Navigating the Gray-Market Landscape
Gray-market goods, also known as parallel imports, are genuine products imported into the United States without the consent of the US trademark owner, often bypassing authorized distribution channels. This Legal Update examines the legal, commercial, and regulatory landscape governing gray-market goods, with a focus on the material-difference standard and practical risk-mitigation strategies. The business impact of gray-market activity includes lost sales, brand dilution, and increased compliance risks. In sum, a robust material-difference analysis, combined with proactive compliance and enforcement strategies, is essential for effective defense against gray-market threats.
Understanding the Gray-Market Challenge
Gray-market goods are authentic, non-counterfeit products that are first sold abroad and subsequently imported into the United States without the authorization of the US trademark owner. Unlike authorized goods that are legitimate goods sold in the intended location or counterfeit goods that involve unauthorized use of a trademark (e.g., knockoff watches sold on city sidewalks), gray-market goods are legitimate goods but are distributed outside the intended channels. This distinction is critical, as the legal remedies and business risks differ significantly between authorized goods and parallel imports. For example, the lawful “first sale” doctrine applies domestically, but not to goods first sold overseas, and sellers of counterfeit goods do not have any protection.1
The economic impact of gray-market goods is substantial, with one estimate placing the US market volume at over $63 billion annually back in 2009. In 2011, gray market goods were estimated to cost individual high-tech companies approximately $1.4 billion each year. In 2016, gray market sales accounted for 20% of the global market for luxury watches. These unlawful imports exploit price differentials between markets, undermine minimum advertised price (MAP) programs, and create warranty and service burdens for authorized distributors. The resulting reputational risk and loss of control over product quality can have long-term effects on brand equity and profitability.2
Gray-market activity often arises from divergent international pricing, foreign licensees exceeding territorial restrictions, online marketplace resellers, diverted inventory, and unauthorized “second-shift” production. These actors exploit gaps in supply chain oversight and regulatory inconsistencies, making it challenging for brand owners to maintain control over their products and distribution networks.3
Brand owners face significant risks from gray-market goods, including brand dilution, exposure to product liability for goods not meeting US standards, disruption of distributor partnerships, and regulatory non-compliance with agencies such as the US Food and Drug Administration (FDA), US Federal Trade Commission (FTC), and US Consumer Product Safety Commission (CPSC). These risks can result in financial losses, legal liability, and damage to long-standing business relationships.
US Legal Tools and Precedents
A variety of federal statutes, judicial doctrines, and key cases shape the legal landscape for addressing gray-market goods in the United States.
- Trademark & Customs Statutes: The US legal framework for gray-market goods is anchored by the Lanham Act, which prohibits trademark infringement (Section 32, 15 U.S.C. § 1114), false designation of origin (Section 43(a), 15 U.S.C. § 1125(a)), and restricts unauthorized imports (Section 42, 15 U.S.C. § 1124). The Tariff Act § 526 (19 U.S.C. § 1526) and Customs and Border Protection (CBP) regulations (19 C.F.R. § 133.23) provide mechanisms for detaining and excluding gray-market goods.4 The International Trade Commission (ITC) also plays a role through Section 337 investigations targeting unfair import-related competition.
- Material-Differences Standard – the “Touchstone”: The material-difference standard, articulated in Société Des Produits Nestlé, S.A. v. Casa Helvetia, Inc., and reaffirmed recently in the Ultra and Best Foods cases, holds that any difference likely to be significant to consumers—whether physical (e.g., formulation, labeling) or non-physical (e.g., warranty, post-sale services)—can support exclusion or enforcement.5
- First Sale Doctrine & Territorial Exhaustion: The first sale doctrine exhausts trademark rights after an authorized domestic or foreign sale. For gray market imports of goods first sold abroad, trademark owners may invoke The Tariff Act § 526 to block entry at the border, as affirmed in K Mart v. Cartier.
- Key Case Law for Practitioners: Key cases relating to the material difference standard include Société Des Produits Nestlé, S.A. v. Casa Helvetia, Inc. (Second Circuit), Martin’s Herend Imps., Inc. v. Diamond & Gem Trading USA, Co. (Fifth Circuit), Hokto Kinoko Co. v. Concord Farms, Inc. (Ninth Circuit), Lever Bros. Co. v. U.S. (DC Circuit),Ultra (Western District of Texas), and Best Foods (Central District of California).6
Together, these statutes, doctrines, and cases provide a robust framework for US trademark owners to combat the importation and sale of gray-market goods.
