Importing of ‘Gray Market’ Goods Upheld : Decision Likely to Save Consumers Millions of Dollars

The Supreme Court, in a ruling likely to save consumers millions, today upheld the importation of most “gray market goods,” expensive trademark items ranging from cameras to perfumes sold for discount in this country.

The high court affirmed the bulk of a 50-year Customs Service policy allowing such imports if the foreign and U.S. trademarks are owned by the same company or by a parent and its subsidiary.

The policy generally has been viewed as a boon to consumers because it enables them to buy expensive foreign made electronics and other items at discount.

But the justices invalidated one part of the Customs Service regulations allowing such imports whenever the U.S. trademark owner has authorized the use of its trademark abroad by an independent manufacturer.

The 5-4 ruling generally means that K mart and other discount stores will be able to continue to bypass U.S. authorized dealers and directly import expensive items such as Cartier watches and Charles of the Ritz perfume and sell them at discount in this country.

The exact size of the gray market is unclear. Estimates have ranged from $5 billion to $10 billion a year.

Justice Anthony M. Kennedy, writing for the court, said a key Customs Service regulation authorizing gray market imports does not violate federal law.

Federal Law ‘Ambiguous’

Federal law is “sufficiently ambiguous” to give the Customs Service leeway, Kennedy said.

The gray market case was brought to the high court by K mart and other discounters appealing a ruling by the U.S. Circuit Court of Appeals for the District of Columbia, which said Customs Service rules allowing the imports violate federal laws giving broad protection to U.S. trademark owners.

The imports at issue are trademarked products--such as perfumes, cameras and consumer electronics--manufactured abroad and imported by independent retailers rather than authorized U.S. distributors.

Typically, the discount companies buy trademarked products in the United States more cheaply than do the owners of the U.S. trademarks.

Other Action Reported

In other action, the justices:

--Refused to reinstate an affirmative action plan designed to increase the number of blacks in the District of Columbia Fire Department. The court, without comment, let stand a ruling that the plan, calling for hiring at least six blacks for every 10 job openings, unlawfully discriminates against whites.

--Refused to resurrect federal rules that would force cable television operators to carry all local TV signals on their systems. The court, without comment, let stand a ruling that struck down as unconstitutional interim “must-carry” rules adopted by the Federal Communications Commission in 1986.

--Refused to reduce a jury award of more than $11.2 million won from a tampon manufacturer by the family of a Kansas woman who died of toxic shock syndrome. The court, without comment, rejected an appeal by Playtex Holdings Inc. seeking to reduce the award.