Gray Market and Exhaustion Checklist: Chain of Sale, Material Differences, Contract Controls, Customs Recordation, and Enforcement

By Casey Scott McKay · 2026-03-09

This checklist runs a gray market matter from first detection through remedy selection. It begins by establishing the chain of sale, because whether the sale was authorized decides which claims exist at all, and it then works the exhaustion analysis separately for patent, copyright, and trademark. It sets out how to build and document material differences, including the warranty and quality-control theories that carry most cases. It covers the contract layer and its antitrust boundaries, the Customs programme including Lever-rule applications and detention response, and the investigation protocol that produces admissible evidence. Gates mark the points where a claim must be verified before a letter is sent or a filing is made.

IP and Technology > General IP | Checklist | Published 9 March 2026 - Updated 16 June 2026 | Casey Scott McKay - marksy.us

Summary. This checklist runs a gray market matter from first detection through remedy selection. It begins by establishing the chain of sale, because whether the sale was authorized decides which claims exist at all, and it then works the exhaustion analysis separately for patent, copyright, and trademark. It sets out how to build and document material differences, including the warranty and quality-control theories that carry most cases. It covers the contract layer and its antitrust boundaries, the Customs programme including Lever-rule applications and detention response, and the investigation protocol that produces admissible evidence. Gates mark the points where a claim must be verified before a letter is sent or a filing is made.

Keywords: gray market checklist · exhaustion analysis · chain of sale · authorized sale · material differences · warranty differentiation · quality control theory · serialization · traceability · distribution agreement · territory restriction · customs recordation · Lever rule · section 526 · detention response · test buy protocol · marketplace enforcement · antitrust review · section 337 · diversion investigation

How to use this checklist

| Phase | What it covers | |---|---| | 1 | Characterise the goods | | 2 | Establish the chain of sale | | 3 | Patent exhaustion | | 4 | Copyright first sale | | 5 | Trademark and materiality | | 6 | Building the differences record | | 7 | The quality control theory | | 8 | Serialization and traceability | | 9 | The contract layer | | 10 | Antitrust review | | 11 | Customs recordation | | 12 | Lever-rule application | | 13 | Detention response | | 14 | Investigation protocol | | 15 | Marketplace and advertising | | 16 | Remedy selection | | 17 | Litigation and Section 337 | | 18 | The regulatory route | | 19 | International variation | | 20 | Programme cadence |

Boxes marked [Gate] must clear before a demand letter is sent, a filing is made, or a claim is pleaded.

The matter. A brand found its regional units on domestic marketplaces at below wholesale. The instinct was to sue for patent infringement and plead counterfeiting. Both were wrong, and the case that worked was built on a warranty difference, a Customs filing, and a terminated distributor.

Phase 1. Characterise the goods

[ ] [Gate] Determine whether the goods are genuine or counterfeit.
- Why. Genuine goods bearing the true mark are not counterfeit, and the remedies, the pleading, and the tone all differ.
- Trap. Pleading counterfeiting against genuine goods invites sanctions, loses marketplace brand registry privileges, and destroys credibility.
[ ] Identify the specific units. Model, SKU, region of authorisation, lot or serial codes.
- Why. Exhaustion attaches to particular articles, not to product lines.
- Trap. A demand covering "all imports of Product X" when only some units are actionable.
[ ] Determine whether the goods were altered after sale. Repackaged, relabelled, codes removed, components substituted.
- Why. Alteration is independently actionable and supports materiality.
- Trap. Missing alteration because nobody compared the packaging against an authorized unit.

Phase 2. Establish the chain of sale

[ ] [Gate] Determine whether the first sale was authorized.
- Why. Everything turns on this. An authorized sale exhausts; an unauthorized one does not.
- Trap. Sales by affiliates and licensees are usually authorized, and clients frequently assume otherwise.
[ ] Trace the units from manufacture to the accused seller.
- Why. The chain identifies the diverting counterparty, who is the enforcement target that matters.
- Trap. No traceability system, so the chain stops at the accused reseller.
[ ] Check whether any licensee exceeded its licence scope.
- Why. A sale outside the scope of a licence is unauthorized and does not exhaust, though the remedy runs against the licensee.
- Trap. Treating a scope breach as creating claims against downstream buyers.
[ ] Identify where each sale occurred.
- Why. Relevant for foreign-law analysis even though US exhaustion no longer distinguishes.
- Trap. Assuming the US answer applies in every market.

