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Hyundai Construction Equipment U.S.A. has successfully sued a gray market importer for illegally bringing in equipment that didn’t meet Hyundai’s specifications. The equipment in question had altered serial numbers and some failed to meet EPA standards. The defendants were ordered to pay Hyundai $1 million for lost sales and court costs.
The U.S. District Court for the Northern District of Illinois ruled that Christ Johnson Equipment of Macomb Michigan illegally imported 29 Hyundai branded wheel loaders and excavators and sold them primarily to U.S. customers. The case was the first published decision to deem such sales a violation of the Lantham Act.
In the wake of the ruling Hyundai has published a Q&A on the case and the issues surrounding gray market equipment. To read the text click on the more tab.
Hyundai Construction Equipment USA and Gray Market Imports
More than four years ago, equipment dealers in Hyundai’s U.S. network alerted the company to an independent dealer in Michigan that was selling illegal gray market wheel loaders and excavators made for non-U.S. markets. Hyundai investigated and sued Chris Johnson Equipment, Inc. in July 2005 in federal court, seeking to permanently stop Johnson from importing and/or selling non-authorized Hyundai equipment and surrender all of the profits generated from those sales. The federal judge approved the permanent injunction in late 2008 and ordered Johnson to pay Hyundai about $1 million in profits from the equipment sales in addition to court costs.
What is a “gray market” import?
A gray market item is one that has been imported directly from another country, by-passing the manufacturer’s authorized distributors in that country. In this case, it pertains to Hyundai construction equipment that was made for use in non-U.S. markets, but was shipped here and sold to end-users. Serial numbers were altered on all of the equipment, some engines were not compliant with U.S. Environmental Protection Agency emission standards and none was backed by Hyundai’s industry-leading warranty. Several also had Korean-language markings, instruction manuals and gauges in languages other than English and different controls than the equipment specifically made for U.S. customers.
What’s the impact of gray market imports?
These products hurt our dealers and the public on two fronts. They pose unfair competition to our dealers as gray market products often sell for far less than U.S.-approved products. Customers are also at risk because they buy equipment that was not designed to meet U.S. safety and environmental standards. They also have no warranty to back up the equipment should something go wrong. These products also compromise the Hyundai brand because of the possibility of confusion caused by the material differences in the gray market equipment and the equipment Hyundai sells for the North American market.
How serious a problem are gray market goods to this market?
The gray market was a much bigger issue in the 1990s, when non-U.S. construction markets were struggling, and the U.S. market was thriving. The gray market was used to reduce inventory overseas until the EPA and the U.S. Customs Service began cracking down in 1996. It also was slowed by enforcement of the Clean Air Act, which products not intended for use in the U.S. frequently violated. Today, the gray market is less prevalent, though the EPA reported settling 58 cases involving 48,000 illegal motorcycles, automobiles, generators, tractors and construction equipment between June 2006 and December 2007. Companies like Caterpillar, Case and John Deere aggressively litigate gray market importers; this is Hyundai’s first-ever prosecution of a gray market dealer.
What was the disposition of this action?
Judge Harry D. Leinenweber of the U.S. District Court for the Northern District of Illinois agreed that Chris Johnson Equipment, Inc., illegally imported 29 Hyundai wheel loaders and excavators into the United States and sold them primarily to U.S. customers, violating federal unfair competition statutes and other laws. He ordered Chris Johnson Equipment to stop importing, selling or marketing any Hyundai construction equipment unless it was purchased from an authorized, U.S.-based Hyundai dealer. The company will also turn over to Hyundai for its own use or destruction all of the illegal equipment in its possession and cover Hyundai’s court costs. Johnson also will be required to pay to Hyundai the profit from the sales, which is approximately $1 million.
What’s next for Hyundai?
We will continue to protect our dealers and customers wherever we see their interests being threatened by what some in the industry call “gray market iron.” We hope that other importers see this case as an example of the types of business practices we will vigorously pursue through legal action, as needed.