iPods – Any Colour but Grey

Article from our Summer 2008 edition of InsideIP.

Apple is, so we hear, threatening legal action against e-tailers who are selling US sourced iPods in the UK.   This is a familiar story which is heard from time to time where products are sold at different prices in different countries.  The price difference is spotted and someone realises that they can make easy money by buying the goods in the cheaper country and selling them in the more expensive one.  That, of course, annoys the producer of the product who has their market in the more expensive county undercut.

One of the few laws the producer can call on to stop this “grey” market is the law on trade mark infringement.  They do this by claiming that the grey marketeer is infringing the producer’s trade mark in the more expensive country.  In the case of US iPods being sold in the UK, this argument works and the e-tailers are doubtless infringing Apple’s registrations of IPOD.

Odd though, isn’t it, that a trade mark registration can be infringed by use of the mark to refer to a genuine product?  Many think that the law should not work that way but there are arguments in its favour, too.  Goods for one country may well be slightly different to goods for another and, if the wrong goods are sold in a particular country, that can ruin their reputation.  The law can also have benefits beyond merely maintaining a producer’s profits.  If a pharmaceutical company knows it can reduce prices for a drug in a poor country, without risking its profits in a rich one, it is more likely to sell the drug in the poor country.

That said, grey markets can be difficult to close where the country from which the goods are sourced is another EEA country.  (The EEA, or European Economic Area, covers all 27 EU member countries and Norway, Iceland and Liechtenstein.)  This is because EC law overrides trade mark law in this instance: one of the fundamental principles of the EU being the free movement of goods.  This means that, if goods are made available for sale in one country in the EEA, they can usually be bought and resold anywhere else within the EEA, without that resale being a trade mark infringement.  Trade mark owners need to take care to ensure that their distributors are not being allowed to sell into the EEA if that might undermine sales at higher prices by other distributors. Any distribution agreement needs to be absolutely clear that the trade mark owner does not consent to sale of the products into the EEA, since even implied consent by the owner is enough to remove their right to prevent such sales into EEA The iPod scenarit serves as a useful reminder that, whilst you can close down some grey markets, if you allow your goods into the EEA, there is often little you can do to stop them from being resold elsewhere in the EEA.

Kate Széll 01 Jun 2008

Return to news list