Phase 3. Patent exhaustion

[ ] [Gate] Confirm that authorized sales exhaust regardless of restrictions.
- Why. Impression Products v. Lexmark International holds a patentee's sale exhausts whatever restrictions it purports to impose.
- Trap. Relying on a single-use or no-resale legend as preserving an infringement claim.
[ ] Confirm that foreign sales exhaust.
- Why. Impression Products extended exhaustion to authorized foreign sales.
- Trap. A pricing strategy premised on excluding reimports through 35 U.S.C. § 271.
[ ] Check licensee sales.
- Why. Quanta Computer v. LG Electronics holds authorized licensee sales exhaust, including method claims where components substantially embody the patent.
- Trap. Licence structures drafted to avoid exhaustion by restricting the licensee's customers.
[ ] Ask whether the accused conduct is making rather than using or reselling.
- Why. Bowman v. Monsanto confirms exhaustion does not permit making new articles, and the repair-reconstruction line follows the same principle.
- Trap. Characterising ordinary repair as reconstruction, which fails and costs credibility.

Phase 4. Copyright first sale

[ ] Confirm the copies were lawfully made.
- Why. 17 U.S.C. § 109 applies to copies lawfully made under the title.
- Trap. Assuming foreign manufacture defeats first sale; Kirtsaeng v. John Wiley & Sons holds it does not.
[ ] Check whether 17 U.S.C. § 602 is being asserted.
- Why. Quality King Distributors v. L'anza Research holds the importation provision is subject to first sale.
- Trap. Pleading unauthorized importation without addressing first sale.
[ ] Ask whether reproduction is involved.
- Why. First sale limits distribution only. Copying remains actionable under 17 U.S.C. § 106.
- Trap. Missing the reproduction claim where the diverter reprints manuals or packaging.
[ ] Check the sale-versus-licence characterisation for software.
- Why. First sale requires ownership of a copy; a genuine licence defeats it.
- Trap. A "licence" that is perpetual, transferable, and paid once, which looks like a sale.

Phase 5. Trademark and materiality

[ ] [Gate] Identify at least one material difference.
- Why. Genuine goods are not infringing unless they differ materially from the authorized domestic goods.
- Trap. Asserting materiality without a documented difference, which fails at the first hearing.
[ ] Apply the low threshold correctly. Any difference consumers would likely consider relevant to purchase.
- Why. The threshold is low but it is not zero, and the difference must be consumer-relevant.
- Trap. Differences internal to the supply chain that no consumer encounters.
[ ] Check whether the parties are under common control.
- Why. K Mart Corp. v. Cartier upheld the common control exception, which closes the ordinary 19 U.S.C. § 1526 route.
- Trap. Filing under Section 526 where common control exists.
[ ] Consider the Lever rule.
- Why. Lever Brothers v. United States permits exclusion of physically and materially different affiliate goods.
- Trap. Not filing because common control was assumed to be dispositive.

Phase 6. Building the differences record

[ ] [Gate] Produce a specification comparison per SKU and region.
- Why. It is the exhibit in the Customs application, the injunction motion, and the marketplace complaint.
- Trap. A narrative description with no underlying documents.
[ ] Collect the warranty documents for both versions.
- Why. Warranty differences are the most commonly successful single materiality theory, and the documents prove themselves.
- Trap. A warranty policy that in practice is honoured regardless of source, which destroys the difference.
[ ] Photograph both units, feature by feature.
- Why. A Customs officer compares photographs against goods in front of them.
- Trap. Photographs of last year's packaging.
[ ] Obtain certification and regulatory documents.
- Why. Certification present on one version and absent on the other is a difference that also carries independent regulatory consequences.
- Trap. Assuming a foreign certification is equivalent without checking.
[ ] State consumer relevance for each difference in one sentence.
- Why. This is the persuasive column; restating the difference is not the same as explaining why a buyer cares.
- Trap. A table of differences with no relevance analysis, which reads as manufactured.
[ ] Date and version the table, and name an owner.
- Why. Products change and stale tables are affirmatively harmful in a filing.
- Trap. No owner, so nobody updates it after the next product revision.

