This week the Shanghai High Court found in favor of Italian fashion brand Fendi that the sale of gray market goods with the FENDI brand is trademark infringement and unfair competition. This case is a great win for luxury fashion companies and reminder to all business owners they need to have an intellectual property enforcement plan.
What are Grey Market Goods?
From the Better Business Bureau, "Gray market goods are defined as items manufactured abroad and imported into the US without the consent of the trademark holder." These goods are not counterfeit from the black market, as generally gray market goods are not designed to deceive.
Imports of U.S. drugs from Mexico or Canada that are under-the-counter are part of the "gray market." Since prescription medications are so expensive in the U.S., there's money in selling those same goods in the U.S. via other countries. Even with the cost of importing goods under-the-counter, these drugs are still cheaper than the standard U.S. markup.
While subverting the narrow channels of trade for lower priced prescription medicine sounds heroic, subverting the channels of trade for luxury fashion is uninspiring. These gray market sellers of handbags aren't Robin Hoods.
A factory that has no relation to Fendi that makes Fendi look-a-like handbags is a counterfeiter (black market), but a factory that makes official Fendi handbags that also makes duplicates is a parallelist (grey market). Grey market trademark violation and unfair competition can occur even in the USA, as many manufacturers and supply chain companies violate vendor agreements. For companies that use any intermediary, the grey market is a constant risk and is why trademark enforcement plans are so important.
It is morally wrong to violate Fendi's trademark as you're encouraging someone to steal and profit off the hard work Fendi has put into building their brand and handbags. As a lover of Robin Hood, I hold no such moral reservations when it comes to undercutting U.S. drug prices. It is dangerous to purchase any grey or counterfeit goods as they could contain foreign ingredients that are harmful, like lead.
While the moral issue of violating someone's trademark is an uncommon topic in the confessional, most counterfeit and grey goods are made by people who are exploited and mistreated. A lot of famous fashion brands use child and forced labor to make their goods. Therefore, if your handbag doesn't come with assurance that it was made ethically, you should never buy it - even if it is legitimately from Fendi in their Rome store.
What's Good Etsy?
Every major retail website that allows third-party sellers has a grey and black market problem.
Amazon claims they are working on correcting this issue. They've even cracked down on bloggers who make commision fees from Amazon that promote these grey and black market goods (National Jeweler). But, Amazon still has a long ways to go in banning third-parties that violate trademarks and engage in unfair competition - which is why it's so important for brand owners to have an enforcement plan.
Etsy has had an explosion of grey and black market goods as they loosened their rules in an effort to compete with Amazon. But the worst part about the website is...
People are selling information on how to get into the black and grey market on Etsy.
Etsy is a private company, they can regulate products for sale and any speech on their site. Yet, selling information on how to engage in selling counterfeit and grey market Fendi handbags is readily available on Etsy.
Museaccessorieshop is selling a vendor list on how to contact wholesale sellers of what appears to be black market FENDI purses for $21.21 (archive link, direct link).
VendorListDigital is selling a vendor list on how to contact wholesale sellers of what appears to be grey market KATE SPADE purses for $4.97 (archive link, direct link).
There are 75 results for "vendorlist" on Etsy (archive link, direct link).
The terms of service on Etsy specifically state that "Counterfeit or unauthorized items are prohibited on Etsy." The website terms also state "Illegal items, items that promote illegal activity, and stolen items are not allowed on Etsy." Yet, people are selling information on how to engage in such illegal activity.
The grey and black market systems are wide-reaching. Simply monitoring the U.S. Patent and Trademark Office's Official Gazette is not enough. Many trademark owners do not have enforcement plans in place, but even a small business should have a plan about monitoring common retail websites. Enforcing your trademark rights on Etsy and Amazon is cheaper and quicker then taking a case to High Court in Shanghai and will help protect your brand and consumers. Fendi's win is great for trademark owners and should serve as a warning to anyone who doesn't have an enforcement plan in place.
End Notes
If you are looking to formulate a trademark enforcement plan, please email me at kate@trademarkelite.com and we can set-up a phone consultation.
If you're looking at Fendi's brown leather purse for $1,290, I suggest this brown leather purse for $34 that is a fair trade alternative from New Delhi. There are lots of luxury fashion brands that don't use sweatshops (link).