Can Sony really regulate Grey Market international sales?

November 8, 2006 5:42 PM

PS3 Legal Filter: Sony is purportedly blocking gray market sales of the PS3 from external markets into Europe. What is the legal validity of this? Of course you can find...

So my friend is planning on squatting outside a bestbuy for a PS3 in hopes to sell it soon after. He has told me about some legal efforts Sony has taken to block grey market sales of the unit into Europe (because its timetable release has been pushed back, probably because of the introduction of the BlueRay technology). This got me thinking: under what legal validity can Sony stop grey market sales, especially in an avenue such as ebay?

I researched a bit about what they did and found things such as: this.

They article quotes the Sony Spokesman as saying: "Ultimately, we're trying to protect consumers from being sold hardware that does not conform to strict EU or UK consumer safety standards."

Perhaps this flew in an EU court, but how does this have validity or jurisprudence over an international trade avenue such as ebay?

Just curious...

posted by stratastar to law & government (18 comments total)

Trademark law. They get a say in how their logo is used, and can shut you down if you're diluting it (by say, selling in a country where the local Sony office is unable to support the product). This doesn't apply quite so much to private sales, and is quite hard to enforce, but it's not completely crazy.
posted by cillit bang at 5:50 PM on November 8, 2006

It's not about legality so much as it is Sony looking to ensure it's making as much money as possible from its relationships with retailers.

Hardware manufacturers have some rather tricky relationships with retailers that need to be protected.

* If retailers can buy machines at a lower wholesale price than they can from Sony, for whatever reason, they will do so, and Sony loses potential dollars/euros.

* If customers can buy machines at lower prices, they will do so.

* If customers buy machines from Ebay, then they're not buying them from retailers. This harms the retailers, and they are less likely to stock more PS3s, which harms Sony.
posted by frogan at 5:52 PM on November 8, 2006

Sony don't have any criminal laws to stand on, they usually use supply contracts to specify that companies who receive PS3s don't sell them outside of some nominated region.

However, they can use their deep pockets to initiate so many legal suits that small or medium sized businesses, that buy from retailers and resell out of zone, can't afford the legal bills.

Example.

Note that by purchasing a PS3 (or any other Sony product) you are funding Sony's bad behaviour. Frankly, if Sony are going to treat anyone outside of the US and Japan like crap, I don't know why anyone would bust their hump trying to import a PS3 -- you know it's going to be region coded in a way that makes it expensive, annoying or both to actually get any games for it afterwards.
posted by krisjohn at 6:40 PM on November 8, 2006

Check out Why are Apple laptop prices the same at all stores? for related information.

There isn't much they can do about individuals reselling product purchased at retail price - especially in the US, where doctrine of first sale pretty much trumps any attempt to block resale. However, at wholesale they get to sell to businesses of their choosing, pretty much. If you don't play by Sony's rules, they just stop giving you product..
posted by Chuckles at 6:42 PM on November 8, 2006

* If retailers can buy machines at a lower wholesale price than they can from Sony, for whatever reason, they will do so, and Sony loses potential dollars/euros.

* If customers can buy machines at lower prices, they will do so.

I'm confused. We're not talking about Euro retailers buying from US wholesalers, and we're not talking about Euro customers buying from US or Japanese retailers to get a cheaper deal. Considering shipping and (perhaps?) customs/taxes/duty/whatever, they'd surely be paying way over retail.

This is about customers buying from a retailer who isn't in their region -- either way Sony's going to make their money, either through a sale to the customer from a US retailer or a sale from a Euro retailer. This isn't about whether or not Sony is going to sell the consoles, I don't think...

I'm just inferring here, but my gut tells me that Sony is protecting European retailers and making sure that those retailers don't lose out on sales -- every electronics company has a push/pull relationship with retailers, a you scratch my back I scratch yours kind of thing. In order to get good placement in stores, good sales pitches from floor personel, ad kiosks in key positions, that sort of stuff, manufacturers have to keep retailers happy. Sometimes that's perks, sometimes that's free stuff, sometimes that's a cut-rate wholesale price for certain items to favorite store chains, and sometimes it's putting up a stink and going to court to block another retailer from infringing on their turf.

I have no idea exactly what UK and Euro law says about this, but according to the judge, Sony is entirely within their rights in blocking Lik-Sang (and others). As for e-Bay rules, they can limit you however they want -- it's up to you if you want to do business with them. This isn't like a constitutional issue or anything -- a company isn't forced to do something it doesn't want to (within reason, of course -- they can't deny to serve you because of your race, for instance). They already limit all kinds of sales; this is just another. If you wanted to sell your kidneys, for instance, that's not allowed under their rules. If you think kidney selling is legal (it's not, by the way -- I think) and there's a market out there for it, then start your own web auction house.

