BillSWPA
Enlightened
Just to add some clarification to the intellectual property issues, and not just responding to this quote . . .
Gray market goods are goods that are legitimately manufactured by the maker whose trademark they bear, but are not authorized for the particular market into which they are being imported. Often, a US maker will make lower quality goods for export, knowing that in some foreign markets, the quality expectations are lower and the price charged will be lower. Obviously that maker would not want these products getting back into the US, where they would damage that maker's reputation. If these goods do make it back into the US, they would be gray market goods. Or, a foreign maker will sell the same goods to foreign distributors at a lower price, and to US distributors at a higher price. The foreign distributors will sometimes attempt to undercut the US distributors, resulting
in the foreign goods being imported as gray market goods.
A gray market product is legitimate under trademark law as long as it is equivalent to other products bearing that trademark, including the warranty under which it is protected. Manufacturers will often not warrant gray market goods, claiming that once the goods leave their established distribution chain, they have no control over what happens to them, and therefore they can no longer consider them to have been purchased new. So, the seller will sometimes offer their own warranty.
Omega watches recently attempted to stop the gray market by printing a copyrighted design on the back of their watches, and suing Costco for making the first US sale of the copyrighted design. Even though Costco had purchased legitimate Omega watches, a copyright owner has the right to control the first sale of a copy of the copyrighted design. The 9th Circuit Court of Appeals held that the sale that a "first sale" occurring outside the US was not a "first sale" under US copyright law, because that would extend US law to foreign countries. The US Supreme Court split 4-4 on the issue. The US Supreme Court is currently considering the issue again, this time with respect to textbooks.
As for goods made on the same production line as the ones produced for a trademark holder but in excess of what the trademark holder ordered, if I understand the situation Ozgunnie is describing correctly (and it is quite possible that I do not), this appears to be an attempt to pass off the extra goods as goods coming from the trademark holder, and would likely involve at least trade dress, and possibly trademark, infringement.
Regarding patents, the requirements for obtaining a patent are that the patented subject matter must be novel (no one has done it before), nonobvious (it would not be obvious to one skilled in the art in light of what has been done before), and useful. Companies patent their innovations because they are the subject of significant research and development expense, and allowing third parties to reverse engineer them without undergoing these expenses would provide no incentive to do this research and development. Patent infringement causes serious harm to the innovative companies that did the R&D to produce the product.
