Should You Buy Gray Market Goods?

Category: Hardware , Software

In between Walmart’s everyday low prices and the sketchy fellow in Walmart’s parking lot who’s selling brand-new, boxed iPads for $50 lies a vast gray area appropriately called the “gray market.” Here you’ll find prices lower than those of any mainstream merchant but not quite low enough to scream “stolen” or “counterfeit.” How do gray markets work, and are they legal?

What is the Gray Market?

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:

Gray Market Goods

I ordered a Black Canon M and received an open box SILVER Canon M. Both the flash and extra lens were missing. Major fail. I certainly won't order from this company again.

They took my money and sent the wrong item. They did not want to take any blame and shipped a totally different item and did not contact me to see if it was ok. STAY AWAY FROM THIS SELLER THEY WILL NOT GIVE YOU WHAT YOU ORDER.

Missing parts and no response from customer service. The camera battery charger cable that it came with was the international plug, but missing USA cable. Emailed them, but no one replied.

Is It Legal?

It’s not a crime to buy gray market goods, but in some cases it is unlawful to sell them. Trademark law, specifically the Lanham Act, gives manufacturers the right to control how their trademarked goods are sold and supported. OEMs 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.

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.

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...

 
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Most recent comments on "Should You Buy Gray Market Goods?"

Posted by:

JP
17 Nov 2017

Many years ago, I worked for an ad agency that did the ads for a Honda dealership owned by Rick Hendrick, now famous for his NASCAR teams. He sold gray market Hondas for less than the authorized dealers and eventually was taken to court for it. He lost, but due to his "poor health," he didn't receive much of a punishment and served no jail time. Now, he's got auto dealerships of all kinds all over, making money like it's going out of style, and is doing well in NASCAR.

Since he was dealing in expensive goods -- much more than even an expensive camera, I think he should've gotten more than a slap on the hand. Obviously there's no proof, but I always suspected the judge in his trial probably drove off in an expensive car, courtesy of Mr. Hendrick.

People who buy gray market goods should be made fully aware of it prior to the purchase, and also should know what they're getting into. If they are not made aware by the seller, I think the seller should be forced to treat it as if it's an authorized sale.


Posted by:

Charley
17 Nov 2017

If you go back to the 1930s to about 1975, there used to be laws known as "fair trade laws" that allowed a manufacturer to prohibit discounts on goods. Those laws were eventually gotten rid of. However, what manufacturers do now is what you describe in the your article: they will make deals with authorized sellers and punish them if they discount too much, for example by cutting off the seller. The sellers often get around that by throwing in extras rather than discounting the product. See: https://en.wikipedia.org/wiki/Resale_price_maintenance


Posted by:

GuitarRebel
17 Nov 2017

The same applies to medications. Sometimes you can get generic drugs overseas for a fraction of the cost of those available here in the US. The kicker is that many times they're made in the same factory as their higher priced counterparts.
Of course, the drug companies want you to think you're getting impure and sometimes dangerous medications, but if you buy from reputable companies, your risk is small to none.
Heck, I've even read reputable articles stating the major drug chains here in the US sometimes don't really know where the generic drugs the drug saleperson sold them came from. That's even scarier.


Posted by:

Dave in Indy
17 Nov 2017

I recall the Gray Market Honda issue and Rick Hendricks oddly timed health issues. He also donated to Slick Willy and got pardoned. Anywho, the wife and I were in the market for a used minivan. We found a local dealer that had a used Chrysler for 2500 less than similar ones. The only odd thing from Carfax was that it was not only made in Canada it was registered there as well. The GPS thought that we were still in Ontario. Then I called a local Chrysler dealer. He said take it back. They would not honor the warranty and recalls would be a pain. So I would avoid any self imported used car bargains like that. Luckily the dealer allowed us to unwind the deal.


Posted by:

JPHUF
17 Nov 2017

If a "Gray Market" seller accepts your credit card then he/she has to have a Merchants Account or use a 3rd party that has one. Which means that if you have a normal credit card, you can get your money back.

Most cards (referring to all 6 of mine) have several perks that you can use for a refund, if the product is defective or incomplete. Mine even gives an additional 2-year warrentee over any other warrentees provided. I have used these features quite often.

Also I do like to read in the comments, other persons political opinions nor remarks (such as the Slick Willy remark), unless this is a political forum.


Posted by:

Doc
17 Nov 2017

Another thing to consider, which I didn't and would never have thought about - is if your insurance company will cover the replacement value if lost loss or theft (I had one of those insurance polices that replace at value with no depreciation.) I am a retired college prof so perhaps I ought to have known better, but to go along with some retirement presents some faculty and students got together to give me (I'm a semi-pro photographer for a hobby) a canon Mark D-II and several lenses. All 'L' series with IS and USM technology - all provided by a students parents who sold them in 'used' but 'same as new' condition -- from their authorized store -- So call that $10K or a tad more of top-of-the line Canon equipment.

I then found a smaller but cheaper store, and bought some macro-flash units, a couple of more lenses (and yeah the prices were good, but not great - saved -- call it $300 on a $750 lens -, and a couple of Tripods that I liked better than the one I'd gotten with the original present. You know, just to finish off all the lenses and filters and stuff I had accumulated over 40 years of photography. I was a VERY happy camper.

