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 Beyoncé. “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.