grey goods: materiality is key

Dentsply Sirona, Inc.
v. Dental Brands For Less LLC, No. 15 Civ. 8775 (LGS), 2020 WL 1643891 (S.D.N.Y.
Apr. 2, 2020)
Trademark confusion
is sometimes a normative conclusion, not an empirical one, even though the
language surrounding it is empirical. Here, the court states a rule: “In a
gray-market-goods case, if the goods are not ‘genuine’ then a likelihood of
confusion exists.” One could frame this as a presumption that it’s not
cost-effective to allow defendants to rebut: it is so likely that non-“genuine”
goods confuse consumers about their qualities that we don’t allow a defense.
But the way that courts define “genuine” often stretches to a bunch of things
that consumers are unlikely to care about, and include contexts where the
divergences between the foreign and domestic products are fully disclosed, so I
can’t ultimately buy this as an empirical claim.  

Grey goods cases are much more plausible not
as trademark cases but as unfair competition cases—though we really should focus
on materiality.  Here, I suspect the court pays more careful attention to materiality because it has been cued by the false advertising claims; possibly the plaintiff could’ve gotten a better result if it had only argued trademark infringement.
The court
explains that goods aren’t genuine if “they do not conform to the trademark
holder’s quality control standards or if they differ materially from the
product authorized by the trademark holder for sale.” And materiality has “a
low threshold …, requiring no more than a slight difference which consumers
would likely deem relevant when considering a purchase of the product.” The
court found a factual question on materiality here; Dentsply identified various
differences between the foreign and domestic products, “including that Dental
Brands’ warranty provides less protection and is harder to access; that Dental
Brands customer service is inferior to Dentsply’s; and that Dental Brands’
packaging contains irrelevant information that can confuse or mislead
customers.”  Dental Brands argued that
the product inside the packaging was identical, and that its dentist customers “care
only that they can get the same product from Defendant at a more economical
price than what Plaintiff offers.” 
Evidence from Dentsply’s sales database reflected “conversations between
Plaintiff’s distributors and dentists suggesting that the dentists do not care
about the differences and care only about the price.” 
It’s reasonable to
let circumstantial evidence (differences in warranty/customer service) count as
evidence of materiality, but it’s disturbing to me how many other courts are willing
to treat warranty differences as dispositive evidence, especially when the
differences are disclosed to consumers; not every defendant has a database of customer
conversations to point to.  Here, the
court is explicit that survey evidence is not required for materiality. Also,
the database statements probably weren’t inadmissible double hearsay. The
distributor statements were likely admissible as business records and the
dentist statements were likely a statement of the declarant’s then-existing
state of mind.
Unsurprisingly, the
same facts could also support a false advertising claim (under the Lanham Act
and NY GBL §349) for a reasonable jury.
Dilution: No,
Dentsply is no Beyonc
é. “The
record provides that members of the dental industry are aware of the Dentsply
trademarks, but offers no evidence that the mark is recognized by the general
public.” This also prevented a finding of sufficient distinctiveness under
state law.
Tortious
interference claims also failed.

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