Material Distinction Found Between Products Warranties Sufficient to Sustain Lanham Act Claim Against Gray Market Goods Seller
Kia Motors America, Inc. v. Autoworks Distributing, Civil No. 06-156 (February 26, 2009).
Plaintiff Kia Motors America was none too pleased that Defendant Autoworks was selling “KIA” parts for below dealer net prices. It sued under the Lanham Act, claiming the parts were either gray market goods (parts authorized by Kia but not intended for the U.S. Market) or were counterfeit goods. Defendant filed for Summary Judgment on the grounds that its admittedly gray market goods were substantially identical to the Plaintiff’s goods and thus, their sale in the U.S. did not violate the Lanham Act.
Employing the Nestle test, the court looked at whether the goods being sold by Defendant were (1) not intended for the U.S. Market; and (2) materially different than those that were intended for the U.S. Market. Once both of these are established, the burden shifts to the Defendant to show that the difference is not the kind consumers would consider in purchasing a product.
The parties did not dispute that Defendant’s parts were not intended for the U.S. market; neither did they dispute that there was a difference between the warranties of each party. Defendant pointed out that its warranty covered all parts. Plaintiff’s warranty expressly excluded Defendant’s part. Thus, Defendant argued, the distinction was not one likely to affect the purchasing decision of its product. The court disagreed, finding that such a different (even though in Defendant’s favor) would be relevant to dealers purchasing the products for use in customers cars, and thus denied Defendant’s motion.
Practice Note: There is a distinction between parallel imports and grey market goods, though the terms are used interchangeably. Parallel imports are those goods that – while not intended for the U.S. market – are identical to the goods sold in the U.S. Courts have routinely held that if the goods are identical to those in the U.S. market, their sale in the U.S. will not constitute infringement. If, however, there is a material distinction between the goods sold elsewhere and those sold abroad, sale of those items may constitute trademark infringement because their sale creates a presumption of consumer confusion.