Legal landscape is fuzzy for gray market goods

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WASHINGTON — The law on gray-market goods is not settled.

The U.S. Supreme Court split 4-4 several years ago over Costco Wholesale’s overseas purchase of Omega watches that bore a copyrighted logo without permission. But it ruled against a U.S. shampoo maker that sought copyright protection against a distributor that imported products made for sale in Europe back to the U.S.

The current test appears to be whether there is a material difference between the products sold overseas and domestically, according to legal experts.

In 2009, Kia Motors America prevailed against Autoworks Distributing when Minnesota’s federal court determined that a different warranty for a gray-market part meant the product could not be represented for sale as identical. The case also was influenced by the fact that the instruction manual was in a different language and serial numbers were altered or defaced, said Leslie Glick, a customs attorney at Butzel Long in Washington.

Two years ago, Hyundai Motor America settled a lawsuit against Pinnacle Group, which was importing oil filters, air filters, brake pads and other parts. Hyundai had argued the parts infringed on its trademarks and could cause confusion in the marketplace. Pinnacle claimed the parts had the same warranty as those sold directly by Hyundai and there were no material differences.

The Federal Trade Commission several years ago ruled that using non-Honda parts shouldn’t invalidate a vehicle’s warranty unless it could be shown that the part caused some damage to the vehicle, Glick said.

It’s more difficult for manufacturers to control quality — and for consumers to be sure they’re getting parts that are built to work with their vehicles — when they come through the gray market, said Josh Dalton, leader of intellectual property issues in the automotive practice of Morgan Lewis.

“It’s an easy channel for counterfeit goods to be funneled in as well,” Dalton said.

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