Gordons retail update – The grey market, are you at risk?

Saturday 16th October 2010

We all know that retailers can source cheaper goods via the ‘grey’ market, avoiding normal distribution channels. Whilst this practice is not illegal it can cause problems for the authorised importers, exporters, the owners of the intellectual property rights (IPR), and retailers, resulting in damage to reputation and profits.

The main risks to retailers lie in the potential infringement of the IPR of the trade mark owners, either because the goods are not sourced via an authorised distributor – the Levis v Tesco dispute of 2002 being a classic example of this – or worse, because the goods prove to be counterfeit.

A successful claimant in a trade mark infringement action can be granted an injunction, damages or an account of profits and orders for delivery up or destruction of infringing goods.

What steps can retailers take?

By implementing some basic practical measures you can mitigate these risks:

Use comparison samples: obtain samples of goods which are sold by the trade mark owner or its authorised distributors and check that such comparisons reveal no differences to the grey market goods in quality, specification, bar coding, manufacture, design, labelling or packaging.

Independent supplier audits: audit the grey market supplier to ensure that the goods are original and not counterfeit, that the goods do not infringe the trade mark owner’s IPR, and that the supplier is lawfully entitled to sell the goods. You can require the supplier to provide an independent third party (such as a firm of solicitors) with all invoices and other documents to establish the complete chain of supply from the trade mark owner or its authorised distributor, to the supplier. The independent third party does not disclose these documents to the retailer, but merely confirms in the positive or negative whether the tests have been met.

Contractual protection: contracts for the purchase of grey markets goods should include warranties by the supplier that the goods comply with the above tests, and should also give the retailer the right of independent audit described above.

It should be noted that the above steps by no means provide absolute certainty that goods purchased via the grey market are risk free. The law on this subject is complex and specific advice should be taken in context of the individual retailer’s circumstances.

For further information and advice please contact Andy Brian.