Sony don't have any criminal laws to stand on, they usually use supply contracts to specify that companies who receive PS3s don't sell them outside of some nominated region.

However, they can use their deep pockets to initiate so many legal suits that small or medium sized businesses, that buy from retailers and resell out of zone, can't afford the legal bills.

Huh? This isn't a criminal proceeding at all -- this is a civil one. The judge didn't agree with you. And I'd just like to point out that nowhere have I found that Lik-Sang had to pay damages -- Sony just got a judge to declare that Lik-Sang's business practice is infringing on Sony's rights. So it's not so much that Sony sued Lik-Sang out of existence, but more like that Lik-Sang's entire business model (I'm assuming that export was the vast bulk of what they did, seeing as how the ruling has effectively shut them down) was illegal according to this judge.

I hate damn near every corporation and think Sony is an absolute nightmare and can't stand most of what they do, but a lot of these answers just strike me as plain ill-informed.
posted by incessant at 1:13 AM on November 9, 2006

See this thread. Cilit Bang is right, the legal basis is in the protection of intellectual property. The text of the lik-sang judgement is here.

An IP lawyer friend summed it up like this:

A manufacturer can seek to prevent goods from being imported into the EU on the basis of the infringement of its IP rights, in particular on the basis of trade mark law. There is a general prohibition on the restriction of the free movement of goods in the EU, the EC Treaty allows restrictions which are justified on the grounds of the protection of industrial and commercial property.

In particular, the EU Trade Marks Directive provides that a trade mark owner may prevent a third party from using, in the course of trade, any sign which is identical to that trade mark in relation to goods which are identical to those for which the trade mark is registered.

This includes, amongst other things, affixing the sign to goods or their packaging and offering or importing goods under the sign.

However,generally the proprietor may not prohibit use of the trade mark in relation to goods which have been put on the market in the EC under that mark by the proprietor or with his consent.

i.e. if your business imports or sells something using my trademark without my consent I can seek an injunction to prevent the sale/import.

I don't know how this applies to private resales over eBay.
posted by patricio at 2:31 AM on November 9, 2006

incessant: Sony organised for the "trial" to be located in the UK, while Lik-Sang was a Hong Kong company. They simply didn't turn up because they couldn't afford it and the judge ruled in favour of Sony based on some seriously dubious "information" from Sony. That case, and the judge's ruling, prove nothing except that big business can buy "justice".
posted by krisjohn at 4:59 AM on November 9, 2006

patricio is right. The relevant articles from the European Community trade mark regulation are these:

Article 9

Rights conferred by a Community trade mark

1. A Community trade mark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade:

(a) any sign which is identical with the Community trade mark in relation to goods or services which are identical with those for which the Community trade mark is registered;

[...]

2. The following, inter alia, may be prohibited under paragraph 1:

[...]

(c) importing or exporting the goods under that sign;

[...]

This right does not exist for goods that have been distributed in or to the European Union with the consent of the trademark holder:

Article 13

Exhaustion of the rights conferred by a Community trade mark

1. A Community trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.

2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market.

The trademark directive obligates all member states to adopt similar provisions in their respective domestic trade mark laws.
posted by Knorhaen at 5:26 AM on November 9, 2006

Sony can use these laws to sue foreign businesses that sell PS3's without Sony's consent in European courts (even if the businesses themself are located outside of Europe!) and get an injunction against them, barring them from selling PS3's to European consumers.

Sony can also notify European customs agencies that illicit PS3's are entering the internal market. Those agencies can then seize packages they suspect contain illegal PS3's.
posted by Knorhaen at 5:50 AM on November 9, 2006

These products aren't "illegal". They aren't copies of PS3s, they're actual PS3s. They have been purchased, not stolen. No one is using the PS3 logo or Sony's name to do anything except describe a legitimate Sony PS3.

Next you'll be saying it's illegal to fly to Japan, purchase a PS3 and return to England with it.

(Seriously though, why would anyone go through this nightmare for a peice of entertainment product?)
posted by krisjohn at 5:59 AM on November 9, 2006

Sony organised for the "trial" to be located in the UK, while Lik-Sang was a Hong Kong company.

They asked a UK court for an injunction to stop the consoles being allowed into the UK (and the EU). There's no way they would have been able to do this in a Hong Kong court.

Next you'll be saying it's illegal to fly to Japan, purchase a PS3 and return to England with it.

No, because that doesn't involve running a business based on Sony's trademarks.

(and krisjohn, please stop arguing with people answering the question. AskMe is not a discussion forum)
posted by cillit bang at 6:22 AM on November 9, 2006

No one is using the PS3 logo or Sony's name to do anything except describe a legitimate Sony PS3.

