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Gray-Market Imports Definition
Gray market is the trade of a commodity that is unintended by the original manufacturer – even though they are legal. Gray market products, on the other hand, are goods sold by authorized parties without following the agreed terms between manufacturer and reseller.
A Little More on What is Gray Market Imports
Most manufacturers of telecom, computer, and various other technological products prefer selling their products through suppliers. Even though most distributor agreements require distributors to sell these products to the user directly, most distributors breach this agreement by selling these products to the resellers.
Even though the purchase of the grey product may look illegal, the United States Supreme Court found no offense in buying these products. The EU Supreme Court made a similar ruling. In their ruling, The EU Supreme Court added the manufacturer of the grey products should be from the EU. The term grey products originated from the manufacturers to discourage customers from buying the products. They created a perception that purchasing such products was illegal.
The term grey market was borrowed from the famous ‘black market,’ a term that was used to describe illegal or stolen products. The court of appeal of Wales and England in their ruling on November 2016 passed that selling grey products was an unlawful act with a possible jail term of 10 years.
Grey products are counterfeit goods sold to the public through abnormal distribution channels by distributors. Notwithstanding the process of distribution, grey products are legal. These products are every day when prices of goods vary significantly in different countries. Sellers buy grey products from countries that retail them at relatively low prices often as wholesalers; they will then import these products to their target market. They will then retail these products at a lower price compared to the market price.
Efforts to promote free trade like harmonized national standards and reduced tariffs have been to prevent manufacturers from dictating the market price of the good. This has made it difficult to trace the distribution and sale of grey goods in the world market. New products and used products are the most common products in the grey market. The term ‘dark’ was used since these goods are seen to be unregulated and secretive.
Even though the black market is related to the grey market, the two are different. The black market represents those products that are legally restricted. Examples of such products include firearms, prescriptive drugs, and alcoholic beverages. During peak seasons for certain products, demand exceeds supply forcing the development of grey markets. In such situations retailers will hike the prices of these goods, such a practice is referred to as scalping.
Support for Grey Marketing
Groups associated with the rights of consumers argue that discrimination against consumers such hiking of prices of products of similar value just because of the geographical differences is unfair. This is infringing the rights of consumers by corporations. It requires the government to create legislation or laws to restrict citizens from buying goods at lower prices. For this reason, many democratic governments have decided not to protect its citizens from ant competition technologies such as DVD region coding.
Grey market does not participate in giving out any illegal products, unlike the black market. Most ideological ways have supported the Grey market. Radical liberal opponents of class discrimination contend that private property generally leads to the oppression of members of the society and therefore are not for the idea of intellectual property. This forms the basis of arguments against the Grey Markets. However, in agreement, proponents of the corporate financial system affirm that the bringing into force of the intellectual property can cause a lessening of composing effort.
The Grey Market for a long time has been a source of litigation and appeals to courts in the United States.
The questions as to whether or not a good sold legally is still protected by the United States Intellectual Property Law, for resale arises under patent and copyright law. The purchaser may resell a copyrighted good under the first sale doctrine contained at 17 U.S.C. §109(c), when domestically purchased. In the same way, a patented good may be sold under the patent extortion doctrine. The United States Supreme Court in 2013 asserted the legality of the Grey Market, where it held that a sale abroad of copyrighted good triggers the first sale doctrine. This was the decision in the case of Kirtsaeng vs John Wiley and sons; Inc. this decision largely applies to patented goods as well.
References for Gray-Market Imports
Academic Research on Gray-market imports
- Consumer attitude toward gray market goods, Huang, J. H., Lee, B. C., & Hsun Ho, S. (2004). International Marketing Review, 21(6), 598-614. Unlike the past when the grey market was only popular in less developed nations, its popularity has grown immensely in developed markets. Many of the research that has been done has only been in the form of literature; the practical part of it has not been discussed in a great length. This research tries to establish the consumer’s perception towards the gray market — the biggest concern of any consumer towards gray products revolts around the price and quality of these products. Various strategies used to avert grey products have also been discussed.