Phase 7. The quality control theory

[ ] Identify domestic quality control steps the gray goods bypass.
- Why. Goods that escape the rights holder's quality control can be materially different even absent physical difference.
- Trap. A theory asserted where the domestic controls are nominal.
[ ] Document the controls as exercised. Inspection records, handling protocols, authentication steps.
- Why. The theory depends on control actually exercised, not on control described in a manual.
- Trap. A quality manual with no records of application.
[ ] Establish that the gray channel bypasses them.
- Why. Bypass is the operative fact, and it must be shown rather than assumed.
- Trap. Gray goods that in fact passed through the same controls earlier in the chain.
[ ] Check handling-sensitive categories specifically. Temperature, humidity, expiry, and shelf-life management.
- Why. These support both the materiality argument and, in regulated categories, an independent violation.
- Trap. Missing a stronger regulatory claim while arguing trademark.

Phase 8. Serialization and traceability

[ ] [Gate] Confirm units carry unit or lot-level codes.
- Why. Without codes there is no route from a test buy to a counterparty, and contract remedies are unusable.
- Trap. Codes that exist but are not recorded against the customer.
[ ] Confirm the code-to-customer lookup is queryable within days.
- Why. Speed is the value; a lookup that takes a quarter is not an enforcement tool.
- Trap. Data held by a logistics provider under a contract with no access right.
[ ] Prohibit code removal in the distribution agreement, as an immediate termination event.
- Why. Removal is both an evidentiary loss and evidence of alteration.
- Trap. Treating removal as a curable breach.
[ ] Consider consumer-facing authentication.
- Why. It gives buyers a verification route and gives the brand data on where units surface.
- Trap. Collecting more consumer data than needed, which creates privacy obligations of its own.

Phase 9. The contract layer

[ ] [Gate] Confirm territory restrictions address online sale expressly.
- Why. Online reaches every territory and silence reads as permission.
- Trap. A territory clause drafted before e-commerce and never revisited.
[ ] Include a knowledge-based customer restriction.
- Why. Prohibiting sale to persons the distributor knows or should know will resell outside the territory is enforceable and evidence-friendly.
- Trap. Absolute restrictions that raise sharper competition questions.
[ ] Include records retention, production, and audit rights with cost-shifting.
- Why. Audits without cost-shifting are not economic and therefore never happen.
- Trap. Audit rights the client has never exercised, which distributors correctly read as decorative.
[ ] Include immediate termination for diversion, code removal, and repackaging.
- Why. Termination is the remedy that works; damages for diversion are hard to prove.
- Trap. A cure period that lets diversion continue while the parties correspond.
[ ] Carve injunctive relief out of arbitration.
- Why. The relief that matters is stopping the flow.
- Trap. An arbitration clause that leaves the client waiting for a panel.
[ ] Check anti-assignment and change of control.
- Why. A distributorship sold to a diverter defeats the whole structure.
- Trap. Consent rights with no carve-out for genuine reorganisation, which get ignored in practice.

Phase 10. Antitrust review

[ ] [Gate] Characterise each restraint before implementation. Vertical or horizontal; agreement or unilateral; price or non-price.
- Why. The characterisation determines the standard.
- Trap. Designing the programme and reviewing it afterwards.
[ ] Check state law on resale price maintenance.
- Why. Rule of reason federally; per se in several states.
- Trap. A national programme built on the federal standard alone.
[ ] If using an advertised-price policy, implement it unilaterally.
- Why. Announcement plus refusal to deal is lawful; negotiation and accepted assurances create an agreement.
- Trap. A regional sales manager who negotiates compliance, converting the policy into an agreement.
[ ] Document procompetitive rationale contemporaneously.
- Why. Free-riding, brand investment, and service capability are recognised justifications.
- Trap. Post-hoc rationalisation, which is discounted.
[ ] Review any termination that follows dealer complaints.
- Why. Termination procured by competing dealers is the classic claim.
- Trap. An internal email chain showing the complaint preceded the decision.

