U.S. Ordered to Bar Imports of All Gray Market Goods : Decision Is Expected to Be Appealed to Supreme Court

A U.S. Court of Appeals panel ruled Tuesday that the Customs Service must exclude from importation into this country all so-called gray market goods--foreign manufactured merchandise bearing legitimate U.S. trademarks.

The three-judge panel in the District of Columbia overruled a December, 1984, decision by U.S. District Judge Norma Holloway Johnson, which said that cut-rate and discount stores can import goods manufactured abroad bearing legitimate foreign trademarks that are identical to American trademarks.

The case most likely will end up in the Supreme Court, since the panel’s decision also is at odds with a ruling last year by the U.S. Court of Appeals for the federal circuit, also located in Washington. That panel concluded that the Customs Service regulations can be upheld “as a reasonable exercise of administratively initiated enforcement.”

The Coalition to Preserve the Integrity of American Trademarks, a trade association of U.S. companies with American trademarks, and several of its members brought the suit in an effort to prohibit enforcement of certain Customs Service regulations that they said denied them full protection of their trademarks.

Numerous Products Affected

The association of 1,200 independent businesses with trademarked products such as fragrances and cosmetics, watches, tires, fine crystal, cameras, binoculars and electronic goods claimed that they suffered damage from the importation and sale in this country of products manufactured by their foreign subsidiaries or licensees and bearing their trademarks but imported without authorization.

The association said that although the companies licensed certain subsidiaries to manufacture goods bearing their trademarks, unrelated third parties import those products without their consent.

Intervening in the suit on behalf of the government were two retailers who deal in gray market goods--K mart, a merchandiser and retailer operating more than 2,000 discount department stores, and 47th Street Photo Inc., a retailer of camera, video and other electronic equipment in New York.

K mart attorneys argued that trademark holders “wish to shield themselves from competition from their own foreign affiliates within the U.S. market.”

“However, they are unwilling to stop manufacturing and selling in foreign markets even though they are well aware that their own genuine goods produced and sold abroad will probably, to some extent, be resold in the United States to compete with their own domestic distribution,” the K mart lawyers said.

In a 33-page opinion written by Judge Laurence Silberman, the three-member panel said U.S. Customs regulations violate a section of the Tariff Act of 1930 that prohibits the importation of any foreign-manufactured merchandise without the written consent of the owner of the trademark, which must be produced at the time of making entry.

The law, the appeals court said, “does not, on its face, admit of any exceptions based upon the relationship of the American and foreign trademark owners or upon whether the American owner has authorized the use of the trademark abroad.”