Global Brand Ltd.

Protecting Your Company, Its Brands, and Its

Profits From the Damage of the Gray Market

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As every manufacturer or authorized distributor knows, unauthorized product distribution, including unauthorized importation (or the gray market), can be a significant problem.  While the precise extent of losses suffered in each industry is unclear, a study by KPMG LLP and The Alliance for Gray Market and Counterfeit Abatement estimated that, in 2007, the value of gray market products in the information technology sector alone was $58 billion globally, placing the gray market between five percent and 30 percent of total IT sales and the impact on profits between $8 and $10 billion.

Companies whose rights are infringed by gray market goods not only lose sales and profits, but also suffer significant damage to their goodwill and corporate image when gray market goods, likely to be deteriorated or otherwise harmed in the unauthorized distribution channels, reach buyers and the  buyers incorrectly assume that legitimate distributors are the source of the poor quality goods.  Diverted electronics, for example, may arrive with inadequate battery life due to excessive time in storage and transit.  Devices may be damaged due to heat, corrosion, or other problems caused by the secretive shipments that expose goods to poor conditions.

U.S. buyers are also defrauded.  These buyers believe that bargain prices benefit them, but in the long run these buyers are effectively cheated out of legitimate warranty protection and/or proper quality, again due to the poor handling, product deterioration, and other problems causing damage during gray market distribution.

In today's economy, where companies take every possible measure to decrease costs, increase efficiency, and improve their bottom line, even a small reduction in a company's gray market problem will dramatically increase profitability. As a result, companies have devoted thousands and sometimes millions of dollars, as well as valuable hours of time and attention, trying to combat the gray market. They have tried various approaches, including restrictive licenses, security devices (holograms, RFID chips, invisible ink, etc.) and litigation, but usually with limited success.

But now, two companies working in cooperation with each other have developed a unique mechanism that turns the tide against gray marketers. The solution is PAD® -- a United States trademark owned by Jace Enterprises LLC of Virginia, and the foreign PAD trademark owned by Global Brand Ltd. of London.

 What exactly are the domestic and foreign PAD trademarks and how can they be used to provide a product manufacturer or distributor effective U.S. gray market protection?  Each of these trademarks serves as an indication that goods bearing the mark have been properly stored, shipped, transported, packaged, and handled in an authorized manner.  PAD receives protection against gray market importation from U.S. Customs and Border Protection.

Product manufacturers/distributors who wish to obtain gray market protection using PAD can take three easy steps.  First, obtain a license from Global Brand for the right to place the foreign PAD trademark on goods sold and distributed overseas.  Second, visibly display the mark on products, including on the pallet, on the boxes, and on the goods themselves--such as the back panel, a permanent label, a sewn-on tag, or otherwise, in order to make obliteration impossible or costly.

Third, enter into a service agreement with Jace Enterprises, owner of the United States trademark, in order to obtain Jace Enterprise's assistance in working with Customs to secure the detention and seizure of gray market imports.  The gray market goods will then be detained and subjected to seizure and forfeiture by Customs upon entry into the United States.

Once a gray marketer's products have been regularly denied entry and/or seized, you'll have  squeezed enough of its profits to have a profound effect on the gray marketer's efforts.  As gray marketers lose profits, they lose the incentive to engage in gray market importation.

By way of illustration, the manufacturer of a product may sell it for $2,000 in the U.S. and may sell an  identical product in the E.U. for the equivalent of US$1,800.  A gray marketer, seeing the arbitrage opportunity, can acquire 10,000 units in the E.U. and import them into the U.S. for sale at $1,900, underpricing the legitimate product and still earning a profit of at least $1 million (assuming the gray marketer pays retail).  But if the authorized manufacturer/distributor were to utilize the PAD trademark mechanism, thereby empowering U.S. Customs to detain and seize the gray market goods, and if only about 10% of the gray market goods are seized, this will eliminate 100% of the gray marketer's profits on that shipment. 

And, of course, that creates a very real potential for $1 million in additional profits for the authorized manufacturer or distributor from sale of authorized units, since the lower priced gray market goods will no longer be available in the U.S.  That's $1 million dollars of otherwise lost profits -- and from only one seizure.  Consider additional seizures across other product lines, and you can see tremendous value in this unique gray market solution.

For more information about this solution -- the PAD trademark -- and to see whether your company is eligible to license use of the foreign PAD trademark rights for its goods, contact Global Brand Ltd. at +44 208 144 1870, or from the U.S. at +1-631-766-0672, or by email at bpmiller@globalbrandltd.com.  With respect to the U.S. rights and assistance from the U.S. owner, contact Jace Enterprises at 703 725 4970 (phindin@stopgraymarket.com).

PAD®

Improving Company Profits

Defending Goodwill

Protecting Consumers