Phase 11. Customs recordation

[ ] [Gate] Record registered marks under 19 C.F.R. § 133.1.
- Why. Recordation is the precondition to most border action and costs very little.
- Trap. Recording the parent mark and not the design marks or the marks actually on the goods.
[ ] Record relevant copyrights.
- Why. Packaging, labels, and manuals are frequently registrable and give a second border hook.
- Trap. Never registering the packaging artwork in the first place.
[ ] Diary recordation renewal against the registration term.
- Why. Recordation lapses when the registration does.
- Trap. A docket that tracks registrations but not recordations.
[ ] Determine whether common control exists.
- Why. K Mart Corp. v. Cartier upheld the exception, which closes the ordinary 19 U.S.C. § 1526 route between affiliates.
- Trap. Filing under Section 526 where the foreign seller is an affiliate.
[ ] Assess the restricted gray market rules at 19 C.F.R. § 133.23.
- Why. They define when goods may be detained and excluded.
- Trap. Expecting exclusion of all imports once recorded.

Phase 12. Lever-rule application

[ ] [Gate] Assemble the physical and material differences with documents.
- Why. Lever Brothers v. United States supports exclusion of physically different affiliate goods, and the application stands or falls on specifics.
- Trap. An application asserting materiality in general terms.
[ ] Identify the mark and registration precisely.
- Why. The application operates against a recorded registration.
- Trap. A mark used on the goods that is not the recorded one.
[ ] State consumer relevance for each difference.
- Why. Materiality is about the purchasing decision.
- Trap. Supply chain differences with no consumer-facing consequence.
[ ] Plan for the labelling exception.
- Why. Goods may enter with a conspicuous notice that they are not authorised and differ from the domestic version.
- Trap. Promising the business absolute exclusion.
[ ] Refresh the application when the product changes.
- Why. An application supported by superseded specifications is worse than none.
- Trap. A filing made once and never revisited.

Phase 13. Detention response

[ ] Establish a named point of contact and a response protocol.
- Why. Detention triggers short windows and the response has to be immediate.
- Trap. Notices routed to a general mailbox nobody monitors.
[ ] Have the comparison exhibit ready before any detention.
- Why. The determination turns on the differences, and preparing them under a deadline produces weak submissions.
- Trap. Assembling evidence after the notice arrives.
[ ] Verify the detained units against the differences table.
- Why. Not every detained shipment is what the brand expects, and misidentifying units undermines future filings.
- Trap. Confirming infringement without inspecting.
[ ] Track outcomes and reasons for release.
- Why. Releases identify weaknesses in the differences documentation.
- Trap. No feedback loop, so the same weakness produces the same result repeatedly.

Phase 14. Investigation protocol

[ ] [Gate] Use a documented test buy protocol. Neutral purchaser, recorded order, preserved payment record, photographs before opening.
- Why. The purchase is evidence and must survive challenge.
- Trap. An employee buying on a personal account with no record.
[ ] Maintain chain of custody. Label, log, store.
- Why. Custody gaps are the easiest attack on the central exhibit.
- Trap. Test buys stored in a marketing cupboard.
[ ] Extract and query the code.
- Why. This is the step that identifies the diverting counterparty.
- Trap. Opening packaging in a way that destroys the carton code.
[ ] Verify warranty status in writing through the service network.
- Why. It is the cleanest materiality evidence available.
- Trap. A service centre that honours the warranty anyway, which the other side will find.
[ ] Preserve listings with reliable timestamps.
- Why. Listings disappear the moment a complaint is filed.
- Trap. Screenshots with no metadata.
[ ] Estimate volume from feedback counts and listing history.
- Why. Scale determines whether the response is a letter or litigation.
- Trap. Litigating against a seller who moved eleven units.

