The U.S. Customs Service has adopted a new "gray goods" rule which provides protection to U.S. trademark owners against the importation of gray goods. Under the new rule, such goods, which are "physically and materially" different from authorized goods intended for sale in the United States, must bear a disclaimer, if the U.S. trademark owner applies for so-called Lever Brothers-rule protection.

The U.S. Customs Service has long taken the position that gray market goods, i.e., goods produced by an affiliate of the U.S. trademark owner for sale outside of the United States, were lawful so long as the trademark owner and the producer of the goods were related in such a manner as to fall within the U.S. Customs "affiliate exception" rule. Under the affiliate exception rule, U.S. Customs would decline to bar the importation of such goods into the United States, regardless of whether the imported goods differed materially from the goods being sold by the trademark owner in the United States.

In 1993, the U.S. Court of Appeals for the District of Columbia held in Lever Brothers Co. v. United States that the sale of gray market goods which differ "materially" from goods sold by the trademark owner in the United States violated the United States trademark owner's rights. The court's holding in Lever Brothers distinguished between goods produced abroad and then imported into the United States under the affiliate exception rule which were identical to those intended for sale in the United States and goods produced abroad which were materially different. The latter infringed the trademark owner's rights.

Seeking to reconcile its rules with the Lever Brothers holding, U.S. Customs' new rule allows for the importation of "physically and materially" different gray market goods, provided that a label is affixed to the goods until the first point of sale to a retail consumer in the United States which states that "[t]his product is not the product authorized by the U.S. trademark owner for importation and is physically and materially different from the authorized product". U.S. Customs views such a disclaimer as a "specifically differentiating feature", which satisfies the Lever Brothers court's holding.

In order to secure Lever Brothers-rule protection, a U.S. trademark owner must submit an application to U.S. Customs describing any physical and material differences between the authorized articles and the gray market goods. Once processed, U.S. Customs will publish in the Customs Bulletin a notice indicating those trademarks that will receive Lever-rule protection. Thereafter, "physically and materially" different gray market goods will only be allowed entry by U.S. Customs if such goods bear the appropriate disclaimer label. If no such label is affixed to the goods, these goods will be temporarily detained, and the burden will be on the importer to demonstrate that the goods are identical and as such fall outside the Lever Brothers-rule.

This rule will surely generate litigation. Arguably, the U.S. Customs' regulation is inconsistent with the Lever Brothers decision, which makes no reference to disclosure labels. Indeed, many courts have found disclaimers to be an insufficient means to avoid likelihood of confusion. Plainly, it has taken U.S. Customs many years to come to grips with the Lever Brothers decision. It remains to be seen whether this belatedly issued rule will lay to rest the many issues raised by the importation of less expensive gray goods.