Food and beverage giant Nestlé has filed a trademark infringement suit in Texas, seeking a permanent injunction against Mexican distributor Ultra Distribuciones Mundiales SA de CV for selling unauthorized––but authentic––Nestlé products in the United States.

According to the complaint, Ultra has been buying Nestlé goods in Mexico and importing them into the U.S. for sale.  In trademark law, this is known as a “gray goods” problem––genuine trademarked products being sold the wrong market.  

Products are often tailored to specific national conditions, and thus a trademark’s reputation, and hence its goodwill, often differs from country to country.  McDonalds, for example, offers different menu items in different countries to cater to national tastes. So while a McKroket might be a big hit in the Netherlands (it’s a deep-fried meat ragout topped with a “strong” mustard) it would probably cause Mickey D’s customers in Dayton, Ohio to be confused as to where exactly this thing came from.  

The Lanham Act recognizes this and extends territorial protection where two merchants sell materially different products in the same market under the same name.  The operative words here are “materially different.” The sale of identical unauthorized goods will generally not offend the Lanham Act, because consumers are getting exactly what they bargained for and the mark owner’s goodwill suffers no harm.  

In evaluating a gray goods case, courts will look for any differences between the authorized and unauthorized products, and if so, will consider whether those differences are material.  A difference is material if the consumer would consider it relevant to their decision to purchase. Examples of material differences sufficient to support a Lanham Act claim include differences in price points, product composition, product packaging, and quality control procedures.  

If a plaintiff can prove that the differences between the authorized and unauthorized goods are material, this will create a presumption of consumer confusion, and the burden shifts to the defendants, who may avoid liability only by showing that consumers are not, in fact, confused.  They might offer evidence, for example, that a retailer explains to consumers the difference between the products, or that consumers are indifferent about the alleged differences.  

Here, to establish a presumption of consumer confusion, Nestlé argues in its complaint that Ultra’s product’s packaging displays information and measurements that are inconsistent with FDA regulations in the U.S., and that the goods are manufactured using different quality control standards than those sold in the U.S.  Unless successfully rebutted, this showing will likely be sufficient to establish a presumption of consumer confusion as to the source of the unauthorized gray goods and entitle Nestlé to legal remedies.  

Ultra has yet to file an answer, so stay tuned for updates.