Enforcement Strategies & Pathways
A range of enforcement mechanisms are available to brand owners seeking to combat gray-market goods, each with its own advantages, challenges, and procedural requirements.
One of the primary tools is US Customs & Border Protection, which offers trademark owners the ability to record their marks with CBP and, for domestic trademark owners, submit Lever rule petitions (named after the Lever Bros. Co. v. United States (DC Cir. 1993) case), providing evidence of material differences through side-by-side product analysis, warranty matrices, and expert affidavits. CBP may detain or exclude the gray goods at the border. Thus, effective engagement with CBP is a cornerstone of a successful enforcement strategy.7
In addition to CBP, the International Trade Commission can issue Section 337 exclusion orders to similarly stop gray goods at the border. To obtain such an order, the complainant must demonstrate a domestic industry and that “all or substantially all” authorized goods are materially different from the gray good imports. ITC proceedings are typically faster than federal court actions and offer broad discovery tools and presidential review, making them a powerful option for brand owners.8
Federal courts also play a significant role, providing a forum where trademark owners may seek monetary damages, injunctive relief, and other remedies under the Lanham and Tariff Acts.9 Additional claims may include tortious interference and breach of contract, especially where distributorship agreements are disrupted.
Beyond these judicial and administrative avenues, complementary regulatory actions are available. Agencies such as the FDA (for misbranded food/drugs, 21 U.S.C. § 331) and CPSC (for product safety, 15 U.S.C. § 2068) can refuse entry or detain noncompliant goods. State unfair-competition statutes may provide further remedies, particularly where consumer deception or harm is alleged. In addition, gray-market goods that present safety or warranty issues may give rise to potential consumer class actions or state-level consumer protection claims.
Finally, digital and online marketplaces present unique challenges for brand owners, as unauthorized resellers can operate at scale and with relative anonymity, often using sophisticated tactics to evade detection. While most major platforms offer intellectual property protection programs and notice-and-takedown procedures, their effectiveness varies, and persistent infringers may exploit loopholes or delays. Successful enforcement requires proactive monitoring, engagement with platform operators, and the use of technology to identify unauthorized sellers, as well as consumer education about the risks and limitations associated with gray-market goods.
Taken together, these enforcement strategies provide a comprehensive toolkit for brand owners to address the evolving threats posed by gray-market goods and to protect their intellectual property and market position.
Proactive Risk Mitigation: Best Practices for Brand Protection
To minimize exposure to gray-market risks and strengthen brand protection, companies should implement a suite of proactive risk mitigation strategies and operational best practices, including, but not limited to:
- Internal Housekeeping: Companies should conduct regular cross-border sales audits to identify pricing and/or supply chain anomalies. Strengthening volume forecasting and order-to-cash controls with overseas affiliates can help prevent unauthorized diversion. Codifying recall and warranty carve-outs for unauthorized imports ensures that liability is limited, and expectations are clear.
- Product-Side Measures: Implementing jurisdiction-specific physical cues—such as UL (Underwriter Laboratories) marks, organic seals, traceable batch codes, and serialized holograms—can help distinguish authorized goods. Differential formulation or packaging that complies with US regulations, such as FDA-compliant nutritional facts and allergen disclosures (e.g., plain-English “Contains” statements identifying major allergens), further supports enforcement and consumer protection.10
- Contractual & Channel Management: Export-control covenants and audit rights in foreign distribution agreements are essential for controlling downstream sales. Leveraging MAP policies and reseller authorization programs, and requiring proof of purchase from approved sources, can deter unauthorized resellers and maintain channel integrity.11
- Customs & Regulatory Engagement: Recording US trademarks with CBP and submitting Lever rule evidence (where such protections are afforded) is critical, and filings should be updated as product lines evolve. Working with CBP’s Intellectual Property Rights (IPR) office to develop a Product Identification Training Guide can enhance enforcement effectiveness.12
- Monitoring & Enforcement: Deploying advanced technologies such as AI-driven monitoring tools, conducting sample test buys, and implementing serial number tracking and authentication programs can help identify and address unauthorized sales. Moreover, creating an escalation ladder—from cease-and-desist letters to seizures, ITC actions, and civil litigation—ensures a proportionate response to violations.
