Here is some background. U.S. law says that only the trademark owner or someone authorized by the trademark owner can import products into the United States bearing the mark. That makes sense and it is how the law is usually described. But, it is also incomplete.
The law also provides that once someone buys the physical item bearing the mark, that person can do pretty much what he or she wants with it, including resell it and import it. That is the principal of trademark exhaustion. The idea is that through the authorized sale, the trademark owner has been fully compensated and has no lingering rights to control the further disposition of the product.
That creates an opportunity for entrepreneurs. If a company can find a good deal on shampoo, chocolates, or Mexican cola in some foreign market, it can import the goods into the United States and sell them here at a profit. This is the business model on which many discounters and on-line sellers operate. It is perfectly legal . . . up to a point.
The problem for parallel importers (or "gray market" importers) is that U.S. trademark law still does not allow the use of a trademark in a way that that is likely to cause confusion as to the attributes of the product. Assume you go into your local deep discount shop to buy a bar of Shield soap, because that is what you always buy and you expect it to work they way you like it to work. You see the familiar Shield label, grab a bar, and run home for a shower. Unfortunately, your shower is unsatisfying because the soap does not lather properly and maybe smells a little funny. What gives?
What happened is that you bought a perfectly cromulent bar of soap authorized by Lever Bros., the owners of the Shield trademark. It is just that the particular bar you bought at a steep discount was intended for some other country, not the U.S. It was formulated specifically for consumer preferences and conditions in that country and does not work well in the U.S. Lever Bros. never intended for it to be sold in the U.S. But, they lost control over that bar of soap when it was sold in an authorized channel abroad.
Those facts resulted in the famous Lever Bros. Co v. United States, a 1989 decision on the legality of parallel imports of authentic trademarked products. The upshot of that case is that parallel imports are generally legal. But, if the product is materially different than the product authorized for sale in the United States, then consumers may be deceived as to the nature of what they are buying. Consequently, U.S. trademark holders are permitted to seek the exclusion of imports that bear legitimate trademarks but are nonetheless materially different from the local versions. This is the Lever Rule.
Customs has implemented the Lever Rule in a kind of tricky way. First, it defines "restricted gray market goods" as "foreign-made articles bearing a genuine trademark or trade name identical with or substantially indistinguishable from one owned and recorded [with CBP] by a citizen of the United States or a corporation or association created or organized within the United States and imported without the authorization of the U.S. owner." 19 CFR 133.23(a). I say this is "tricky," because you will note that goods meeting this definition are not actually restricted; they will be prevented from entering the U.S. only in limited circumstances. The qualifiers are important.
Restricted gray market merchandise must have a trademark that was:
- Applied by licensee independent of the U.S. trademark owner (and, presumably, not under its control);
- Applied by the foreign trademark owner or under its authority, provided that the foreign trademark owner is not the U.S. trademark owner, its parent, its subsidiary, or otherwise under common control or ownership (again, note we are talking about a foreign party not under the control of the U.S. trademark owner); or
- Applied by the U.S. trademark owner or someone under its ownership or control but applied to goods that are materially different from the articles authorized for distribution in the U.S.