March 19, 2019

March 18, 2019

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Second Circuit Affirms Preliminary Injunction of "Identical" Gray Goods

Earlier this month in Abbott Laboratories v. Adelphia Supply USA et al, the Second Circuit affirmed a district court's grant of a preliminary injunction halting the alleged sale of gray-good diabetes test strips made by Abbott Laboratories. The decision is notable because the authentic test strips were identical to the gray-good versions.

Abbott sells blood glucose test strips for monitoring diabetics' blood-sugar levels under the trademark "FreeStyle." Abbott sells the test strips both in the U.S. and abroad, but manufactures all of the test strips abroad. Test strips bound for the U.S. are packaged differently from their foreign counterparts. Abbott allegedly discovered that the defendants were buying the international FreeStyle test strips at a cheaper rate abroad and then selling them in the United States at a profit. Abbott moved for a preliminary injunction based on the defendants' alleged trademark infringement in violation of the Lanham Act.

The district court explained that gray goods may give rise to Lanham Act liability where (1) the goods are not intended for domestic sale and are materially different from the domestic version, or (2) the goods are sold in contravention of legitimate, established, substantial, and nonpretextual quality-control measures that the trademark holder follows, and such sale will diminish the value of the mark.

Abbott demonstrated that it was likely to succeed under both theories. First, although the international test strips were identical to the domestic test strips, their respective packages and instruction manuals differed. The international test strip packages had "unexplained and unfamiliar symbols, atypical warnings, international units of measurement, and different languages."  In addition, the international test strip packages lacked the toll-free phone number on domestic packages that consumers may call with questions about the product. These differences, the district court held, amounted to a "material difference" which, in the gray goods context, "requir[es] no more than a slight difference which consumers would likely deem relevant when considering a purchase of the product." 

Second, the district court found that the sale of international test strips in the U.S. interfered with Abbott's quality control efforts. Abbott alleged that it operates a quality control program through which it monitors its market, fields customer inquiries, and investigates complaints. Abbott contended that it would not be able to execute a targeted recall of certain products, should that ever be necessary, because it would not know in what country the product would need to be recalled. Instead, Abbott would need to recall none or all of the product. The district court agreed that the sale of the international test strips interfered with Abbott's quality control program, and therefore found that the international test strips were not "genuine" for Lanham Act purposes.

Based on the foregoing, the district court concluded that Abbott was likely to prevail on its Lanham Act claim under both the materially-different and the quality-control standards. Abbott also showed that it was likely to suffer irreparable harm absent injunctive relief, and that the balance of hardships and the public interest favored an injunction. Thus, the district court preliminarily enjoined the defendants from importing, purchasing, selling, distributing, marketing, or otherwise using in commerce in the United States any International FreeStyle Test Strips.

In a summary order, the Second Circuit affirmed the preliminary injunction and endorsed the district court's reasoning. While the Second Circuit's decision is non-precedential, it is a reminder that even "identical" gray goods are not immune to Lanham Act liability.

© 2019 Proskauer Rose LLP.

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About this Author

Brendan O'Rourke, Litigation Law, Proskauer Rose Law Firm
Partner

Brendan O'Rourke is co-Chair of the firm’s Litigation Department and co-head of the False Advertising & Trademark Group. From the inception of his career, Brendan has concentrated in the field of trademark, false advertising, and unfair competition law, and has provided day-to-day trademark, false advertising, and Lanham Act counseling to many Fortune 500 clients, as well as start-up companies and entrepreneurs. He is a first-rate, first-chair trial lawyer, having successfully tried numerous trademark, trade dress, unfair competition, false advertising, copyright and...

212-969-3120
Alexander Kaplan, Proskauer law firm, Litigation Attorney, New york office,
Partner

Alexander Kaplan is a partner in the Litigation Department. Alex is a commercial litigator and trial lawyer with broad expertise in intellectual property litigation and counseling. He has substantial experience in the fields of copyright, trademark, advertising and trade secrets law, representing clients in a wide array of fields and industries.

Copyright/Entertainment

In copyright and related entertainment matters, Alex has represented various major record labels, music publishing companies and recording artists, as well as other media and entertainment companies. He also counsels clients with respect to the Digital Millennium Copyright Act (DMCA), digital rights management and content encryption issues

Trademark and False Advertising

In trademark and false advertising matters, Alex represents and advises a range of consumer product, fashion, food and beverage, pharmaceutical and medical device companies before the federal courts, TTAB and NAD. He has represented both plaintiffs and defendants in numerous Lanham Act matters in courts across the country, including in multiple preliminary injunction hearings and jury trials. Beyond litigation, Alex frequently counsels clients concerning advertising and marketing claim substantiation and review. He is an editor of and contributor to Proskauer’s advertising law blog, Watch This Space: Proskauer on Advertising Law, and is a frequent speaker at advertising law conferences and courses.

212-969-3671
Adam Siegartel, Litigation Attorney, Senior Counsel, Commercial Litigator, Trade
Senior Counsel

Adam D. Siegartel is a senior counsel in the Litigation Department. He is an experienced commercial litigator with a particular emphasis on trademark, false advertising, copyright, counterfeiting, domain name, and other intellectual property disputes. Adam represents large international corporations, small businesses, start-up companies, and individual entrepreneurs in private disputes and transactions, as well as matters involving governmental agencies and public development projects. Adam counsels clients and litigates cases in a wide variety of industries including...

212.969.3847
Jeffrey H Warshafsky, Proskauer Law firm, Litigation Attorney
Associate

Jeffrey H. Warshafsky is an Associate in the Litigation Department, resident in the New York office. He is a commercial litigator with a particular emphasis on false advertising, trademark, and counterfeiting disputes. Jeff also advises clients on trademark portfolio management, anti-counterfeiting strategies, cybersquatting prevention, and other Internet-related trademark infringement matters.

212-969-3241
Russell Kostelak, Litigation Department  Proskauer Rose, New York,
Associate

Russell Kostelak is an associate in the Litigation Department. He focuses on complex litigation in federal and state courts with an emphasis on intellectual property, including copyright, trademark and advertising law. Russell has handled copyright infringement and ownership disputes on behalf of textbook and music publishing companies; trademark infringement, clearance and prosecution matters; and false advertising cases implicating consumer fraud allegations. He also has experience in securities litigation matters, including shareholder class actions and insider...

212-969-3216