Successful Use Of The Lanham Act Against An Importer Of Gray Market Goods

The Seventh Circuit Court of Appeals recently considered a "gray market" goods case involving the importation (or reimportation) of cigarettes.  "Gray market" cigarettes include those that are manufactured in the United States, exported to another country, and then reimported into the U.S., or cigarettes that are manufactured outside the U.S. under the U.S. company's trademark and which are intended for sale in foreign markets, but which are, nonetheless, imported into the U.S.

R.J. Reynolds ("RJR"), which sells Camel, Winston, Salem, and Doral brand cigarettes, sued the retail chain operator Cigarettes Cheaper! ("CC") under the Lanham Act for importing its cigarettes intended for sale overseas.  CC argued that there was no violation of the Lanham Act since the trademarks were genuine, applied either by RJR itself or by one of its licensees.  Before the trademark claim went to a jury, the district court judge determined that if material differences exist between products designated for domestic and foreign markets, then the sale of the reimported product under the same trademark that consumers associate with the domestic product could be confusing and in violation of the Lanham Act.  This determination ran counter to CC's argument that the Lanham Act always permits the use in the United States of trademarks affixed by the owner.  Hence, the issue before the jury was whether or not the domestic and foreign cigarettes were "materially different."  The jury determined that they were different and awarded $4 million in damages to RJR.  CC appealed.

The Seventh Circuit held that while the "Lanham Act does not block the reimportation and sale of genuine articles under their real trademarks . . . this principle does not apply if the domestic and foreign products are materially different."  The reason for this exception is that in such a situation there is a potential to mislead or confuse consumers about the nature or quality of the product.  Consumers will assume that it is the exact same product as normally available domestically, but this is not the case.  The Seventh Circuit agreed with the various rulings of the district court judge pertaining to discovery, introduction of evidence, and jury instructions, and affirmed the decision in favor of RJR.

R.J. Reynolds Tobacco Company v. Cigarettes Cheaper!, 2006 WL 2441674 (7th Cir., Aug. 24, 2006).