Attention Gray Market Shoppers: K Mart Corp. V. Cartier, Inc. Fails to Clarify the Clouded Area of Gray Market Goods

Gray market goods are items of foreign manufacture which bear a trademark registered in the United States, as well as in a foreign country, and are subsequently imported into the United States without the consent of the domestic trademark holder.'A gray market good can usually be placed in one of three categories.2 In the first situation, a domestic firm will purchase the rights to use a trademark from a foreign manufacturer and register that trademark in the United States.3 If the foreign manufacturer, or a third party, subsequently imports the authentic goods of foreign manufacture into the United States, the domestic trademark holder's market is being undercut and a gray market is said to exist.'In the second case, if a domestic firm that registers a trademark is a subsidiary of, a "parent" of, or the same firm as a foreign trademark holder, the importation of goods by the foreign arm of the organization, or by a third party, also gives rise to a gray market.5 In the third instance, a gray market exists when a domestic trademark holder authorizes a foreign firm to use its trademark abroad, and the foreign manufactured goods are imported into the United States by the foreign corporation or a third party.6 In 1921, A. Bourois & Co. v. Katzel 7 was decided by the United States Court of Appeals for the Second Circuit, and it appeared as though the gray market would never be regulated.8 Katzel held that the importation of authentic goods bearing a trademark registered in the United States would not infringe upon the rights of a domestic trademark holder; therefore, exclusion of the goods would be unwarranted.9 The impetus for the Katzel decision was the universality theory of trademark law.'°According to this theory, a trademark did not confer upon its owner the right to monopolize a product's distribution, but rather functioned merely to protect the public from being deceived by imitation goods."In response to the laissez faire attitude espoused by the Second Circuit in Katzel, Congress speedily enacted section 526 of the Tariff Act of 192212 prohibiting the importation of foreign manufactured goods bearing trademarks registered in the United States.Section 526 was later reenacted in its entirety as section 526 of the Tariff Act of 1930.13The United States Department of Treasury did not initially envision exceptions to the ban on gray market goods that section 526 created.' 4 In 7. 275 F. at 539. 8.By the time Katzel was decided, the gray market already had been the subject of thirty-five years of litigation resulting in the unimpeded importation of gray market goods.Fred Gretsch Mfg.Co. v. Schoening, 238 F. 780 (2d Cir.1916) (holding that the importation of authentic trademarked goods was legal); see Russia Cement Co. v. Frauenhar, 133 F. 518 (1904), cert.denied, 196 U.S. 640 (1905); Apollinaris Co. v. Scherer, 27 F. 18 (C.C.S.D.N.Y. 1886).9. 275 F. at 543. 10.The epitome of the universality theory is espoused in Katzel.Id. at 539. 11.Id. at 543.When the case finally reached the United States Supreme Court, however, Justice Holmes reversed the decision of the United States Court of Appeals for the Second Circuit and initiated what is now known as the territoriality theory of trademark law. A. Bourjois & Co. v. Katzel, 260 U.S. 689 (1922).This approach views the source of trademark protection as the product of a particular sovereign state, thus making abstract discussion of the genuineness of a trademark meaningless.Note, The Greying ofAmerican Trademarks: The Genuine Exclusion Act and the Incongruity of Customs Regulation 19 CFR.§ 133.21, 54 FORDHAM L. REV.83, 106 (1986) (illustrating that the customs regulations are inconsistent with the intent of the Tariff Act of 1930).12. Ch. 356, § 526, 42 Stat.858, 975, superceded by Tariff Act of 1930, ch.497, § 526, 46 Stat.590, 741 (codified as amended at 19 U.S.C. § 1526 (1986)).13.The Tariff Act of 1930 states in part:[I]t shall be unlawful to import into the United States any merchandise of foreign manufacture if such merchandise ... bears a trademark owned by a citizen of, or by a corporation or association created or organized, within the United States, and registered in the patent office ... unless written consent of the owner of such trademark is produced at the time of making entry.19 U.S.C.