Duracell U.S. Operations, Inc. v. JRS Ventures, Inc., No. 17 C 3166 (N.D. Ill. Aug. 16, 2018) [click for opinion]
Duracell sued retailer JRS under the Lanham Act for allegedly importing and distributing "gray market" Duracell batteries to US customers. "Gray market" products are sold through distribution channels that are legal but unintended by the original manufacturer for the market where they are eventually sold. According to Duracell, the batteries were only intended for use by foreign original equipment manufacturers ("OEMs") in electronic products manufactured overseas, and were not authorized for sale in the U.S.
Duracell argued that the OEM batteries lacked certain warranties and services associated with U.S.-manufactured Duracell batteries, including information about the battery replacement guarantees, ten-year retail consumer warranty or label warnings, and/or contact information for Duracell's U.S. customer service department, and thus were materially different than Duracell batteries available for sale to U.S. customers. The OEM batteries also lacked shipping warning labels included with all U.S. batteries, which are specifically designed to ensure that the batteries are shipped safely to the consumer.
The typical question for a court in Lanham Act cases is whether a defendant's sale of the product(s) at issue is likely to cause confusion among consumers. However, "gray market" products are subject to a slightly different analysis where a defendant sells products that were manufactured by the plaintiff and bear the plaintiff's genuine marks:
In this context, courts in this circuit and beyond answer the likelihood of confusion question by determining whether the defendant's gray market product is materially different from the product sold by the plaintiff. [emphasis added]
Although the OEM batteries were physically similar to those manufactured and sold to customers in the United States, the court found that certain "subtle" differences between the products were sufficient enough to survive a motion to dismiss. Specifically, because the warranties and services commonly associated with Duracell's products were not included with the "gray batteries," the court reasoned that Duracell plausibly alleged that U.S. consumers would be confused as to the origin of the batteries purchased from JRS and would be disappointed to learn that they do not come with the warranties and services that consumers expect to accompany U.S.-manufactured Duracell products. The court further ruled that because the "gray market" batteries were intended for distribution in a foreign market and did not carry warranties and services that consumers associate with Duracell's products, the products were materially different enough to allow Duracell to survive a motion to dismiss.