May 2020

Pauline Tseng writes “3 Lessons From ‘Exceptional’ Hyundai Gray Market TM Case” for Law360


Pauline Tseng
May 13, 2020

Law360 (May 13, 2020, 6:31 PM EDT) — Outside of intellectual property practitioners, most lawyers and the public may find a discussion of gray market cases to be, well, a bit gray — essentially breach of contract, with a bit of fraud and international intrigue, but fairly tame on the facts.

When the facts of a gray market case involve spoof calls, kickbacks and claims that a party “boils puppies in oil,” however, the case can become exceptional under the Lanham Act (and to the reader) and result in an award of attorney fees seven times greater than judgment. Such was the case in Hyundai Motor America Inc. v. Midwest, a gray market case in the U.S. District Court for the District of Nevada.

In December 2017, Hyundai Motor America Inc. and Hyundai Motor Co. filed a complaint against Midwest Industrial Supply Co., for trademark infringement and other related causes of action. Hyundai alleged that the defendants were selling illegal gray market goods, or goods sourced and sold outside of Hyundai’s authorized chain of distribution.

In February 2019, the defendants made a Federal Rule of Civil Procedure 68 offer of judgment to Hyundai for $75,000. The amount was about two-thirds of Hyundai’s projected lost profits. Hyundai accepted the offer, and the court entered judgment on the case. The case seemed to end, and if it had, it would not have been exceptional. But, the case did not end there.

In an interesting turn of events a year after the court entered judgment, Hyundai won an additional $551,373 in attorney fees. The court awarded the fees on a finding that the case was exceptional under the Lanham Act, because the “defendants acted maliciously, fraudulently, deliberately, and willfully.”[1]

Below are three takeaways from the case that can help brand owners enforce their rights against sellers of gray market goods.

1. Cover the basics.

Hyundai laid the groundwork for its gray market case in its complaint. Hyundai described its manufacturing process, chain of distribution, warranty program, and agreement with its dealers and set forth specific facts in support of its causes of action. For example, in order to show that the defendants’ sale of gray market parts was likely to cause confusion with genuine authorized Hyundai parts, Hyundai pleaded that HMA was the exclusive distributor of Hyundai-brand parts in the U.S.,[2] and that the defendants’ gray market parts were intended for the Korean domestic market only, not the U.S. market.[3]

Because the gray market parts were intended for the Korean domestic market only, there were material differences between the gray market parts and genuine Hyundai parts in “shipping containers, shipping labeling, packaging, [and] packaging labeling.”[4] Hyundai noted further material differences between the gray market parts and genuine parts in warranty, quality control and safety.

As to the warranty, Hyundai pleaded that the defendants were either falsely representing that the gray market parts were genuine parts covered by Hyundai warranties or offering warranties that were materially different from Hyundai warranties.[5] Hyundai also pointed out that the defendants’ gray market parts may not have been subject to the quality and safety standards associated with genuine Hyundai parts.[6]

These key facts are building blocks that provide a strong foundation for a gray market goods case. They can also tee up the case for a potential finding of malice later on.

2. Highlight any malice.

The Lanham Act allows courts to award attorney fees to a prevailing party in exceptional cases.[7] An exceptional case is one that “stands out from others with respect to the substantive strength of a party’s litigating position considering both the governing law and the facts of the case.”[8]

A trademark case is exceptional where the court finds that the defendant acted maliciously, fraudulently, deliberately or willfully.[9] As such, gray market cases can turn on very specific details of malice or willfulness. Counsel for brand owners should highlight any facts of malice or willfulness at the very start of a case.

For example, in this case, Hyundai highlighted the defendants’ evasive litigation tactics, including the defendant Midwest’s concealment of an affiliated co-defendant. Hyundai also focused on the defendants’ aggressive marketing strategies, which included caller ID spoofing and offers of kickbacks.[10]

In its complaint, Hyundai pointed out how the defendant called an authorized Las Vegas Hyundai dealer once or twice a month and offered to pay the dealer “enough money to pay the mortgage” if she placed an order with them.[11] Hyundai highlighted another call in which the defendants asked the dealer what she had in her nightstand and offered to send her an AR-15 assault rifle if she bought Hyundai parts from him.[12]

In another sales pitch, the defendants offered $300 in cash and a ring and to take the dealer for a night out. The defendants asked the dealer: “What’s it going to take to make you love me?” and ended the call by saying “love you.”[13]

Last, but not least, Hyundai highlighted the defendants’ racially tinged comment to a dealer that Hyundai “boils puppies in oil behind the plant.” The dealer could hear laughter in the background and later reported the incident to Hyundai.[14] The court made sure to note in its order how the defendants later tried to dismiss the comment as an off-color joke.[15]

All of these bad facts are important pieces to a puzzle. They paint a broad picture of the defendants’ malice and willfulness and make cases exceptional under the Lanham Act. Brand owners and their counsel should zero in on any facts that indicate malicious behavior, as courts take that type of behavior into serious consideration when awarding attorney fees. Most cases will not have this level of egregious facts — the key is to look for, and identify, the most salient facts. Build your case!

3. Don’t forget attorney fees.

One day after the court entered judgment in Hyundai v. Midwest, Hyundai filed an emergency motion to correct judgment, pointing out that the judgment (1) incorrectly stated it was inclusive of attorney fees and costs, and (2) incorrectly omitted a permanent injunction.

Two months later, Hyundai filed a motion for attorney fees to recoup what was omitted from the defendants’ Rule 68 offer. This additional motion work led Hyundai to recover over half a million dollars in attorney fees. Given that the original judgment was only $75,000, Hyundai’s diligence in fighting for its attorney fees resulted in an even bigger win.

Just earlier this year, Hyundai recovered $5 million in another (separate) gray market judgment in North Carolina. The amount included compensatory damages, statutory damages, enhanced damages for the defendant’s willful conduct, and attorney fees and costs.

Hyundai’s success in prosecuting these gray market cases is a reminder that brand protection efforts are effective not only in obtaining lost profits, increasing consumer awareness about gray market goods, and promoting consumer safety, but also in sending a strong message to sellers of gray market goods that brand owners can, and will, protect their rights. The tools are there, if counsel and clients use them.

Pauline Tseng is an associate at Sideman & Bancroft LLP.

[1] Hyundai Motor Am., Inc. v. Midwest Indus. Supply Co., Case 2:17-cv-03010-JCM-GWF (D. Nev. March 6, 2020).

[2] Hyundai’s Amended Complaint, ¶ 2.

[3] Hyundai’s Amended Complaint, ¶ 46.

[4] Hyundai’s Amended Complaint, ¶ 58.

[5] Hyundai’s Amended Complaint, ¶ 4.

[6] Hyundai’s Amended Complaint, ¶ 51.

[7] 15 U.S.C. § 1117.

[8] Octane Fitness, LLC v. ICON Health & Fitness, Inc. , 572 U.S. 545, 554 (2014).

[9] Earthquake Sound Corp. v. Bumper Indus. , 352 F.3d 1210, 1216 (9th Cir. 2003).


[11] Hyundai’s Amended Complaint, ¶ 57.

[12] Hyundai’s Motion for Attorneys’ Fees and Costs, pages 4-5.

[13] Hyundai’s Motion for Attorneys’ Fees and Costs, pages 4-5.

[14] Hyundai’s Motion for Attorneys’ Fees and Costs, page 4.

[15] Hyundai Motor Am., Inc. v. Midwest Indus. Supply Co., Case 2:17-cv-03010-JCM-GWF (D. Nev. March 6, 2020).

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