BRIGHT IDEAS: David Sugden on Gray Markets
posted by Deven Desai
Today’s Bright Idea comes from David Sudgen. David is a partner at Call, Jensen & Ferrell, where he specializes in intellectual property, trade secret, copyright, technology, business torts, and brand protection. His book, Gray Markets, (Oxford University Press) goes into an area that trademark folks should, but may not, know about: the way in which globalization has affected the use of trademarks and the enforcement of trademark rights. As the description puts it “From cars to cigarettes to pianos to pharmaceuticals, products that were manufactured to be sold in other countries are finding their way back to the United States where they are sold through unauthorized and illegal channels. This unauthorized economy – the ‘gray market’ – is growing in size and scope at an alarming rate: information technology manufacturers alone have estimated losses at $40 billion in annual sales. In Gray Markets: Prevention, Detection, and Litigation, David Sugden provides the first comprehensive analysis of the gray market as well as a blueprint for attorneys and businesses to prevent, detect, and litigate gray market cases.” As someone who once enforced trademarks and now questions the trademark system, David’s book intrigues me as it provides valuables examples of experiences, problems, and how trademark holders react to the changing business landscape.
So here is David Sugden explaining how he came to write a book about the world of Gray Markets.
Relatively early in my career, I did a great deal of work enforcing trademarks and copyrights against those in the business of stealing or knocking off branded goods. Among the challenges in these cases is catching the wrongdoers in the act. Because companies in the business of faking goods are also in the business of secrecy, we had to employ the tools of litigation that would allow us to surprise defendants and catch them red-handed.
In civil litigation, the usual practice requires serving a defendant with a summons and complaint and affording it between twenty and thirty days to respond. If the defendant is dishonorable, it can take advantage of this window by doing everything possible to cover its tracks; documents will be shredded, electronic evidence will be scrubbed, and any other indicia of wrongdoing will disappear. To prevent the destruction of such evidence in counterfeit cases, we would often request the Court to grant us the ability to conduct a surprise search and seizure of the defendant’s premises.
To obtain such an order, we would file the complaint under seal to prevent public disclosure of its contents. We would simultaneously submit a motion that outlines – with evidence – why the defendant is liable and why the defendant could not be trusted to preserve evidence of its culpability. Once satisfied with our evidentiary showing, the court would issue an order allowing us, with the assistance of law enforcement and forensic computing experts, to execute a surprise search and seizure of all counterfeits, knock-offs, stolen goods, and supporting documentation. Over the years, I was involved in such seizures all over the country; California, New Jersey, Florida, Texas, Oklahoma, and Georgia.
When we would execute these orders, I was often surprised to see how often counterfeit goods were comingled with genuine branded goods. Even though these businesses had no right to sell genuine goods, their inventories would often contain large quantities of genuine goods alongside large quantities of inferior imitations. In fact, the defendants would often argue that they were not guilty of selling counterfeit goods – they would argue, albeit falsely, that they were simply involved in the lawful secondary (i.e., gray) market.
This gray market vexes brand owners because goods intended for overseas distribution are finding their way back to the United States through unauthorized sales channels. Authorized distributors and resellers are similarly annoyed because they must compete against unauthorized resellers selling the same products at lower prices. And, of course, consumers can suffer if the gray market goods are comingled with counterfeit products or if the genuine product is otherwise compromised by inferior packaging, transporting, or servicing.
As I examined the strategies and existing laws, I thought a great deal about what brand owners could do to prevent the gray marketing of their products from occurring in the first place. Beyond courtroom strategies, I considered actions to prevent brand abuse and avoid the time and expense of civil or criminal prosecution. I also observed an absence of any treatise or other authority that had synthesized the existing body of gray market law. It was these factors that lead me to the idea of writing Gray Markets: Prevention, Detection & Litigation.
In Gray Markets, I introduce a variety of strategies that brand owners can use prevent genuine goods from unauthorized distribution channels. From educational and contractual methods that communicate the importance of gray market abstinence, to on-site security and modern tracking technologies, and to the use of private investigators and even “dumpster dives,” the book then offers specific methods to detect the existence of brand abuse. And, finally, the book provides a summary of the legal theories and authorities that are relevant in gray market litigation.