Gray Marketing

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 C'te 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 C'te 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 C'te d'Or: an elephant, a script of C'te 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 C'te d'Or copyrights were found insufficiently creative to justify copyright, both the C'te 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 C'te 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.