K Mart fights gray market ban - ban of sale of goods intended for sale in foreign countries in U.S. stores

K mart Fights Gray Market Ban

WASHINGTON -- K mart called on Congress to shoot down legislation banning "parallel imports," warning that such a "gray market" embargo will deny American shoppers "the same good deal on branded merchandise that is available to consumers around the world."

The chain's testimony was targeted at a measure (S. 626) introduced by Senator Orrin Hatch (R-Utah) to effectively nullify long-standing U.S. Customs Service rules permitting parallel importation of goods without authorization of the foreign manufacturer.

Unlike counterfeit products, so-called "gray market" or "parallel imports" are genuine articles bearing legitimate trademarks which were produced for sale abroad. Instead, however, these items are purchased and shipped to the U.S. by independent distributors without authorization of the foreign manufacturer.

Although U.S. manufacturers are entitled to block such unauthorized importation, foreign producers or their U.S.-based corporate relatives do not enjoy such powers under the present Customs Service regulation.

Significantly, those rules were upheld recently by the U.S. Supreme Court in a case involving K mart. Hatch's bill would effectively reverse that decision and allow foreign manufacturers with U.S. distribution subsidiaries to checkmate competition from independent "parallel importers."

"The effect will be to create a government-endorsed monopoly for foreign manufacturers who desire to control the resale pricing of their own goods in the United States market," K mart public affairs vice president Robert Stevenson told the Senate Subcommittee on Patents, Copyrights and Trademarks.

In addition to driving up prices to American consumers, he said the anti-gray market legislation would destroy "the beneficial effects of the import price competition which . . . discounters, catalog showrooms and other price conscious retailers have infused into the U.S. market."

Testifying on behalf of the International Mass Retail Association (IMRA), Stevenson told Congress that the savings to consumers of parallel imported products is significant.

"A Seiko watch retailing for $195 at an `authorized dealer' supplied by Seiko's United States Trademark licensee would cost a K mart shopper only $100 to $120 when imported through parallel channels," he said. "A Citizen brand watch with a suggested retail price of $110 would be sold by K mart at $50 to $60 as a parallel import."

IMRA's opposition to the gray market ban was echoed by a battery of consumer groups who argued that the pending legislation could cost American shoppers "billions of dollars annually."

Consumers Union Washington Office director Mark Silbergeld warned that a ban on parallel imports "could have the same effect as reinstitution of the Fair Trade agreements under the Miller-Tydings Act" which allowed legalized resale price fixing.

Those arguments, however, failed to sway subcommitee chairman Dennis DeConcini (D-Ariz.) who urged the panel to approve Hatch's bill.

"Gray market goods cause confusion to consumers who are often unaware that the product they are buying was not produced for sale in the U.S.," he said. "Consumers may end up not getting what they think they are paying for and the reputation of the U.S. trademark owner is severely damaged."

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