The Gray Blog

Although I’m trying to keep this blog centered on news and developments, sometimes it is worth bringing to light little known aspects of parallel market law. Most people are familiar with the application of federal laws in the United States such as the Lanham Act and the Copyright Act in relation to parallel market issues. However, in the United States, we have 50 states (akin to provinces in other countries) that have their own local laws governing statewide trademark registration, unfair competition and other issues. In many lawsuits involving parallel market goods, the complainant alleges violations of state common law trademark and unfair competition laws.
In a handful of cases, however, US states have passed laws specifically directed at parallel market goods. These parallel market laws cover a variety of products including cigarettes, vehicles and even child adoptions. The purpose of this article, however, is to focus on the statutes dealing with general parallel market commercial goods.

Three states, California, Connecticut and New York, have put such statutes into law. These state laws share two things in common.  They apply to the retailer and they try to provide the consumer with adequate notice of what he or she is buying.  Not unlike the line of authority that developed from Coty v. Prestonettes, 264 U.S. 359 (1924) and Champion Spark Plug Co. v. Sanders, 331 U.S. 125 (1947), and Custom’s Lever Brothers regulations, the states try to dispel any confusion by notifying the consumer that the goods, while genuine, may not be fully conforming with the domestic product.

The first and most comprehensive of these laws is set forth in California Civil Code Section 1797.81 titled “Retail Sellers; disclosures; tickets, labels or tags.” The law requires every retailer who sells gray market goods to post a sign at the products’ point of display and to affix to the product or its package a notice setting forth, as appropriate for the product, whether:
• the item is covered by the manufacturer’s warranty in the US (unless the reseller provides his own warranty and provides proper notice thereof);
• the item is compatible with US electrical currents;
• the item is compatible with US broadcast frequencies;
• replacement parts and compatible accessories are not available through the manufacturer’s U.S. distributor;
• the item is accompanied by instructions in English;
• the item is eligible for manufacturer’s rebate(if any);
• the item has any incompatibilities or non-conformities with relevant domestic standards.
A similar disclosure has to be included in any advertisement for the product. California Civil Codes section 1797.82. A violation of these statutes entitles the consumer to return the product and constitutes a violation of the California Unfair Competition and Deceptive Trade Practices Acts.

California law goes further than its two sister states and prohibits the decoding of “personal property.” California Penal Code 537e. Often manufacturers code products in order to track back the source of parallel market goods. Parallel market resellers remove these codes in order to protect their sources. When the removal defaces the products it violates existing case law. This statute reaches to decoding which does not deface. Any removal of a “manufacturer’s serial number, identification number, electronic serial number, or any other distinguishing number or identification mark” is punishable by fine and imprisonment.

Connecticut provides a less intrusive and extensive restriction. Connecticut General Statutes section 42-210 requires every retailer who sells parallel market goods to post a sign conspicuously to the item, the point of sale or the register setting forth whether the product is (1) accompanied by the manufacturer’s warranty valid in the United States; (2) accompanied by instructions in English; or (3) eligible for a rebate offered by the manufacturer. Mail order vendors (but not retailers) must also make these disclosures in any written advertising relating to such product. Failure to abide by the statute entitles the consumer to return the product within 20 days and constitutes an unfair or deceptive trade practice. As in California, the Connecticut retailer can avoid the warranty issue by offering his own warranty of equal or greater coverage.

Finally, the New York statute is focused on the warranty issue. New York General Business Law section 218-aa provides that a retailer who knowingly sells gray market goods shall conspicuously post on a sign attached to the item and on each cash register on from a place visible from each cash register, disclosing whether the product is accompanied by a manufacturer’s warranty, whether it contains instructions in English and whether the product qualifies for a manufacturer’s rebate in the US. As in the case of the Connecticut statute, the New York statute allows the consumer 20 days to return the product in the event of a violation. The New York statute goes further, however, by providing that the attorney general can bring suit for injunctive relief without proof of actual injury and for civil penalty.