Trademarks

At the Border of Genuine: K Mart v. Cartier and the Gray-Market Compromise

The Supreme Court upheld Customs' common-control exception for gray-market imports while striking the authorized-use exception, defining when genuine foreign goods can be stopped at the U.S. border under the Tariff Act.

September 15, 2025
Cargo containers stacked at a port with a customs inspection area
The decision drew the line between blockable and permissible parallel imports at the U.S. border. Shutterstock
Educational content, not legal advice. This article explains general legal concepts. It does not create an attorney–client relationship. For your specific situation, consult a licensed attorney.

Gray-market goods occupy the uneasy space between the genuine article and the counterfeit. They are authentic products, bearing real trademarks, that reach the United States through channels the U.S. markholder never authorized. In K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988), No. 86-495 (consolidated with Nos. 86-624 and 86-625), decided May 31, 1988, the U.S. Supreme Court decided how far the federal government may go in stopping those imports at the border. Justice Kennedy, announcing the judgment, delivered an opinion that upheld part of the Customs Service’s gray-market regulation and struck down another part as inconsistent with the governing statute. The result is the doctrinal map every parallel-import and anti-counterfeiting strategy still uses today.

At a glance

  • Case: K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988), No. 86-495 (consolidated with Nos. 86-624 & 86-625).
  • Decided: May 31, 1988.
  • Opinion: Justice Kennedy announced the judgment of the Court; the Court splintered, with different majorities controlling different parts of the Customs regulation.
  • Statute at issue: Section 526 of the Tariff Act of 1930, 19 U.S.C. § 1526, which bars importing foreign-made goods bearing a U.S.-owned trademark without the owner’s written consent.
  • Regulation at issue: 19 C.F.R. § 133.21, the Customs Service’s implementing rule, which created exceptions allowing some gray-market imports.
  • Holding: The “common-control” exception (subsections (c)(1) and (c)(2)) is a permissible interpretation of an ambiguous statute and is upheld; the “authorized-use” exception (subsection (c)(3)) conflicts with the statute’s plain language and is invalid.

What is a gray-market good?

The Court opened by defining its subject: a gray-market good is “a foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder.” That definition is the crucial frame for any counterfeiting analysis, because gray-market goods are precisely not counterfeit—the mark is genuine and the goods are real. The harm a markholder asserts is different: it is the erosion of exclusive distribution, price control, warranty integrity, and the goodwill that flows from controlling how an authentic product reaches American consumers.

Section 526 of the Tariff Act gives that interest teeth at the border. Enacted in 1922 and carried into the 1930 Act, it prohibits importing “merchandise of foreign manufacture” bearing a trademark “owned by” a U.S. citizen or corporation, absent the owner’s written consent, and authorizes seizure of offending goods. On its face, the statute is a powerful tool for excluding parallel imports. The question in K Mart was whether the Customs Service had lawfully narrowed that tool through regulation.

The three classic gray-market scenarios

The litigation arose because Customs’ regulation did not enforce § 526 against every unauthorized import. It carved out exceptions, and to evaluate them the Court (and commentators since) distinguished three recurring fact patterns:

  1. The independent importer scenario. A U.S. firm buys exclusive rights to a foreign manufacturer’s mark for the domestic market, and a third party nonetheless imports the foreign goods. Here the U.S. and foreign trademark interests are genuinely distinct.
  2. The affiliate scenario. A domestic firm registers the U.S. mark but is the same entity as, or under common ownership/control with, the foreign manufacturer—or it is the foreign manufacturer’s U.S. subsidiary. The “ownership” of the mark on both sides of the border is effectively unified.
  3. The authorized-licensee scenario. A domestic markholder authorizes an independent foreign manufacturer to use the U.S. mark abroad, and goods made under that authorization are then imported.

Customs’ regulation permitted importation in the affiliate scenario (the common-control exception) and in the authorized-licensee scenario (the authorized-use exception). The Coalition to Preserve the Integrity of American Trademarks (Cartier and other markholders) challenged both as inconsistent with § 526’s flat prohibition.

