Canada – U.S. Tariffs—Another Silver Lining for Trademark Owners?

The recent imposition of tariffs by each of Canada and the United States as part of their recent trade dispute may have an unintended benefit for trademark owners.

Until recently and for many years, most goods crossed the border between the United States and Canada duty-free.  As a result of this, coupled with a generous de minimus value for any duties to be imposed, many low-to-medium value consumer goods crossed the border without inspection by customs officials. 

Since the removal of the de minimus exception about a year ago, this has had an unintended benefit for trademark owners, namely that greater inspection of cross-border goods meant an increase in the likelihood of stopping counterfeit goods when crossing the border.

Whatever one feels about the desirability or undesirability of tariffs, the tariffs may also have another hidden benefit for trademark owners—minimizing the cross-border trade in grey market goods.

For many years, Canada and the United States have seen goods intended for sale in one country, end up in the other country, with the attendant pressures on authorized sales channels.  When goods are cheaper in Canada, whether for reasons relating to market differential pricing or currency fluctuations, grey market goods flow south into the United States.  When goods are cheaper in the United States, grey market goods flow north into Canada.

With certain important exceptions, jurisprudence known as the “first sale doctrine” or “theory of exhaustion” limit the ability of trademark owners to prevent the downstream sale of legitimate goods that first entered the stream of commerce with the trademark owner’s authorization.

The imposition of tariffs by both Canada and the United States on the importation of goods covered by the tariff, will in many cases minimize or entirely remove the financial incentive for cross-border sales of grey market goods.  While tariffs would have no effect on domestic sales of grey market goods, trademark owners who keep separate distribution channels in the United States and Canada may find the mitigation of unauthorized cross-border sales of their products a small silver lining while dealing with the other business challenges brought on by cross-border tariffs.

Summary By: Gary Daniel