Grey Marketing – Still Not Black and White in Canada

Grey marketing, sometimes referred to as "parallel importation", is the diversion of goods, originally intended for sale only in certain countries, to other countries where they were not intended to be sold. The goods are not counterfeit since they were legitimately marketed and acquired through legal channels abroad, but they are imported from one country and sold in another, typically at a lower price, without the permission of the international brand owner.

From the perspective of consumers and free competition, a grey market situation is not problematic in most cases. Moreover, given the doctrine of exhaustion or the right of first sale, once the legitimate goods are sold anywhere in the world, the purchaser has the right to import or resell them.

However, from the perspective of the international brand owner, who may have to compete with its own products sold at a lower price, a grey market situation is far from desirable. For instance, it circumvents the normal distribution channels established by the owner resulting in diminished control over how its products are manufactured, produced, marketed (e.g. the packaging and labels), sold and guaranteed in a given jurisdiction. In certain jurisdictions, higher prices may even be justified in view of circumstances such as higher overhead, after-sale services, establishment of distribution network as well as the need to comply with local legislation and regulations. The product itself may also vary slightly from jurisdiction to jurisdiction to suit the local market, for instance, in terms of ingredients and/or chemical composition.

While in certain jurisdictions, such as the U.S., trademark law can be used to curtail grey marketing, in Canada, relying on trademark law has not been met with marked success. Canadian courts seem reluctant to extend a brand owner's monopoly further than necessary and are mindful that the underlying purpose of trademark law is to protect consumers from confusion as to the source of goods, which is not necessarily an issue when dealing with grey market goods since by definition grey market goods are authentic and ultimately originate from the brand owner.

The Federal Court, however, has been somewhat receptive to the situation whereby a party can establish rights in Canada that are separate and apart from the corresponding rights in other jurisdictions. For instance, such could entail a plaintiff that is not merely a Canadian licensee of the international brand...