Phase 15. Marketplace and advertising

[ ] Enrol in marketplace brand registries.
- Why. Expedited removal for verified rights holders is the highest-volume practical tool.
- Trap. Losing registry privileges by submitting inaccurate counterfeiting complaints.
[ ] Report false warranty and authorized-dealer claims.
- Why. 15 U.S.C. § 1125(a)(1)(B) and marketplace policy both reach them, and both are faster than an IP claim.
- Trap. Framing a false advertising problem as trademark infringement and getting the slower process.
[ ] Check model number and specification misdescription.
- Why. Listing a regional unit under a domestic model number misdescribes the goods.
- Trap. Missing it because nobody compared the listing against the domestic spec.
[ ] Apply 17 U.S.C. § 512 discipline where copyright is asserted.
- Why. Lenz v. Universal Music requires fair use consideration and 17 U.S.C. § 512(f) creates misrepresentation exposure.
- Trap. Automated notices covering listing photographs without review.

Phase 16. Remedy selection

[ ] [Gate] Identify the diverting source before choosing a target.
- Why. Enforcement against the source stops the flow; enforcement against resellers manages symptoms indefinitely.
- Trap. A litigation budget spent on resellers while the distributor keeps shipping.
[ ] Escalate in order. Distributor conversation, audit, termination, marketplace complaint, Customs, reseller demand, litigation.
- Why. Most diversion resolves before litigation, and early rungs are cheaper and faster.
- Trap. Starting at litigation because the business is angry.
[ ] Price the remedy against the leakage.
- Why. Enforcement cost per unit prevented is the number that determines whether the programme continues.
- Trap. A programme that costs more than the diverted margin.
[ ] Recommend the commercial fix where it is the real answer.
- Why. A large regional price gap defeats any enforcement programme over time.
- Trap. Counsel who will not say this because it is not a legal remedy.

Phase 17. Litigation and Section 337

[ ] Plead the claims that exist. Trademark infringement under 15 U.S.C. § 1114 on materiality, false advertising under 15 U.S.C. § 1125(a)(1)(B), breach against the distributor, and tortious interference where a third party induced the breach.
- Why. Precision is persuasive; overreach is not.
- Trap. Boilerplate counts for counterfeiting and patent infringement that the facts do not support.
[ ] Prepare the comparison exhibit as the centrepiece.
- Why. Judges decide materiality by looking.
- Trap. A brief describing differences with no side-by-side.
[ ] Check remedies. 15 U.S.C. § 1117 for damages, profits, and exceptional case fees.
- Why. Remedy availability shapes whether the case is economic.
- Trap. Expecting counterfeiting statutory damages for genuine goods.
[ ] Consider 19 U.S.C. § 1337.
- Why. Exclusion orders bind at the border, general exclusion orders reach unnamed importers, and the timeline is fast.
- Trap. Missing the domestic industry requirement.
[ ] Check the extraterritorial limit.
- Why. Abitron Austria v. Hetronic International confines the Lanham Act to domestic uses in commerce.
- Trap. Claiming foreign sales as damages.

Phase 18. The regulatory route

[ ] [Gate] Determine whether the imported unit is approved for domestic sale.
- Why. In regulated categories an unapproved version is unlawful independent of any IP theory, and the route is frequently faster.
- Trap. Litigating trademark for a year while a regulatory report would have stopped it in weeks.
[ ] Check labelling and language requirements.
- Why. Non-compliant labelling is both a material difference and an independent violation.
- Trap. Assuming foreign labelling satisfies domestic rules.
[ ] Check safety certification requirements.
- Why. Uncertified goods may be unlawful to sell and are plainly materially different.
- Trap. Accepting a foreign certification mark as equivalent.
[ ] Consider reporting obligations.
- Why. Some categories impose affirmative reporting duties on the rights holder that arise once it knows of non-compliant product.
- Trap. Sitting on knowledge that triggers a duty.

Phase 19. International variation

[ ] Determine the exhaustion model in each market. National, regional, or international.
- Why. Parallel import claims exist in some markets and not others.
- Trap. Applying the US answer globally.
[ ] In regional-exhaustion markets, analyse consent.
- Why. A sale outside the region without consent to importation leaves rights intact, which is a stronger position than US law now provides.
- Trap. Contractual restrictions treated as withholding consent, which they generally are not.
[ ] Check repackaging and relabelling rules.
- Why. Several jurisdictions have detailed conditions — necessity, no impairment, notice, and identification of the repackager.
- Trap. Assuming repackaging is simply prohibited.
[ ] Set up local border measures in significant markets.
- Why. Most jurisdictions provide them, with differing standards and security requirements.
- Trap. Registrations without the corresponding border filings.
[ ] Review local competition law before exporting the channel programme.
- Why. Vertical restraints are treated more strictly in some jurisdictions than in the United States.
- Trap. A single global distribution template.

