I’ve been writing about “diversion” of sales — otherwise known as “unauthorized distribution” or the sale of gray market goods — since forever. And I’ve been litigating it since forever, too — right through just about right now. And it’s mostly been a lonely slog, because most people who write about trademark enforcement are beholden to at least their hope of getting the call from a big-brand enforcer to file a spurious trademark infringement and unfair competition claim on its behalf.
But as I have said before, Julie Zerbo is fearless, and much more, and here’s what she wrote last week on this topic in a post called, “Blockchain Could Help Put a Halt to the Gray Market, But Do Brands Actually Want That?“:
The mainstream portrayal of the gray market and other unauthorized channels by the media and by nearly all brands, themselves, is a markedly unflattering one. Gray market-induced distribution can “interfere with [brands’ existing] contracts and economic relationships,” as Dermalogica argued in its lawsuit. Such widespread distribution outside of brand’s authorized retailer can diminish the prestige and exclusive image of a luxury entity, other assert.
Yet, what is less frequently discussed in connection with the sale of goods vis-à-vis the gray market or other authorized channel is that at least some brands are actively participating in it. As TFL previously reported, that no small number of brands are either very quietly selling off their merchandise to retailers like T.J. Maxx and online equivalents, or turning a blind eye when their authorized retailers do so in an attempt to bring in as much as millions of dollars for unsold products at the end of the season that might otherwise be destroyed.
BoF, citing sources last year, confirmed that while “few luxury brands will discuss the practice, most participate in some form, including Gucci, Prada, Dior, Louis Vuitton and Valentino,” for example. “Brands tolerate grey market activity for the sake of making their short-term results better — never mind the long-term damage,” Luca Solca, the former head of luxury goods at Exane BNP Paribas, told the site, who estimates that the gray market accounts for “5 to 10 percent of sales” for many luxury brands.
Regardless of the way that brands are doing away with unsold wares, they are uniformly keeping their mouths shut about the upsides of such practices in order to maintain their premium positioning while simultaneously reaping benefits for their own bottom lines, meaning that luxury brands will certainly adopt blockchain for an array of uses, if they have not already begun to do so. One thing they likely will not be opting to use it for though: cutting out that end-of-season retailer, which is helping them to pad their balance sheets.
Of course. That’s why brand enforcement lawsuits virtually never — to the point where we can almost say “never ever” — include claims against the distributors who sell the stuff to unauthorized resellers, which distributors are, in fact, almost never canned.
It’s all a game, these trademark infringement lawsuits — an expensive game played with other people’s money and livelihoods.
When wil lthe courts stop being used for such games?