The postings of a customs lawyer in Chicago on the state of customs law and international trade law. Important Disclaimer: None of this is legal advice, don't act on it. Don't ascribe these statements to my law firm, its partners or clients. Don't steal from my blog. I wrote it, I own it. But, feel free to link to me. Also, under the rules regulating speech by attorneys, this blog may be construed as lawyer advertising. I am the sole party responsible for the content.
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
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
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
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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