Phase 20. Programme cadence

[ ] Monthly. Marketplace monitoring, listing triage, test buys where the signal is strong, code lookups.
[ ] Quarterly. Differences table review against current SKUs, recordation status, distributor audit round, pricing policy compliance.
[ ] Semi-annually. Agreement template review, dealer criteria review, antitrust refresh.
[ ] Annually. Channel map, diversion volume estimate, enforcement outcomes, Lever application refresh, board report.
[ ] On product change. Update the differences table and refresh any Customs filing that depends on it.
[ ] On distributor change. Current template, traceability obligations confirmed, criteria verified.

Phase 21. Sector boxes

[ ] Cosmetics and personal care. Regional formulations, ingredient restrictions, language labelling, batch codes, shelf life. Differences are inherent; the work is documentation and Customs. Watch for repackaging by diverters.
[ ] Consumer electronics. Warranty, certification, voltage, connectors, firmware regional locking. Where circumvention of firmware locks occurs, 17 U.S.C. § 1201 adds a dimension, though the trafficking provisions matter more than the circumvention ones.
[ ] Pharmaceuticals and medical devices. The regulatory route dominates. An unapproved version of an approved product is misbranded and importation is unlawful independently. Build the programme around regulatory reporting.
[ ] Luxury and fashion. Product frequently identical worldwide, so materiality is hard. Selective distribution, authentication, and counterfeiting enforcement carry the weight.
[ ] Automotive parts. Design patents are potent because 35 U.S.C. § 289 allows total profits, subject to Samsung Electronics v. Apple. Right-to-repair legislation constrains some controls.
[ ] Agricultural inputs. Country-specific registration means imported product is frequently unregistered and unlawful to sell. Bowman v. Monsanto governs self-replicating technology.
[ ] Industrial equipment. Lower volume, higher value, stark warranty and service differences, and close distributor relationships that make the contract route effective.
[ ] Software and connected products. Licence characterisation matters more than exhaustion; where the product is access rather than a copy there is nothing to exhaust.

Phase 22. The evidence file

[ ] One file per matter, indexed and dated.
[ ] Chain of sale documents. Purchase orders, invoices, shipping records, code lookups.
[ ] Test buy records. Order confirmations, payment records, shipping photographs, custody log.
[ ] The purchased units themselves, retained and stored.
[ ] Comparison exhibit. Side-by-side photographs, feature by feature, keyed to the differences table.
[ ] Differences table, dated and versioned, with underlying specifications.
[ ] Warranty verification in writing from the service network.
[ ] Certification documents for both versions.
[ ] Listing captures with timestamps and seller identifiers.
[ ] Volume estimate with the methodology stated.
[ ] Distribution agreements for any distributor in the chain, with the relevant clauses tabbed.
[ ] Audit findings where audits were conducted.
[ ] Customs filings and any detention correspondence.
[ ] Antitrust review memorandum for the programme as implemented.

Why the file matters. Gray market matters move quickly from investigation to filing, and the file is what makes a preliminary injunction motion or a Customs submission possible on short notice. Assembling it after the decision to act is the most common reason a strong case is presented weakly.

Phase 23. The one-paragraph brief

Gray market position — [brand], [date]. Detected [N] units per quarter of [region]-authorised product in the domestic channel, price gap [N] per cent. Goods are genuine; counterfeiting is not alleged. Patent and copyright exhausted on authorised sales per Impression Products and Kirtsaeng. Trademark claim rests on [N] documented material differences: [list], with specification comparison dated [date] and warranty verification of [date]. Customs: marks recorded [date]; Lever application filed [date]; [N] detentions, [N] exclusions. Traceability: [coverage]; median test-buy-to-source [N] days. Contract: [N] distributors identified as sources; [N] audited; [N] terminated. Marketplace: [N] listings removed, median [N] days. Antitrust: programme reviewed [date]; pricing policy unilateral. Recommended: [narrow the price gap / extend differentiation / refresh Lever filing / terminate distributor Y / file suit against reseller Z].

