Watch Out for Gray Market Goods

Category: Hardware

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.

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. 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 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.

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.

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 you’re handy with a soldering iron or familiar with circuit boards, you may be able to make any necessary repairs yourself, if you can find parts. 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 are violating the law.

In my opinion, 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 "Watch Out for Gray Market Goods"

Posted by:

05 Jan 2015

B&H Photo offers many "Grey Market" versions of the products they sell. Usually the only difference is that you get no U.S. warranty. For the minor reduction in price I generally opt for the US version, but have had no problem with the grey stuff. I think their definition of the grey market might be a little different.

Posted by:

Bill Boogaart
05 Jan 2015

Even Costco sells grey market goods. Be sure to check who does the warranty servicing. If it comes with a Costco warranty only, its grey market. I also worked for a small computer shop back in the early days of computers. They would buy a pallet of brand name computers from an authorized dealer that they had a personal relationship with and then resell them at a price below what authorized dealers could. Again, they did the warranty work on them, you couldn't take the device back to an authorized dealer for service.

Posted by:

Charles Myers
05 Jan 2015

I have been fighting a gray marketeer since last August. Ironic part is the seller sells through Amazon. In short I paid for windows 7 (New Packaging)though opened products cost less. The disc was not only previously purchased the enclosed "Thank you" paper listed why the former buyer had returned the product. Neither the seller, Amazon, or Discover are able to resolve the issue. Seller maintains no product returned though I have sent printed proof of pkg sent, correct address, postal tracking route, and delivery. I am about to take 7 pages of documentation to the USPS and place an insurance claim. Thank you for this timely article which I will include with the books that I purchased from you.

Posted by:

Ira Glanc
05 Jan 2015

I sat on a jury, several years ago, trying a retailer for selling counterfeit software which appeared to be gray market goods. (He bought the programs over the internet.) He was not convicted, but the ultimate losers would be his customers. There was no evidence that the software wouldn't run properly, but God help the buyers if they ever need customer support.

Posted by:

05 Jan 2015

Well Bob, I think we are both old enough to remember the 'grey market' days of IBM Clones?

The dire warnings by brand names in the UK made you think of houses burning to the ground with insurance invalidated....

It was of course all complete bunkum. A test a one of our universities not only found grey market components to be as good as brand names but in the tests performed better......

Often the changes are cosmetic when buying 'off-brand' and in the UK we are covered for 12 months by law for electrical anyway, and 12 months on credit card for goods over £100 ($160ish).

Buying brand name is like buying Apple or Cartier if you can afford it you aren't bothered about the price hike. Off-Brand or Grey Brend name is a viable gamble.


P.S. A few years ago I used to sell grey Duracell batteries intended for the domestic market of the source country - USA was stamped all over the packaging! It's a weird world?

Posted by:

05 Jan 2015

The question of whether or not the sale of gray market goods in the United States is legal is a complex one which has been subject to numerous legal challenges and decisions. Just recently, for example the 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.

In other instances, a company may manufacture an item in one country but sell it more cheaply abroad to meet the economic realities in those markets. Frequently, it may not be illegal to reimport those goods and sell them in the first country, despite attempted warnings by the manufacturer on the product (“This gizmo for sale only in…” or “Not for sale in …”). This often depends on how national or regional laws treat what is referred to as “exhaustion of IP rights”.

(For example, the European Union prohibits the importing of gray market products from outside the EU into any EU country, but not gray market goods imported from one EU-member country to another.)

The restrictions by the Lanham Act mentioned in the article most often apply when the manufacturer can argue that consumers of gray market goods are likely to confuse them with the manufacturer’s authorized goods and the remedy for the importer may be to clearly label the gray market product, noting the differences and the absence of our manufacturer’s warrantees or services.

I am not a legal scholar, so this post is not intended to be legal advice, but only to stress that this is a very complicated issue. As Bob’s article suggests, let the buyer beware.

Posted by:

Tom Riley
05 Jan 2015

I've noticed on the website all of the electronics are listed as "factory reconditioned". What are your thoughts on buying "factory reconditioned"?

Posted by:

05 Jan 2015

I find myself in the unusual position of disagreeing with you. It is the statement " and accept the fact that they are violating the law" that I find objectionable. I realize you are not outright promoting the breaking of the law, but you are saying "...there are times when it makes sensen...".

I have unwittingly (or turned a blind eye) bought "gray" items before. I regret it greatly. Our system of governance is somewhat dependent on it's citizens obeying all constitutional laws. Unless you find a law to be morally repugnant, unconstitutional, or otherwise blatantly wrong, you should obey it even if you disagree with it. E.g, hiding Jewish citizens in Nazi Germany was breaking a morally repugnant law. Driving like a mad man to the Emergency Room to save a life of someone in your car is violating speed laws for good cause.

But violating copyright or trademark laws just to save a buck is just wrong. I realize the manufacturers have us over a barrel. We as consumers have lowered the prices of goods over the years when we as a market chose other products over the higher priced products. E.g., Android products have kept iProducts from being even higher than they are. We must play our part in the global economy, not just be willing to break the law.

EDITOR'S NOTE: As I mentioned in the article, purchasing items on the grey market is not illegal.

Posted by:

05 Jan 2015

Buying stuff like t-shirt and shorts from gray market won't cause any harm. Cause we are going to throw it away after a few months anyway.

But an electronic device is a big risk to take. Better be on the safe side for electronic goods.


Posted by:

Robert K.
05 Jan 2015

For the past 25 years, I have had many thousands of dollar purchases of Canon camera equipment via gray market from B&H photo. Never had any problems. IMO, when considering a gray market purchase, the dealer is of paramount importance.
Disclosure: Other than buying products, I have no association with B&H photo or Canon.

Best Regards,
-Bob K.

Posted by:

Robert Kemper
05 Jan 2015

Anexcellent article, worth attention. Thanks for

Posted by:

05 Jan 2015

Perfect article, Bob! Excellent example of a smart buy strategy. Maybe one note about cell phones - they can be locked even if it's the similar carrier. For example, T-Mobile US is completely different carrier, than T-Mobile UK, so you'll have to unlock UK phone to use in US.

Also you can consider ebay or other marketplace, where people sell their stuff as a grey market since everything about grey market can be applied to an individual who sells his or her stuff. So it's hard to draw a line between illegal gray business and an individual, who clears an attic or a garage since every business can claim it's an individual with a huge garage or an individual can run a business from the garage.

Posted by:

05 Jan 2015

Amazon is the middleman for many gray market sellers with out of country sources which provides some buyer protection. I bought 2 "new" Samsung Galaxy 5s through Amazon from 2 different gray market sellers. The price was excellent, but one of the devices came in an open box and was obviously not new. Amazon took care of it to my satisfaction. I would not buy direct from a gray market seller.

Posted by:

05 Jan 2015

Beware of Chinese, especially Honkong very cheap sellers. It is your 100% risk to try to buy anything from them. Even e-bay does not provide any protection, though they lie about it. They are your enemies when thing turns sour. If the seller accept change, they at e-bay press you for the resend acceptance record, that equals to throw good money after the already spent bad one in the form of postal fees that may be,and was actually, higher than the value of the cheap cheat product!

Posted by:

05 Jan 2015

Good advise, Bob. Unless you can lose the money hapily, don't buy this stuff.

(FYI- no one uses a soldering gun any more. We use a pencil.)

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Article information: AskBobRankin -- Watch Out for Gray Market Goods (Posted: 5 Jan 2015)
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