- Free-trading or free-riding: An examination of the theories and available empirical evidence on gray market imports, Hilke, J. C. (1988). World Competition, 32, 75.
- Incidents of gray market activity among US exporters: Occurrences, characteristics, and consequences, Myers, M. B. (1999). Journal of International Business Studies, 30(1), 105-126. The value of the grey market across the world continues to grow into billions of dollars each year. Some negative effects of the grey market to the exporters include reduced volumes of sales, reduced profit margins, and the relationship between end users and distributors. It also demonstrates a survey that involved manufacturing firms. The survey tries to explore the effects of exports in relations to the gray market. The most common contributors to the gray market in the global market include; the degree of standardizing products, channel control, and channel integration. Contrary to traditional thinking, market vitality, some markets, and international experience have no effects on the activity of the gray market. We also look at various implications of export managers.
- Gray-market imports: causes, consequences and responses, Knoll, M. S. (1986). Law & Pol’y Int’l Bus., 18, 145. The author of this article explores gray market imports, the option of private remedies to control these imports. In the article the protection possibility is exploited by the writer through various exciting laws.
- A contractual approach to the gray market, Gallini, N. T., & Hollis, A. (1999). International Review of Law and Economics, 19(1), 1-21. Genuine goods imported without the consent of the copyright owner in a given country are known as parallel goods. Efforts by authorized dealers to use trademark and copyright law seem not to b bearing any fruits in curbing parallel products. The existing trademark laws do not restrain the distribution’s systems feasibility set. The other major reason why this law is not functioning as expected is the elimination of intra band competitions. The way of dealing with parallel goods is coming up with a policy that combines contract, antitrust law, and tort law. Through this parallel goods will be regulated effectively.
- Gray market imports: No black and white answer, Palmeter, N. D. (1988). J. World Trade, 22, 89. This study seeks to look into the influence of parallel importation concerning brand equity on all product involvement arrangements.
- Trademarks and Gray Market Goods: Why US Trademark Holders Should Be Held Strictly Liable for Defective Gray Market Imports, Alberts, S. J. (1991). Geo. Wash. J. Int’l L. & Econ., 25, 841. In any market, views of the consumers are the most important. Despite this, little attention is given to consumers on various researches concerning the gray market. This article seeks to address the consumers’ opinion concerning the gray market. One of the proposals was that involve the customer’s lifestyle in the trademark holders. A short analysis conducted showed that different customers exhibit different lifestyle features, different perception of the quality of grey products and dissimilar purchase intentions.
- Modeling the international gray market for public policy decisions, Bucklin, L. P. (1993). International Journal of Research in Marketing, 10(4), 387-405. Grey market sellers are comprised of different people from all over the world. They legally acquire quality goods before competing with owners of authorized trademarks owners. For many years, the owners of these brands have complained about the unfair competition provided by the grey market. It is, however, difficult to authoritatively point out any negative effects of the grey market. This article tackles various models that affect the international grey market. Also, it looks at the problems of prospective international brands when it comes to managing their brands. We find that even though the international market has been negatively affected by international markets, these effects do not warrant the prohibition of the grey market.
- Clarifying gray market gray areas, Lansing, P., & Gabriella, J. (1993). American Business Law Journal, 31(2), 313-337.
- The competitive process and gray market goods, Nolan-Haley, J. M. (1983). NYL Sch. J. Int’l & Comp. L., 5, 231. It is no secret that the biggest beneficiary of the gray market is the consumer; despite this, phenomena provide an unfair competition in the market. We look at the justification of allowing grey marketing, and it is not satisfying. According to us, grey marketing takes advantage of the distributor’s goodwill, warranties, and marketing. The kind of behavior exhibited by gray marketing exceeds competitive behavior conduct. Also, gray marketing impedes the vigorous inter-brand competition.
- Battling Gray Market Goods with Copyright Law, Hintz, D. K. (1993). Alb. L. Rev., 57, 1187.