Splitting the regulation: ambiguity versus plain text

The Court’s analytic method was statutory interpretation in the Chevron mold: where Congress has spoken clearly, the agency must follow; where the statute is ambiguous, a reasonable agency construction governs.

On the common-control exception (19 C.F.R. § 133.21(c)(1)–(2)), the Court found § 526 genuinely ambiguous. The statute bars goods bearing a mark “owned by” a U.S. person, but it does not clearly say what happens when the U.S. and foreign trademark rights are held by the same corporate family. Reasonable readers could conclude that a parent and its foreign subsidiary, or affiliated entities under common control, do not present the kind of import the statute meant to block. Because the agency’s reading filled a real gap with a reasonable interpretation, the Court upheld this exception. The practical effect is large: a U.S. company generally cannot use § 526 to block parallel imports of genuine goods made by its own foreign affiliate.

On the authorized-use exception (19 C.F.R. § 133.21(c)(3)), the Court reached the opposite result. That subsection allowed importation whenever an independent foreign manufacturer used the U.S. mark with the domestic owner’s authorization. But § 526 forbids importing goods bearing a mark owned by a U.S. person absent that person’s written consent to the importation. The Court held that authorizing a foreign firm to apply the mark abroad is not the same as consenting to import the resulting goods, and that the regulation’s contrary reading collided with “the unequivocal language of the statute.” Subsection (c)(3) was therefore invalid. Here, the markholder’s § 526 remedy survives: it can block imports by an independent licensee’s goods even if it permitted the foreign use of the mark.

Open questions

  • Where exactly is the common-control line? K Mart upheld exceptions for entities under common ownership or control, but the contours of “control”—minority stakes, contractual control, joint ventures—remain contestable.
  • How does § 526 interact with trademark’s material-differences doctrine? Separate from the Tariff Act, courts permit infringement claims when gray-market goods are “materially different” from the authorized U.S. versions (e.g., Société Des Produits Nestlé, S.A. v. Casa Helvetia, Inc., 982 F.2d 633 (1st Cir. 1992)). K Mart did not resolve how the two regimes overlap.
  • Does the common-control rule fit modern supply chains? Global brands routinely manufacture through layered subsidiaries and contract partners; applying a 1988 affiliate test to today’s structures is not always straightforward.
  • What is the line between gray-market and counterfeit? K Mart assumes the goods are genuine; the harder cases involve goods that are authentic in origin but altered, repackaged, or stripped of quality controls.

Implications

  • Affiliate imports are hard to block under § 526. A U.S. markholder generally cannot invoke the Tariff Act to stop parallel imports of genuine goods made by its own foreign parent, subsidiary, or commonly controlled affiliate.
  • Independent-licensee imports remain blockable. Where an independent foreign manufacturer makes the goods, the markholder retains its § 526 border remedy because authorizing foreign use is not consent to import.
  • Drafting and corporate structure matter. How a brand organizes its foreign manufacturing—affiliate versus arm’s-length licensee—directly determines its ability to police parallel imports at the border.
  • The Tariff Act is one tool among several. Brands frequently pair (or replace) § 526 border enforcement with Lanham Act infringement claims premised on material differences, because the statutes reach different conduct.

Frequently asked questions

Are gray-market goods counterfeit? No. As the Court defined them, gray-market goods are genuine, foreign-made products bearing valid U.S. trademarks, imported without the U.S. markholder’s authorization. Counterfeit goods bear spurious marks. The legal harm in gray-market cases is loss of distribution control, not deception about authenticity per se.

What did K Mart actually win or lose? It was a split decision. The Customs regulation’s common-control exception was upheld, which favored importers and retailers like K Mart who source genuine affiliate-made goods. The authorized-use exception was struck down, which favored markholders by preserving their ability to block independent-licensee imports.

Does this case stop a U.S. brand from blocking all parallel imports? Not entirely. After K Mart, § 526 cannot block genuine imports from a commonly controlled affiliate, but it can still block imports of goods made by an independent foreign licensee. Brands also have separate Lanham Act theories where imported goods are materially different from the U.S. versions.

Authorities and sources