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Gray marketing is the marketing of authentic,
legally trademarked goods through unauthorized channels. It can also be the
business of buying or selling goods, such as imports, at prices below those set
by an official regulatory agency. The gray market is able to keep going when
companies sell goods in foreign markets at prices that are much lower than
prices charged to, say, United States distributors, by one strong currency. The
gray market is not as bad as the black market, which is illegal selling of goods
in the unofficial market, but it still has the power to harm companies both
financially and as far as its reputation goes.
Gray market activity is estimated to be around
twenty billion dollars a year, including everything from cars and cameras to the
rinky-dink baby powder products. Authorized distributors can legally refuse to
honor a warranty on an object bought through the gray market.
For a good example of the mess people and
companies can get into through gray marketing, consider the following example,
found on an intellectual property law website:
Regarding the issue of gray marketing, the Federal Court of Canada granted a
permanent injunction against a Quebec distributor of genuine Toblerone and Cote
d'Or chocolate bars based on a claim of copyright infringement in certain
elements on the packaging. Gray marketing, at least from an international
perspective, refers to the legal importation of genuine goods into a country
through an unauthorized distributor. That is, a gray market is said to develop
where goods intended for sale in one country end up in another country through
an unauthorized distribution channel.
In
this case, a Quebec distributor, Euro Excellence (“Euro”) had distributed the
Côte d'Or brand of chocolate bar under a distribution agreement with Kraft Foods
Belgium S.A. (“Kraft”). In December 2000, Kraft chose not to renew this
agreement, instead entering into a distribution agreement with Kraft Canada Inc.
(“Kraft Canada”). Euro continued its Canadian distribution of Côte d'Or
chocolate bars and began to also distribute the Toblerone chocolate bars. These
products were obtained outside of Canada from an unknown supplier.
Kraft
filed to register a number of copyrights associated with these brands. Three
copyrights were registered for Côte d'Or: an elephant, a script of Côte d'Or and
a red shield. For the Toblerone brand, a mountain in which a bear is discernable
within the image was registered. Kraft immediately entered into an exclusive
licensing agreement with Kraft Canada for the use of these works. Kraft then
sought an order barring the importation of products bearing these copyrighted
works. In other words, Kraft was not seeking to stop the sale of the chocolate
bars themselves, just the distribution of certain artwork on the wrappers.
According to the Court, “The idea is that the cost of re-wrapping or covering
over the copyrighted artwork would act as a major disincentive.”
The
court considered the validity of the copyrighted works in question. While the
script and red crest of the Côte d'Or copyrights were found insufficiently
creative to justify copyright, both the Côte d'Or elephant and the Toblerone
mountain copyrights were upheld as works warranting protection. In finding that
Euro infringed Kraft's copyrights, the Court ruled: “The language [of the
Copyright Act] is clear, and the very purpose of the Act is to prevent
unauthorized distribution of copyrighted works. There is nothing to prevent Euro
Excellence from replacing the wrappers or otherwise covering over the
copyrighted material.”
In
its ruling, the court awarded Kraft Canada a permanent injunction restraining
Euro from distributing, exposing or offering for sale any copies of the artistic
works, namely packaging design elements identified as the copyrighted works. A
similar injunction required Euro to render non-infringing any material in their
possession before selling, distributing, exposing or offering for sale any
Toblerone or Côte d'Or product. An additional $300,000 in damages was awarded.
Euro has filed an appeal.
(http://www.bereskinparr.ca/publications/update/update-may-3-2004.html)
This
is a good example of the kind of trouble a company can get into through the
process of gray marketing. If one company essentially is stealing something
another company has legally copyrighted or bought, the thieving company could
very well be sued or top executives jailed. Gray marketers must be very careful
and thorough in their research in order to cover their tracks carefully and keep
other companies off their backs. Companies may be driven to gray marketing if
major name brands emerge that they cannot compete with…they then take the name
brand products and sell them at a different brand name, usually without
infringing on any copyright laws. This can be really dangerous, though, and as I
said before, companies must be extremely careful. |