- Crisis Management & Communications: Preparing clear communications for retailers and consumers regarding warranty limitations on unauthorized goods is vital. Coordinating with public relations teams helps avoid negative narratives, such as accusations of price-gouging, and protects brand reputation.13
Mayer Brown’s Track Record and Global Capabilities
Mayer Brown has decades of front-line advocacy in Lanham Act matters involving false advertising and trademark and trade dress infringement, and gray goods (parallel-import) cases, including serving as counsel to trademark owners/exclusive licensees in the Ultra and Best Foods cases. Our end-to-end services include supply-chain audits, Lever rule petitions, federal court litigation, Section 337 litigation before the ITC, cross-border IP licensing, and crisis management. With a global platform and relationships with trusted local counsel partners around the world, we offer seamless coordination with affiliates and partners in the European Union, the Asia-Pacific region, Latin America, Africa, and globally, enabling multi-jurisdictional strategies that address the full spectrum of gray-market risks and enforcement opportunities.
Safeguarding Your Brand: Practical Steps and Mayer Brown’s Support
The material-difference doctrine provides powerful relief for trademark owners, but only when paired with disciplined commercial practices and proactive legal strategies. Companies that integrate legal tools with robust compliance and channel management are best-positioned to mitigate the risks posed by gray-market goods. Mayer Brown stands ready to guide clients through this complex landscape, leveraging our experience and global reach to safeguard brand equity in an increasingly porous global market. Our extensive experience in this area positions us as a leader in helping clients protect their brands and navigate this complex terrain.14
If you have questions about gray market goods, enforcement strategies, or risk mitigation, or if you would like to discuss specific scenarios affecting your business, please reach out to Michael Lindinger or Kristine Young. We are also available to provide tailored CLE (Continuing Legal Education) presentations for your team on topics such as parallel imports, online marketplace enforcement, and best practices for protecting your brand in the global marketplace. Please contact us to learn more or to schedule a session.
1 K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 285–86 (1988);1A Anne Gilson LaLonde, Gilson on Trademarks § 5.20 (2025); Gregory J. Battersby & Charles W. Grimes, Law of Merchandise and Character Licensing § 16:1(2024);4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 25:41 (5th ed. 2025).
2 Gilson, supra, § 5.20 (“One reason for this is the sheer magnitude of the multi-billion dollar gray market industry”); Battersby & Grimes, supra, § 16:1.
3 Battersby & Grimes, supra, § 16:1.
4 Lever Bros. Co. v. United States, 981 F.2d 1330 (D.C. Cir. 1993).
5 Société Des Produits Nestlé, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 641 (1st Cir. 1992); Nestlé USA, Inc. v. Ultra Distribuciones Mundiales S.A. de C.V., 516 F. Supp. 3d 633 (W.D. Tex. 2021); Nestlé USA, Inc. v. Best Foods LLC, 562 F. Supp. 3d 626 (C.D. Cal. 2021)
6 Casa Helvetia, 982 F.2d at 633; Martin’s Herend Imps., Inc. v. Diamond & Gem Trading USA, Co., 112 F.3d 1296, 1301–02 (5th Cir. 1997); Hokto Kinoko Co. v. Concord Farms, Inc., 738 F.3d 1085 (9th Cir. 2013); Lever Bros., 981 F.2d 1330; Ultra, 516 F. Supp. 3d 633; Best Foods, 562 F. Supp. 3d 626.
8 19 U.S.C. § 1337; Gamut Trading Co. v. ITC, 200 F.3d 775, 781 (Fed. Cir. 1999).
9 15 U.S.C. §§ 1114, 1125(a); Tariff Act, 19 U.S.C. § 1526; Gilson, supra, § 5.20.
11 Battersby & Grimes, supra, § 16:1.
14 Ultra, 516 F. Supp. 3d 633; Best Foods, 562 F. Supp. 3d at 626