Phase 24. Three worked scenarios

Scenario A — identical product, no route. A luxury accessories brand sells the same item worldwide, with the same packaging, the same warranty, and no certification differences. Diversion is substantial. There is no material difference, so the trademark route is closed; exhaustion forecloses patent and copyright. What remains is contract against the distributors who leaked, marketplace enforcement against false authorized-dealer claims, and a pricing decision. Counsel's most valuable contribution here is telling the client early that the enforcement programme they want does not exist, so the money goes to traceability and distributor discipline instead of litigation.

Scenario B — the repackager. Imported units are removed from regional packaging and repacked in generic boxes with a printed insert reproducing the brand's manual. This is a much stronger case: repackaging is itself a material alteration, the reproduced manual is copyright infringement of a work whose reproduction right first sale does not touch under 17 U.S.C. § 106, the removed carton codes evidence deliberate concealment, and the resulting product is materially different in packaging, warranty, and documentation. Plead the copyright count.

Scenario C — the returned-goods loop. Units authorised for the domestic channel are returned, sold to a liquidator, exported, and reimported. Materiality is weak because these were domestic-specification units. The real claims are contractual, against the liquidator if it agreed to export restrictions, and factual — whether the returned units were refurbished or damaged, which would make them materially different from new units and require disclosure. This scenario is where a brand's own returns policy, not its IP, is the control that failed.

Phase 25. Scoping and the client conversation

[ ] Ask what outcome the client wants. Stop the flow, recover damages, protect distributor relationships, or send a signal. The programme differs.
[ ] Say early which theories are foreclosed. Impression Products and Kirtsaeng dispose of the two theories clients most often arrive with.
[ ] Say early that genuine goods are not counterfeit, and explain what that costs if pleaded wrongly.
[ ] Establish whether material differences exist before promising anything. If they do not, the conversation is about product and pricing, not litigation.
[ ] Quantify the price gap and put it in the first memorandum. It is the variable that predicts everything else.
[ ] Agree the escalation ladder in advance, so that enforcement decisions are made against a standard rather than in response to whoever complains.
[ ] Set the antitrust boundary explicitly, because the controls the business will ask for first are frequently the ones that create liability.

Phase 26. Metrics

[ ] Diverted volume estimate by origin and quarter.
[ ] Price gap by region, tracked alongside volume.
[ ] Test buy conversion rate to identified counterparty.
[ ] Median days from detection to source identification.
[ ] Marketplace removals and median time to removal.
[ ] Customs detentions, exclusions, and releases, with reasons for release.
[ ] Distributor audits conducted, breaches found, terminations.
[ ] Enforcement cost per unit prevented.
[ ] Brand registry standing, because inaccurate complaints cost access to the most useful tool.

Phase 27. Defending a parallel importer

The same checklist read from the other side, because firms act for both.

[ ] [Gate] Establish the authorised chain. Purchase documents tracing to a sale by or with the rights holder's authority.
- Why. That establishes exhaustion and disposes of the patent and copyright claims.
- Trap. Gaps in the chain that leave the source unproven.
[ ] Demand the differences documentation.
- Why. The rights holder bears the burden on materiality, and assertions without documents fail.
- Trap. Conceding materiality because the letter sounded confident.
[ ] Test consumer relevance of each asserted difference.
- Why. Differences a purchaser would not notice or care about are not material.
- Trap. Treating the low threshold as no threshold.
[ ] Test the quality control theory.
- Why. It requires control actually exercised domestically and actually bypassed.
- Trap. Not asking for the inspection records, which frequently do not exist.
[ ] Disclose comprehensively. Imported, no domestic warranty, not an authorized dealer, specification stated.
- Why. Disclosure defeats much of the confusion case and satisfies marketplace policy.
- Trap. Partial disclosure that emphasises the brand and buries the caveats.
[ ] Stay inside nominative fair use.
- Why. A reseller may identify the goods it sells, using no more of the mark than necessary and without suggesting authorisation.
- Trap. Using brand logos and imagery in a way that implies an authorised relationship.
[ ] Do not alter the goods.
- Why. Removing codes, repackaging, or relabelling converts a defensible position into a hard one and supplies the materiality the rights holder lacked.
- Trap. A warehouse practice nobody told counsel about.
[ ] [Gate] Check the regulatory position.
- Why. In regulated categories this is the real exposure and no exhaustion argument answers it.
- Trap. Winning the trademark case and losing the regulatory one.
[ ] Note overreach in the demand letter, in writing.
- Why. Counterfeiting allegations against genuine goods and patent claims foreclosed by Impression Products shape how a court reads the rest.
- Trap. Answering the overreach only in the brief, months later.

