Monday, September 18, 2017

The Great Unmasking

As we know from my previous post, XYZ is the pseudonym of a company that imports Duracell batteries through channels that are not authorized by Duracell. That makes XYZ a “parallel importer” or “gray market importer.” Putting the best possible spin on its business model, XYZ finds opportunities to bring quality products to consumers at lower prices by taking advantage of imbalances in Duracell’s global pricing. In this model, Duracell has been fully and completely compensated through its foreign sale and is trying to thwart XYZ only to keep its U.S. price high. So, XYZ is arguably the champion of the common consumer.

XYZ is, of course, operating in the realm of many righteous warriors for freedom and justice who have adopted a nom de guerre or “code name” to protect their identity from evil doers. Young Bruce Wayne could only do so much to protect Gotham. Batman, on the other hand, can operate at (or well passed) the edge of legality to take on the enemies of justice. Spider-Man has greater power and, therefore, greater responsibility than does Peter Parker. But, there are always those who seek to unmask our heroes. Sometimes, even other good guys.

Apologies to DC Comics and Warner Bros.
XYZ started this battle hoping to prevent Duracell from securing what is known as “Lever Brothers Protection” for its batteries. If you are not familiar with gray market imports and the Lever Brothers rule, go read the earlier post.
Initially, this case was between XYZ and the United States government. XYZ is exercising its rights as an importer to challenge an administrative action by Customs and Border Protection. No other parties are necessary for ZYX to do that. Duracell, however, rightly wanted an opportunity to state its case in support Lever Protection. To accomplish that, Duracell moved to intervene, which the Court permitted. 
Once part of the case, Duracell challenged the designation of the identity of the plaintiff as confidential and subject to a judicial protective order. To protect its anonymity, XZY did something called a motion for an order to show cause why XYZ’s true identity should not remain confidential. This is effectively a request that the Judge make the other side explain its position so that the judge can make a ruling. Here is the decision from the Court of International Trade.
For its part, XYZ believes that it risks business and legal retaliation from Duracell. That is entirely reasonable. XYZ is competing against Duracell with Duracell’s own products (note these are not identified as counterfeits; they are genuine Duracell batteries). If XYZ were unmasked, Duracell might bring an action against it for trademark infringement. The merits of that claim are beyond the scope of this blog, but Duracell might have problems with that claim if the goods XYZ imports are identical in all material ways to the batteries Duracell sells in the U.S. Duracell might take other commercial actions such as working to undercut XYZ with its customers or otherwise discouraging sales by XYZ. XYZ naturally wants to avoid those problems.
But, XYZ’s desires do not necessarily comport with the law. The applicable protective order allows for XYZ to keep certain designated categories of information confidential. The relevant category here is “proprietary, business, financial, technical, trade secret, or commercially sensitive information.” The Court noted a lack of evidence concerning this designation and held that XYZ had failed to meet its burden on this front.
Nevertheless, the Court may exercise its discretion to maintain the anonymity of the plaintiff. Anonymity is not favored. The Rules of the Court require that every case be prosecuted in the name of a real party. This is an important principle in that it allows the parties to know the identity of the opposition. It also forms an important part of the public record, allowing the public to know the facts surrounding public judicial proceedings. The Court is required to balance the desire for anonymity against the public interest and any potential unfairness to the opposing party.
Cases in which anonymity was permitted have included facts such as the risk of personal violence, deportation, and arrest. Take, for example, Roe v. Wade, in which the plaintiff proceeded under the pseudonym “Jane Roe.” Clearly, the real Norma McCorvey was taking public position for which she might fairly have risked violence and intimidation. 
Here, the plaintiff’s concern is that it might end up on the wrong side of a trademark infringement suit. That is a legitimate concern, but it is not enough. According to the Court of International Trade, protecting the party’s economic or professional life is not a sufficient reason to overcome the presumption that the name of a litigant in a U.S. court is a matter of public record.
Thus, XYZ has been unmasked leaving it with the question of whether to proceed under its own name or to give up the case and preserve its identity. More on that shortly.
Now, just to be sure that I am being even handed, I want to be clear that my effort to use a superhero metaphor should not be interpreted as taking a side. Duracell has a point. A company with multinational distribution and sales often wants to control who sells its products and where. There are lots of reasons for that including protecting the company’s good will and its distributor relationships. On the goodwill front, a company like XYZ is not going to get complaints if the batteries fail for whatever reason. The consumer is going to see Duracell on the label and complain to it. Duracell might rightly respond, “Sorry, that package of batteries was never intended to be in the U.S. We did not sell it to the store where you bought it. You are out of luck.” Most companies won’t do that. Rather, they might take the return or otherwise accommodate the unhappy customer. That means XYZ has cost Duracell a sale to the retailer and Duracell took on the added expense making someone who was not even its customer happy. That’s not fair to Duracell. 
Also, Duracell might have distribution agreements in place that give retailers exclusive geographic rights. I don’t know if this is true, I am just giving a hypothetical example. If Duracell limits its distribution channel, it has agreed to give a retailer certain business opportunities. A company like XYZ comes along and starts to sell in competition with that retailer, which undercuts the value of the authorized relationship with Duracell.
Lastly, these batteries might not be exactly what the U.S. consumer expects of a Duracell product. Perhaps they were formulated and manufactured to work in the cold of Greenland and won’t work as well in the comparatively balmy U.S. market. Or, perhaps, batteries sold in New Zealand have to be slightly larger than their U.S. equivalents to prevent choking in kiwis (the birds, not the people). If the American consumer buys a Duracell battery, it should get what it expects from the Duracell trademark.
For companies that sell branded products, parallel imports are a serious problem. That is why Duracell is exercising its legal rights to secure Lever Brothers Protection.

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