Protecting against the Gray Market in the.docx

1、Protecting against the Gray Market in theProtecting against the Gray Market in the New EconomyCOMMENTSPROTECTING AGAINST THE GRAY MARKET IN THE NEW ECONOMYI. INTRODUCTIONA gray market good is a lawful product that is protected byintellectual property laws and intended for sale outside of itsmanufact

2、uring country.1 Despite the manufacturers intent that itsproduct be consumed abroad, gray marketeers lawfully acquirethe product abroad, import it back into the manufacturing country,and sell the product to consumers at a cost lower than the nongraymarket products cost.2 Manufacturers are concerned

3、aboutthe gray market, especially because recent court rulings havepractically eviscerated manufacturers use of intellectual propertyrights to protect products from entering the gray market.Additionally, the growing presence of electronic commerce (ecommerce)heightens manufacturers concerns about the

4、 graymarket due to the Internets ease of use, accessibility, and abilityto connect consumers with product suppliers worldwide.3The purpose of this Comment is to discuss the gray marketconcerns manufacturers face in the new economy, explain how ecommerceamplifies these concerns, and suggest measuresm

5、anufacturers may take to prevent their products from enteringthe gray market economy. Part II provides an overview of the gray market and how e-commerce facilitates gray marketing. PartsIII and IV outline legal and other methods manufacturers mayemploy to prevent their products from entering the gra

6、y market.Finally, Part V argues that non-intellectual property rightsprotections, such as contract law, branding, and/or cannibalism,4may be the most effective methods available to keep products outof the gray market. II. BACKGROUND: AN OVERVIEW OF THE GRAY MARKET AND ECOMMERCEGray market products a

7、re genuine products protected byintellectual property rights.5 Gray market products are usuallysold by product manufacturers or authorized resellers via eithersales contracts or licensing agreements.6 Somewhere in this chainof distribution, however, some of these genuine products are reimportedinto

8、the United States for resale against themanufacturers and resellers wishes. Gray marketeers typicallypurchase genuine products abroad at a discount and re-importthem back into the United States for gray market consumption.Gray marketeers then profitably sell the gray market products forless than con

9、sumers would pay had they purchased the productsthrough authorized distribution channels.7 The discounted pricemay stem from fluctuations in currency exchange rates,advertisement costs, manufacturers multi-tiered pricing schemes,tax differences, or differing consumer preferences. 8Under traditional

10、retail sales methods, consumers are often ata disadvantage when making purchasing decisions because they donot have the same information about products as domanufacturers and resellers. Consequently, manufacturers andresellers often maintain large profit margins because consumersremain unaware of fa

11、cts such as products wholesale costs orcompetitors who carry the desired products.9 The Internet ischanging such pricing practices. Today, consumers increasinglycontrol retail sales because the Internet provides information thatpromotes national and, in the future, global competition betweenmanufact

12、urers and retailers.E-commerce allows consumers to purchase a wide variety ofgoods twenty-four hours a day, seven days a week,10 usually atprices lower than retailers, who do not engage in e-commerce,offer. Because of these benefits, e-commerce is growing at aremarkable rate.11 Although e-commerce p

13、rovides consumerswith a larger distribution of goods and lower prices, productmanufacturers in developed countries, such as the United Statesand United Kingdom, are concerned about their products beingsold on the burgeoning gray market via the Internet because graymarketeers undercut manufacturers p

14、rices on their ownproducts.12A. The U.S. and UK. Markets: How Big Is the Problem?The annual U.S. and U.K. gray market economies exceed $10billion and 1.63 billion, respectively, and are driven by thecountries relatively open economic markets and their peoplesinsatiable appetites for consumer product

15、s.13 In the UnitedKingdom, gray market products are so popular that some U.K.residents cross the North Sea to purchase new automobiles in theNetherlands for lower prices.14 Individuals who engage in this practice can save almost 8,000, including travel expenses incurred,on a five-door Land Rover Dis

16、covery sport utility vehicle, whichsells for approximately 30,000 in the United Kingdom. 15 Thiscreates a gray market because individuals can purchaseautomobiles intended for foreign markets at low cost and therebycreate competition in the domestic market. The popularity of suchconsumer practices sp

