SUPREME COURT NIXES GRAY MARKET APPEAL OVER GIVENCHY CASE

Byline: Julie L. Belcove, with contributions from Joanna Ramey, Washington

NEW YORK — The Supreme Court has ended a key legal battle over the gray market.
The High Court revealed Monday that it unanimously refused to hear the case of Parfums Givenchy v. Drug Emporium, quashing the gray market’s last hope that the judicial system would derail Givenchy’s use of copyright law to control distribution of its fragrances.
While the decision applies to imported goods only, legal experts said the case’s implications could reach far beyond the fragrance industry and extend to a range of other products, including apparel.
“It tells the gray market it shouldn’t be violating the authorized channels of distribution,” said Curtis Bradley, a lawyer with Covington & Burling in Washington, D.C., who represented Givenchy in the case.
The Supreme Court’s silence is a major victory for fragrance manufacturers, who for years have been bemoaning the diversion of their products to the mass market.
COPIAT, the anti-diversion coalition of manufacturers, estimates that 20 to 25 percent of the prestige fragrance market is diverted, a figure that translates to about $1 billion at retail.
Other fragrance companies have been following Givenchy’s lead in using copyright law to control distribution of their fragrances.
In a novel approach in the fragrance industry, Givenchy had copyrighted the box design of its Amarige women’s fragrance. The company then sued Drug Emporium, a drugstore chain based in Powell, Ohio, claiming copyright infringement because the fragrance had been imported without Givenchy’s consent and sold to Drug Emporium, again without authorization.
The case hinged on what is known as the “first sale doctrine,” in which the copyright holder is protected against unauthorized imports. This argument does not apply to domestically made merchandise.
Previously, the fragrance industry had used only trademark law to fend off the gray market, but that case law favors the importers.
Because the Supreme Court, which receives thousands of requests a week but agrees to hear only about 100 cases a year, declined to take another look at the case, the earlier decision by the Ninth Circuit Court of Appeals stands.
In an October ruling, the Ninth Circuit, based in San Francisco, upheld Givenchy’s earlier district court victory, and in January it refused to reconsider.
Technically, the ruling applies only to the Ninth Circuit’s jurisdiction, which encompasses eight Western states. But considering the fact that most major mass market retailers have a presence in the region, the legal precedent is a powerful one.
Since the Ninth Circuit’s ruling in the Drug Emporium case, Givenchy has already brought suit against other mass retailers, including Sears, Roebuck, Kmart and Wal-Mart. Most of those suits were settled out of court.
But John Borgo, a lawyer with the Miami firm of Greer, Homer & Bonner, which represented Drug Emporium, said his client and others still have options.
“This doesn’t necessarily mean the gray market issue is over,” Borgo said.
Since the Supreme Court does not cite its reasons when declining to hear a case, Borgo said it could decide to hear another, similar case down the road, particularly if it originates in a different circuit.
“The other possibility would be a legislative solution,” Borgo said, suggesting that Drug Emporium and others could lobby Congress to change the copyright law.
Robert L. Brady, president of Parfums Givenchy Inc., said Monday that a challenge in Congress “will take them seven years and $7 million…I’ll be fishing by then.”
“It’s the end of the line for them,” he continued. “For all intents and purposes, we’ve taken away [the gray market’s] distribution channel.”
Morrison Cain, vice president of legal and public affairs at the International Mass Retail Association, echoed Borgo’s assessment of the gray market’s options, however.
“Do we want to monopolize distribution of goods just because there is a small copyright design somewhere on the package?” Cain said, arguing that this interpretation of the law is anticompetitive and therefore will drive up prices. “At some point, it may be necessary for Congress to take a look at it.”
IMRA, along with the Price Company, Costco Wholesale Corp., the National Association of Chain Drug Stores and the National Association of Catalog Showroom Merchandisers, filed a friend-of-the-court brief on behalf of Drug Emporium. A second friend-of-the-court brief, siding with the defendant, was filed by the American Free Trade Association, Marshall’s and the Amusement and Music Operators Association.