Deere fights 'gray market' dealers

Photo Deere & Co. A John Deere 7850 self-propelled forage harvester is shown in a corn field. The company wants the federal government to stop independent dealers from importing European-model Deere forage harvesters into the United States. Independent dealers argue that Deere has permitted its official dealers to sell the European harvesters.

Firm says imports of its cheaper European equipment confuses consumers

By MATEUSZ PERKOWSKI

Capital Press

Deere & Co. wants government protection from the detrimental effects of imported farm machinery -- its own farm machinery.

The manufacturer recently won a legal point that will allow it to continue a years-long battle against the so-called "gray market" for its self-propelled forage harvesters.

Unlike the black market, the gray market doesn't involve trafficking in illicit or stolen goods. Rather, legal products are sold through channels that haven't been authorized by their manufacturer.

In this case, Deere forage harvesters intended for sale in Europe were imported into the U.S. by independent dealers.

The company first complained to the U.S. International Trade Commission about the practice in 2003. According to Deere, sales of European harvesters threatened to create confusion in the U.S. market, thus harming the company's brand.

The U.S. version of the harvester is equipped with safety and pollution controls that are different or absent from the European version, according to Deere's complaint. European harvesters may not be covered by warranty, may need parts that aren't stocked in the U.S. and "may have weaker structural components."

The imported machinery was also less expensive. Deere's investigation found that a new harvester from Europe sold for about $200,000 -- roughly $60,000 less than the comparable U.S. version.

The implication was that independent dealers were undercutting Deere's prices on the domestic market, affecting sales of U.S. harvesters.

Initially, the International Trade Commission sided with Deere in the case.

The commission found the European harvesters infringed on Deere's trademark and in 2004 barred independent dealers from importing and selling the machinery.

Several independent dealers challenged the decision, which a federal appeals court overturned and sent back to the commission for reconsideration in 2006.

The commission ended up changing its position in 2008 and lifting the ban on imported European harvesters.

The commission said up to 57 percent of all the European harvesters sold in the U.S. were actually marketed by official Deere dealers who "thereby contributed to the confusion for which they blame the respondents."

For that reason, Deere "cannot show gray market trademark infringement and is not entitled to relief," according to the commission's ruling.

The company wasn't actually harmed by imported European harvesters -- it simply wanted to stifle competition from independent dealers, according to David Miranda, an attorney representing the Bourdeau Brothers, OK Enterprises and Sunova Implement dealerships.

"If this is such a problem, why were they letting their authorized dealers do it?" Miranda said. "You can't say you don't want that product in the U.S. when your dealers are selling those harvesters."

A spokesman for Deere & Co. said it wouldn't be appropriate for the firm to comment in detail about pending litigation.

Deere appealed the commission's ruling in federal court, arguing that it didn't know official dealers were selling European harvesters in the U.S. or that its subsidiary financing division was making loans for the machinery, according to court documents.

On May 26, a federal appellate court rejected those arguments, ruling that the dealers and the financing company behaved as if Deere condoned sales of European harvesters in the U.S.

That means they had "apparent authority" to sell and finance imported harvesters, which under the law is the same as if Deere directly authorized those practices, according to the ruling.

However, that doesn't put an end to the matter.

The court ruled that Deere can still demonstrate gray market infringement if "all or substantially all" of its authorized harvester sales were of the U.S. version.

The commission incorrectly relied on the large percentage of European harvesters sold through official dealerships to reject Deere's complaint, the court ruled.

Instead, the commission should have focused on how many harvesters sold by Deere were intended for the U.S. market, according to the ruling.

Roughly 97 percent of the harvesters sold by Deere were of the U.S. version, while the rest were European imports.

The case has again been remanded to the International Trade Commission.

The agency must now decide whether that 3 percent of sales was enough to create confusion in the market, disqualifying Deere from challenging overall harvester imports.

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