Long story short - I left them unattended in an unlocked care. (The sort version: campus security where I was taking a summer class in 'advanced photo shop', told me that even with my engine on, AC on high, and classical music for my Malamute Xoss Wolf 148 pound sled dog protecting my car was not allowed on campus, not even in my vehicle) - So I rushed home (small rural community), dropped the dog, drove back to campus - and ran into the class so I'd not be late - and missed it by only 4 minutes -

Then when I realized that I had two camera bags (bag plus large full sized custom Kelty camera backpack that also carried my three favorite tripods) filled with gear sitting in my car and not in class - I rushed back, and they were gone, Total time away from vehicle was less than 10 minutes. I was so used to having my 'Mute Xross to guard things, I never needed to lock the doors.

When I turned in the theft to the cops and insurance company - the cops pretty much said "Well good luck finding that stuff" we wont' go out of our way to find it - it could be anywhere by now (3 hours post theft) and left.

The insurance company showed up two day later and asked all those questions about what I had and where did I get them and what did they cost. I told them. The adjuster said that because of the high value of the items she would have her super get in touch with me because the claim was outside her 'knowledge and experience'. About two weeks later they wrote back and said that the one store I used to buy filters and lenses and flashes was a 'known' gray market store, and had a reputation of taking in for trade stolen goods, and they would not cover the loss - not even the used ones from my students' parents store.

I was flabbergasted, and at first quite perturbed since the total loss was in the neighborhood of $18K.

I lost $18, 000 because the insurance company said that they would and could not vouch for the quality of the items I'd bought. I had the store that sold the original equipment to my fellow faculty and students get me the Serial Numbers, Ditto the run down super cheap store that was on 'the other side of the tracks' - and even then, the Insurance company said (just like Bob has said):
------------------
"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."
-------------------

After multiple attempts to get the insurance company involved in the theft failed - the cops saying 'Oh well, it's all gone now, they probably aren't even still in this state' - and the insurance company saying 'prove they worked and weren't stolen, or second hand or gray market because we have no way of knowing if ANY of the Serial Numbers are correct' the last blow came when my accountant said: you can't even deduct it as a loss from your state and federal income tax." --

I lost all the way around, and I'm sure the police report went into a round file, the insurance company saved just over $18K (US)-- AND now I only have the special mount for a microscope and a stereoscope that won't fit and so ends another horror story about the 'gray market' and it's reputation. And now with a fixed income, I have no hope of ever moving on in photography in a digital age. I have a few canon film cameras around - but try finding low cost professional film, but most of that gear I gave away to a Grad Student who needed cameras badly for his field work - And, while nice, I simply cannot get used to using a non-SLR camera at resolutions that pixelate out at FAR below 20x30 inch.

I spent about $10K of my own money over a couple of months to fill out my lens and filter and accessory needs (wildlife and landscape photographer)- and when I needed it - I found out that all of everything I had related to photography, including my custom made water proof Kelty external frame pack -- was worth absolutely NOTHING. So I saved a LOT of money, a LOT - and never thought I was throwing it out the window of my truck into a foggy white-out blizzard where it would NEVER be found. Never.

And it was all my fault - I chose a store that was selling new equipment at 40% or so off over all, perhaps saving 20% on 'like new' used equipment from my students' parents store.

It was like doing the field work for a Doctoral Degree - expensive, difficult, and filled with a lot of groveling -- only in the end, I found out I was paying for a 'diploma mill' that would not even grant me a degree, and if it did, it was worth absolutely nothing to anyone but the school that took the money -- and they took it at Doctoral per unit rates (think $2, 276 per unit, or $6528 per class), and then never even gave me the equivalent of a High School Diploma. And my insurance company would never even touch it long enough to look at it. The assumed the worst and paid not a penny.

This was years ago, and I haven't taken a photo worth more than the flash-card it was written to. And this was going to become my well paying hobby once I had the time to learn the camera and lenses - I never mastered one lens, let alone the 10 or so that I often used in wildlife or landscape photography, and the ones I used to document petroglyphs in nearly any kind of lighting conditions - all gone because of 'gray' market low cost lenses which were all real high grade glass. Like the store owner said "Some of these (things) were not made for the American Market, but they will all work with your camera (body) and lenses that you already own - and I tried most, and yes, they did work with the camera sold by a 'factory authorize store'. But I lost more than what I paid, I lost a good income stream after I retired, and I lost a hobby that made me travel and smile and laugh a lot. I lost part of my life because of the 'gray market store' - so heed Doctor Bob - I know now, all too well, that his education and experience learned him something - and whoda thunk a Doctorate would not teach you anything useful outside of my field of concentration - I'm just another ABE now - All But Educated. Ignorance is OK, it's OK to not know something -- and Stupid is not wanting to learn what you know you don't know. And while still ignorant, at least I'm not stupid.