17、awns car-cruises and websites allowingU.K. citizens to purchase new automobiles at a fraction of theU.K. prices. 16B. Opponents of Gray MarketsManufacturers dislike the gray market economy because itdestroys their professional goodwill, brand image,17 and profitmargin. They contend that gray market

18、products popularity arisesfrom manufacturers or authorized dealers established reputationsand the protection intellectual property rights provide.18 Graymarketeers derive profits by taking advantage of a productsreputation without investing the capital associated withestablishing such a reputation.1

19、9Gray marketeers business practices erode consumer goodwillbecause a product slated for foreign distribution often differsmaterially from the same product designed for domestic consumption.20 For example, goods manufactured for foreignconsumption are frequently tailored to comply with differenthealt

20、h and safety codes, regional tastes, or languages.21 Suchdifferences erode consumer goodwill because the productsdifferences disappoint consumers.22 For these reasons,manufacturers suffer injuries from the gray market economy.23Gray market products also create consumer animosity towardauthorized res

21、ellers and manufacturers because they appear toprofit excessively from legitimate sales. 24 Goodwill is furtherdamaged when consumers perceive manufacturers as offeringsubstandard customer service by refusing to honor gray marketproducts warranties. 25Product manufacturers are also concerned about t

22、he graymarkets effect on brand image.26 The brand image of a productis the emotional or psychological connection between consumersand the manufacturers products.27 Manufacturers, particularlyluxury products manufacturers, spend millions of dollars annually on branding their products as prestigious.

23、28 Brand image,however, deteriorates when a luxury product is sold in the graymarket because the product sells without its emotional appeal.29Consequently, manufacturers lose millions of dollars annually insales and advertising because their products brand images loseeffectiveness.Gray marketeers ju

24、stify their business practices on numerousgrounds. First, they claim that the products license holders arenot harmed by gray market practices because the gray marketallows consumers to reap the benefits of lower prices and a largerselection of products.30 Second, gray market proponents contendthat t

25、he gray market prevents manufacturers from discriminatingagainst wealthy consumers, such as those in the United States andthe United Kingdom, because the gray market gives thoseconsumers the option to purchase the goods gray market versionsat lower prices. 31C. The Internets Effect on Gray Marketing

26、The Internet allows consumers to play proactive roles inobtaining gray market products. Traditionally, a consumer wouldexperience difficulty in finding vendors who regularly receiveproducts through the gray market. By using the Internet, however,customers actively search for and find vendors who car

27、ry graymarket goods without leaving the comfort of their homes.Furthermore, Internet offerings, such as electronic bulletin boardsand on-line auction houses, promote consumer participation ingray marketeering.32 The Internet provides a virtual marketplace allowing graymarketeers to reach buyers and

28、undermine manufacturersprofits.33 The Internet also allows gray marketeers to exploit thevast information available on the Internet to obtain competitivepricing information.34 Gray marketeers can then use pricinginformation to determine products market prices and undercutmanufacturer and authorized

29、reseller prices.35 Electronic bulletinboards, on-line auctions, and intelligent agents are features on theInternet that facilitate gray marketeering. 361. Electronic Bulletin BoardsElectronic bulletin boards on the Internet facilitate graymarketeers ability to locate buyers and sellers in overseasma

30、rkets.37 These bulletin boards provide buyers and sellers witheasy and low cost access to the Internet and the immediacy ofreaching business all over the world in hopes of streamlininginternational commerce. 38 There is a recent proliferation ofvertical marketplaces, which are bulletin-board and auc

31、tionorientedsites that render intra-industry transactions faster,cheaper and smarter by gathering buyers and sellers into onevirtual locale. 39 For example, the Federation of InternationalTrade Association website offers electronic bulletin boards in anattempt to establish a true global marketplace.

32、 40 In theory,electronic bulletin boards provide a common trading ground forgray marketeers to purchase and sell gray market products.41Whether gray marketeers and consumers actually accept electronicbulletin boards as a means of facilitating trade remains unsettled. 2. On-line AuctionsOn-line auction houses, such as e