For companies selling their products in both the U.S. and in foreign markets, gray market goods may pose numerous challenges. Gray market goods are genuine goods bearing a company’s legitimate trademarks that the company intends for sale outside of the U.S., but that are imported into the U.S. and sold without the company’s authorization. A company may intend a product for sale in a foreign market, rather than the domestic market, for a number of reasons. For example, consumer preferences regarding product formulations and packaging may differ between foreign and domestic markets. Product pricing also may vary in different markets based on differences in the relative wealth of consumers in the foreign and domestic markets.
Gray market goods pose challenges for companies because, although they are the company’s authentic products, they can cause the company and its brand to lose goodwill when differently constituted products enter the domestic market under the company’s authentic brand. Even when gray market goods are identical to a company’s domestic goods, they may damage a company’s relationships with authorized domestic distributors who may be forced to compete with lower-priced authentic foreign products. Moreover, the company will likely suffer losses in sales volume and profit margins when its authentic products are purchased relatively cheaply overseas and then resold into the domestic market, undercutting the company’s U.S. sales. Indeed, gray marketers generally import gray goods in order to profit from currency variations, tax differences and the manufacturer’s differing product pricing structures in foreign and domestic markets.