Posted by:

Robert A.
17 Nov 2017

Dave in Indy: Fiat Chrysler only has one assembly plant for it's larger automobiles - Chrysler 300, Dodge Challenger and Dodge Charger - and it's located in Brampton, Ontario, Canada, not too far from Toronto. The plant manufacturers autos intended for use both in USA and Canada. Fiat Chrysler sells those cars to both the USA based sales company and the Canadian based sales company. The cars intended for the different countries are basically the same except for minor differences needed to make the cars comply with each countries' national standards and mandated safety laws, such as speedometers and odometers that may function in a miles-per-hour mode, in the US intended versions versus kilometers-per hour on cars built for the Canadian buyers, or the fuel consumption ratings on the window price sticker, measured in miles-per-gallon on cars intended for the USA, versus kilometers-per-litre, in Canada. In fact, there is a advisory notice on the window price sticker for all Fiat Chrysler vehicles, including Jeep vehicles, and Ram Pick-Ups that says "THIS VEHICLE IS MANUFACTURED TO MEET SPECIFIC UNITED STATES REQUIREMENTS. THIS VEHICLE IS NOT MANUFACTURED FOR SALE OR REGISTRATION OUTSIDE OF THE UNITED STATES." So, vehicles with that advisory message are sold and warranted by the USA sales organization. Presumably vehicles intended for sale and use in Canada, or other export countries, will contain similar messages as to its intended sales and use. However, once the sticker is removed from the window, it may be difficult to determine where the vehicle was originally intended to be sold and used.


Posted by:

tony fernandez
17 Nov 2017

Pop up blocker?


Posted by:

Greg
17 Nov 2017

Another potential pitfall is with home insurance. I am only familiar with Canadian fire insurance policies, and those in the USA MAY be more inclusive. But, here in Canada should an electrical or heating device malfunction and cause insurable damage it had better have certification from Underwriters Labs ( UL ) or Canadian Standards Association (CSA). If it does NOT, and is the cause of the loss, then the claim will be denied ! Given the recent problems with Cell Phones & hoverboards, this could be a source of concern.


Posted by:

bob rice
18 Nov 2017

I've been burned a few times from Amazon sales but mostly good stuff. Just got Trac2 blades that were horrible. One stroke and they popped off the razor. Looking at the label with huge letters, GILLETTE, I then noticed tiny print, 'compatible with"

Buyer beware, eh?


Posted by:

RandiO
18 Nov 2017

Thank you for another great article, Mr. Rankin.
@tony fernandez >> I only get a pinterest pop-up button if I hover on the image. {not 'that' bad!]


Posted by:

norm
18 Nov 2017

Any suggestion on correcting a slow running desktop.running microsoft 7professional.


Posted by:

Pat Hagar
18 Nov 2017

In 09 I bought a copy of AutoCad 06 online for $250.I knew ACad was an expensive program but I had no idea what a 3 year old version was worth.It installed ok but the first time it updated it stopped working.That is when I found it was a stolen copy.I could not get my money back and I saw he was still in business as Benji's Market in Broomfield Colorado for several years after that but he was selling digital cameras and accessories.
I filled a mail fraud charge but the U.S.P.O. never did anything about it.


Posted by:

SharonH
18 Nov 2017

I've had good and bad experiences buying from the gray market. Buying from total legit sources doesn't always guarantee things will be rosy either, but at least the buyer has some recourse.

If generic drugs can be considered a legal gray market, it is true drug companies try to demonize them. But, the generic has to contain at least 70% of the active ingredient, which leaves room for more additives. And they don't always work. One epileptic had posted he was switched to a generic and immediately his seizures returned. Blood tests revealed there was less of the active ingredient in his bloodstream. These were traced to a particular manufacturer in Puerto Rico (where some brand names medications are also produced). Seems they simply watered down the product.

So whether buying that expensive electronic gear or getting your script filled, it has been and always will be "buyer beware".


Posted by:

BSOH
18 Nov 2017

Sorry for Doc's trouble, but it strikes me the real thieves in the case are the insurance people. Many insurance companies are little better than gangsters - very quick to repudiate a claim on the basis of some obscure loophole, but who ever heard of them refusing to accept a premium in the first place, on a similar technicality? As for diploma mills, shouldn't a college prof, of all people, know better? Read Bob's September article on diploma mills for a real scare, or check Wikipedia's list of more than 500 such mills, with some very impressive titles!


Posted by:

RWinDC
23 Nov 2017

I disagree with equating the textbooks with other grey market items.

From the majority opinion in Kirtsaeng v. John Wiley Sons:
"...we ask whether the “first sale” doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission to do so from the copyright owner? Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission?

In our view, the answers to these questions are, yes."

IOW, why should the student in the US have to pay $150/US for the *SAME* content the publisher is selling for $10/US in Indonesia?

With the current expansions of copyright (say thanks to the Disney Corp that hasn't met a consumer dollar it didn't want!), this is a small victory for the consumer which may be revised if the publishers and other corporate owners have their way. E.g., Jane Austen was paid pennies on the pound for her six books but the publishing company minted money from them. I would be a lot more sympathetic to the publishing companies if they were actually supporting their authors rather than their directors' lifestyle.


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