As EU law clearly states, importing and exporting a product that has a trade mark on it is a form of using a trade mark (Sony probably also have a trade mark for the shape of the PS3, apart from the logos). Which means that the fact that they are genuine products is irrelevant.

Next you'll be saying it's illegal to fly to Japan, purchase a PS3 and return to England with it.

On preview: what cillit bang said. A trade mark is only usable "in the course of trade" (article 9 of the regulation).
posted by Knorhaen at 6:32 AM on November 9, 2006

incessant: Sony organised for the "trial" to be located in the UK, while Lik-Sang was a Hong Kong company. They simply didn't turn up because they couldn't afford it and the judge ruled in favour of Sony based on some seriously dubious "information" from Sony.

Were you there? I wasn't. Did you examine the transcripts and decide yourself that Sony used some "seriously dubious 'information?'" C'mon. Let's get serious here. I'm guessing that if Lik-Sang's entire business were at stake, they probably should've gotten on a plane and flown to the UK to defend their position. And if they didn't have the money, well, they must've spent it on booze and women because they surely weren't a poor little company -- their mark-up was crazy and I'd think they were pulling in a pretty penny. But good luck with that boycotting Sony thing.
posted by incessant at 10:07 AM on November 9, 2006

Lots of great information, especially about trademark law/ intellectual property.

Thanks
posted by stratastar at 11:59 AM on November 9, 2006

This is about customers buying from a retailer who isn't in their region -- either way Sony's going to make their money

It's not about how much money they make per individual sale, but preserving and protecting their existing relationships with retailers.

Let me reparse my own answer: If customers buy machines from Ebay, then they're not buying them from traditional retailers. If retailers see their customers flocking to Ebay, they won't stock as many units from Sony itself. This is bad for Sony, as the traditional retailers are traditional for a reason -- they move the most units overall, as well as moving most of Sony's more important products, which are the games themselves. If the retailers don't feel like they're getting enough love from Sony, they'll stock less Sony products.

Protecting their retailers from competition is a good thing for Sony, trust me. ;-)
posted by frogan at 5:43 PM on November 9, 2006

Totally agree with you frogan -- as I said in my first post:

Sony is protecting European retailers and making sure that those retailers don't lose out on sales.

Sony isn't doing this because they stand to lose money on sales -- wherever a customer gets their console, Sony at some point made their money on it -- but rather because, as you state, they have to protect those retailers in order to keep the retailers happy and selling lots and lots of Sony products.
posted by incessant at 7:11 PM on November 9, 2006

(and krisjohn, please stop arguing with people answering the question. AskMe is not a discussion forum)

This seems a little unfair. Someone says I'm wrong and when I say they're wrong I'm the only one who's arguing. Either we're all arguing or we're all not.

I have read examinations of the judge's ruling that I trust and that say the case had no merit.

Sony has quoted safety issues, which have been refuted.

Sony has quoted trademark issues, but they're for counterfeit equipment, not the original stuff. If the laws could be really be applied in the way they appear to have, any manufacturer could sue any retailer that does something they didn't like, like selling secondhand games. Instead, we get:

"The lawsuits they are talking about, by the way, involve Sony's attempts to make gray market imports of console systems illegal, especially in Europe. The way they did this was by filing a suit in every single frickin' EU country... essentially bleeding Lik Sang to death. You can see the writing on the wall in Lik Sang's statement:

"Fighting multiple lawsuits in different countries at the same time and paying high premiums to expensive lawyers is an overwhelming situation for a small company like Lik-Sang. Launching separate court actions with separate claims and different judges is completely unnecessary, except for the fact that it helps reaching one single target: outspend Lik-Sang to death. 'Pay Beyond.'""

--From kotaku

No, Sony has no legal validity for this action. If they had, they wouldn't have applied scattershot legal maneuverings designed to simply out-spend Lik-Sang.

But good luck with that boycotting Sony thing.

Thanks. It's going well. Helps that Sony have recently been incapable of producing a product I want. Though, is it boycotting if you actually don't want anything from the company? I only broke my last one for a couple of MGM movies I wanted to see, but they were so crap that I don't think I'm going to weaken again.
posted by krisjohn at 9:37 PM on November 9, 2006

But you're not saying I'm wrong, you're saying Sony's wrong. The poster asked what laws Sony was using. We explained, and you used the thread as a soapbox to rant against Sony. Also, claiming their arguments have no basis in law when an actual judge ruled exactly the opposite is bonkers.

(Also, Gawker media bloggers are paid to provide hastily-written personal rants, in bulk. They are not a good source of independent legal analysis)
posted by cillit bang at 8:57 AM on November 10, 2006