Phase 28. Working with other advisers

[ ] Antitrust counsel before implementing any pricing policy, customer restriction, or selective distribution criterion, and on any termination that follows a dealer complaint.
[ ] Customs counsel or a licensed broker for recordation, Lever applications, and detention responses.
[ ] Regulatory counsel in regulated categories, where the fastest route usually lies.
[ ] Local counsel per market, because exhaustion, competition law, and border measures all vary.
[ ] Investigators with a documented test buy and custody protocol agreed in advance.
[ ] The product team, which owns the differences legal can only specify.
[ ] The pricing team, which owns the arbitrage that causes the problem.
[ ] Logistics and IT, who own the traceability data and the contracts that determine whether the client can get at it.

Outcome. The goods were genuine, so counterfeiting was off the table and the pleading was rewritten. The affiliate's foreign sales exhausted patent rights under Impression Products, and the manuals were subject to first sale under Kirtsaeng, so both of the client's preferred theories failed. Four material differences were documented — warranty term and coverage, domestic safety certification, voltage and plug, and manual language set — each with a specification comparison and supporting documents. Marks were recorded with Customs and a Lever-rule application was filed with the differences documentation attached. Carton codes traced the units to two regional distributors within eight days; one remediated under an audited plan and one was terminated. Listings claiming domestic warranty coverage were removed as false advertising and as marketplace policy violations. A single action against the largest reseller settled on an injunction requiring conspicuous disclosure. Diverted volume fell by roughly eighty per cent over the following year — with most of that attributable to an eight-point narrowing of the regional price gap, which was the recommendation the client least wanted and most needed.

Key Authorities at a Glance

| Authority | Where it applies | |---|---| | Impression Products v. Lexmark | Phase 3 | | Quanta Computer v. LG Electronics | Phase 3 | | Bowman v. Monsanto | Phase 3 | | 35 U.S.C. § 271 | Phase 3 | | 17 U.S.C. § 106 | Phase 4 | | 17 U.S.C. § 109 | Phase 4 | | 17 U.S.C. § 602 | Phase 4 | | Kirtsaeng v. John Wiley & Sons | Phase 4 | | Quality King v. L'anza Research | Phase 4 | | 15 U.S.C. § 1114 | Phases 5, 17 | | 15 U.S.C. § 1125 | Phases 15, 17 | | 15 U.S.C. § 1117 | Phase 17 | | 19 U.S.C. § 1526 | Phases 5, 11 | | K Mart Corp. v. Cartier | Phase 5 | | Lever Brothers v. United States | Phases 5, 12 | | 19 C.F.R. § 133.1 | Phase 11 | | 19 C.F.R. § 133.23 | Phases 11, 12 | | 19 U.S.C. § 1337 | Phase 17 | | Abitron v. Hetronic | Phase 19 |

The five things people get wrong

Calling genuine goods counterfeit. It is factually wrong, it is noticed, and it costs the brand registry access that does most of the practical work.

Asserting patent claims after an authorized sale. Impression Products forecloses them, foreign sales included.

Claiming materiality without documented differences. The doctrine is real and the threshold is low, but it needs a specification comparison, not an assertion.

Enforcing against downstream resellers instead of the diverting distributor. The distributor is identifiable, in privity, and has something to lose.

Designing the programme without antitrust review. Territory restrictions, customer restrictions, pricing policies, and dealer terminations are competition questions first.