[ALERT] Watch Out For Gray Market Goods

Black Market, Gray Market, or White Market?

Let's start with a few definitions. The term "black market" refers to an illegal exchange of goods meant to avoid government restrictions, price controls or taxes. Items sold on a black market may themselves be illegal, or they can be legal but transacted to avoid taxes. In the "grey market," items are distributed through legal channels, but these transactions are unauthorized or unintended by the original manufacturer. The "white market" is where goods are sold legally and in compliance with both the manufacturer and government regulations.

We'll talk today about gray market transactions, which are (usually) legal, but sketchy and sometimes risky. Many gray market sellers represent themselves as “direct importers” or “independent dealers,” terms that consumers tend to interpret as more economical than “regular” importers or dealers. Gray market sellers often tout themselves as small, “family owned” businesses who are more honest and trustworthy than corporate America. Many are even perfectly up-front about how they beat the big boys’ prices.

Gray marketers buy goods outside of manufacturers’ authorized distribution channels, evading the contractual obligations of authorized resellers that manufacturers impose in order to maintain the quality of their brands. Gray marketers don’t provide warranty service or tech support. They don’t participate in the manufacturer's product training or co-op advertising programs. And gray market products will not qualify for manufacturer's rebate programs.

They may not provide user manuals in English or power supplies compatible with American A/C outlets, because they “directly import” goods from overseas. Some don’t even answer their phones. You may get a "knock-off" item that only looks like the original, or a used item. Some software and CDs will only work in designated regions of the world. The comments I found posted on one gray marketer’s profile are typical:

Is It Legal?

It’s not a crime to buy gray market goods, but in some cases it is unlawful to sell them. U.S. trademark law, specifically the Lanham Act, gives manufacturers the right to control how their trademarked goods are sold and supported. OEMs (original equipment manufacturers) can require resellers to spend money on training, advertising, providing tech support and warranty services, etc., as conditions of being permitted to resell the goods. The costs of meeting these conditions are added to the authorized resellers’ prices. Gray marketers avoid all of that expense and pass (some of) the savings on to buyers.

It's no coincidence that the term "gray market" is used here. The legality of gray market goods in the United States is a gray area, and has been subject to numerous legal challenges. In one example, the U.S. Supreme Court ruled that textbooks produced and sold for a lower price in a foreign country could be purchased by an importer and resold in the United States despite the publisher’s U.S. copyright, citing the long-standing “first sale doctrine”. This decision affects goods far beyond textbooks. Outside the USA, the laws vary widely. The European Union, for example, prohibits the importing of gray market goods from outside the EU, but it's okay to import gray market goods from one EU-member country to another.

If you buy a product through a gray marketer, don’t expect the manufacturer to provide any free support or warranty. Some OEMs will repair gray market units for a (usually steep) fee. Most will not sell you parts for a gray market unit. If the product breaks down, you’re on your own to find parts and someone who is able and willing to fix it. Saving money on the initial purchase can be very expensive when you need service.

This is especially true when it comes to gray market automobiles. According to the Better Business Bureau, a "non-conforming car" can be imported into the US by a registered importer, but modifications required to comply with US standards "may be impossible, impractical, or require extensive engineering." This article from Car and Driver tells the story of one person who bought a Canadian car and had trouble getting it serviced in the U.S.

Gray market sellers often operate on Amazon, eBay, Craigslist, so-called "penny auction" sites, and other locations online. If you have a problem with a gray market item sold by a seller who operates on the Amazon or eBay platform, there's a good chance they will make it right. That's because they have a vested interest in providing a good customer experience. When purchasing from Craigslist or other sellers, you're taking a much bigger chance.

B&H Photo, a popular online seller of audio and video products, is very upfront about the gray market items they offer. On their website, they say that they sell "some products we've obtained from sources other than the manufacturer or its licensed importer." And further, that gray market goods are "not illegal, not factory seconds, not demo merchandise, (and) not cheaper or inferior quality." B&H provides warranty and return service for the gray market goods they sell.

How can you tell if an online seller is offering gray market goods? An unusually low price would be the first tip-off. Some brands, notably Apple, almost never allow their products to be sold at a significant discount. If you see an iPad or MacBook at half price, put down the mouse and back away slowly. You don't want to take a chance on buying on the black market. I'm not a legal expert, but I can imagine a prosecutor saying "You should have known better" while charging you with possession of stolen or counterfeit goods.

Other tipoffs may come from reviews of the seller. Check for complaints about "open box" shipments, missing plugs or cables, power adapters designed for European or Asian countries, manuals printed only in a foreign language, or missing warranty cards.

When shopping, scan the listing for language which may indicate that a product is gray market. Some red flags include "Import Model", "Direct Import", "Warranty via Seller", "USA Seller Warranty", "Off Market", and similar terms. When in doubt, ask the seller specifically about warranty service, tech support, rebate programs, and if user manuals are in English.

Is It Ever Worth It?

That said, there are times when it makes sense to buy gray market goods. If the product is extremely reliable you may not need service during the time you expect to use it. Hard drives, for instance, generally have MTBFs (mean time between failures) of 50,000 hours or more; that’s 5 years and 8.5 months of constant disk activity, on average. And they don't plug into a wall socket, so you don't have to worry about plug compatibilty.

If the purchase price is low enough and you’re not going to keep any critical data on a device, it may be worthwhile to buy it and just throw it away when it breaks. You may also have to find and purchase missing parts or accessories, or replace power adapters that are not compatible.

The Bottom Line: It's the Bottom Line of Course

Gray market goods do save you money when you buy them. What they cost you is convenience when you need help and the peace-of-mind that comes with knowing you’re covered if something breaks. You also have to swallow hard, trust that the seller won't take your money and run, and accept the fact that they may be violating the law.

In my opinion, unless you're buying from a reputable seller with a strong customer support track record, it’s a trade-off that should be attempted only if you're a risk-taking power user, familiar with electronic components, handy with a soldering iron, and familiar with sources for any parts that may be needed. You should also have a credit card with excellent fraud protection.

Have you had experience with a gray market product or seller? Your thoughts on this topic are welcome. Post your comment or question below...