The so-called “gray market” is many things, but it certainly isn’t colorless.
Wikipedia puts it succinctly: the gray market consists of “distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer.”
Unauthorized dealers see nothing but green. Manufacturers, like Velodyne, see red. And consumers need to notice the flashing yellow signs. Indeed, caution ought to be the watchword; it’s buyer beware, big time.
The gray market might be attractive for some borderline players in the channel, and it’s superficially appealing to consumers, typically through lower prices or easier access to seemingly identical merchandise.
But the gray market isn’t actually a very friendly place for anyone. And the issues that confront consumers are, in fact, pretty black and white. People buying from unauthorized dealers run the risk of ending up with prototypes or other less-than-final products, offered as the real deal.
In his recent Business Law Todayarticle, “Dealing with Unauthorized Online Dealers: Sales of ‘Genuine’ Products,” attorney Robert W. Payneexplores the challenges manufacturers face from unauthorized online retail and the legal nuances of unauthorized selling: http://www.americanbar.org/publications/blt/2014/07/01_payne.html.
Payne ought to know. He’s a partner in the law firm of LaRiviere, Grubman & Payne, LLP in Monterey, Calif. He practices intellectual property law, including copyright, trademark, and patent litigation. Here’s his take:
Online sellers (some authorized by the manufacturer; many more not authorized) now have low-cost, direct access to consumers through their own websites and through online market places such as alibaba.com, eBay, and amazon.com. This has led to a tsunami of online dealers infringing intellectual property rights.
While many products sold by unauthorized online retailers are counterfeits, some sell products actually manufactured by and for the trademark owner. The sale by unauthorized dealers of “genuine” goods poses the greatest legal challenge to makers of well-known brands. It may or may not be a bigger business challenge, but counterfeits do not pose serious legal issues; “genuine” goods, on the other hand, are another matter. Further, the unauthorized sale of “genuine” goods is exploding on the Internet…
Such unauthorized dealers compete unfairly in a sense. They are essentially “free riders.” They have minimal overhead and do not invest significantly in customer service, showrooms, quality, or advertising. Nevertheless, unauthorized dealers reap the benefits of such efforts. They trade off the brand owner’s hard-earned reputation for quality and customer service. Not having the same overhead, they can undercut authorized dealers on price, driving prices down with their unfair advantage and making it difficult for authorized dealers (and ultimately the brand owner itself) to make a profit. Additionally, the product may differ in some way, such as lacking warranty protection. It is this differential in service and quality of promotion and quality inherent in a system of authorized dealerships which needs to be protected.
We could not agree more. The adage about something sounding “too good to be true” definitely applies here. The moral: know what you’re buying and from whom. If you do, you can’t lose.