “material differences” in products based on labels, packaging, structural strength of parts, product composition and storage of material. If a product fails to contain English warning labels or English operator owners’ manuals, courts will likely find these to be “material differences” warranting protection.
“Material differences” do not have to be physical. Services provided with product and warranties (or lack thereof) can be found to be a “material difference” from the trademark owner’s product. Further, a trademark owner’s superior internal quality control procedures can be a “material difference.” There are many ways that a trademark owner can assert that there is a “material difference” in its product so that it can obtain protection from “gray goods” being dumped into the United States to unfairly compete with the trademark owner’s products.