Gray Market Cameras And US Law
Article from June 1988
http://findarticles.com/p/articles/mi_m3092/is_n13_v27/ai_6449250
Discounters win one; court OKs gray market - parallel importing of goods at
lower prices
Discounters Win One; Court OKs Gray Market
WASHINGTON -- In a major victory for the nation's discount retailers, a
sharply divided U.S. Supreme Court upheld controversial Customs Service
regulations allowing the "parallel importing" of billions of dollars in
bargain-price "gray market" merchandise.
Siding with attorneys for K mart and New York City camera discounter 47th
Street Photo, the high court ruled 5-to-4 that Congress intended the 1930
Tariff Act to protect only American businesses--not multinational firms that
make goods abroad and then attempt to monopolize U.S. distribution of those
products in this country.
The immediate impact of the ruling will be to lift the cloud of doubt over
the legality of parallel imports stemming from a 1986 federal appeals court
decision that struck down those gray market Customs Service rules. As a
result, the demand for gray market watches, cameras, fragrances and other
heavily parallel imported products is expected to rise as word of the
Supreme Court's action spreads through the U.S. retail community.
More importantly, though, the decision upholding the legality of parallel
imports assures the nation's discount chains of an uninterrupted stream of
popular, brand name imports--even if the foreign manufacturer's U.S.-based
marketing subsidiary refuses to sell directly to off-price retailers.
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At issue in the case: long-standing Customs Service regulations under which
Section 526 of the U.S. Tariff Act has been interpreted to permit parallel
imports of genuine U.S. trademarked goods without vendor consent.
In general, that section of the law authorizes U.S. trademark holders to
petition the agency to exclude imports of identically trademarked goods by
unauthorized sources.
For the past 50 years, however, the Customs Service rules implementing that
law have contained an exception denying foreign manufacturers and their
corporate relatives in the U.S. the right to exclude imports by unauthorized
parties.
After failing to convince Congress to enact, "corrective" legislation, the
Coalition to Preserve the Integrity of American Trademarks--an organization
of multinational vendors--filed suit challenging the Customs Service's
interpretation in federal court.
Earlier this year the Supreme Court issued a preliminary jurisdictional
ruling in the case, holding that the U.S. Court of International Trade is
not the only federal court empowered to hear cases involving tariff
disputes. That ruling was considered a setback for discounters since the CIT
had ruled consistently in favor of parallel importers.
Significantly, though, the high court called on attorneys for both sides to
re-argue "the merits" of the case, and the final decision, handed down
earlier this month, is a result of that showdown.
In the majority opinion written by freshman Justice Anthony Kennedy, the
court held that the language of the 58-year-old Tariff Act is sufficiently
ambiguous to permit the Customs Service's pro-gray market interpretation.
In a concurring opinion, Justice William Brennan agreed that Congress never
intended for the 1930 Tariff Act to protect foreign producers or the "shell"
corporations that they form in the U.S. to hold their trademarks.
"The most blatant hint that Congress did not intend to extend [the law's]
protection to affiliates of foreign manufacturers is the provision's
protectionist, almost jingoist, flavor," Brennan wrote. "Its structure
bespeaks an intent, characteristic of the times, to protect only domestic
interests."
The limitations imposed by Congress to prevent non-U.S. firms from taking
advantage of the Tariff Act's provisions would serve no purpose, he said,
"if a foreign manufacturer might bypass them by the simple device of
incorporating a shell domestic subsidiary and transferring to it a single
asset--the U.S. trademark.
"If a foreign manufacturer could insulate itself so easily from the
competition of parallel imports, much of [the law's] limiting language would
be pointless," he maintained.
Brennan also argued that the decision to uphold Customs' policy toward
parallel imports is "further buttressed by the deference owed to an agency
interpretation that represents a longstanding agency position." As a result
of Customs' rules on gray market imports "a multibillion dollar industry has
emerged around the parallel importation of foreign-manufactured merchandise
bearing U.S. trademarks."
Significantly, however, the high court further ruled that not all gray
market imports may be protected by the agency's regulations. A U.S. firm
which authorizes or otherwise licenses an unrelated foreign firm to produce
its U.S. trademarked goods abroad may, indeed, seek the Customs Service
protection.
Additionally, the Supreme Court held that domestic firms which purchase the
right to distribute imported goods from an unrelated foreign manufacturer
may also secure government assistance to exclude unauthorized parallel
imports.
Jeremy
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