# Lever Bros. v. United States: The Lever Rule and the Gray Market's Material-Difference Line

> The D.C. Circuit held Lanham Act section 42 bars gray market imports that are physically and materially different from U.S. goods, even affiliate-made ones.

Topic: Trademarks  |  Author: Lidiia Levitska  |  Source: Intellectual Property Law (outsideipcounsel.com)
Canonical: https://outsideipcounsel.com/blog/lever-bros-v-us-gray-market-lever-rule/


In *Lever Bros. Co. v. United States*, 981 F.2d 1330 (D.C. Cir. 1993), the D.C. Circuit closed a loophole through which physically different foreign goods flowed into the United States under familiar American trademarks. The court held that section 42 of the Lanham Act, 15 U.S.C. § 1124, bars the importation of gray market goods that are physically and materially different from their authorized U.S. counterparts, even when the foreign goods are made abroad by an affiliate of the U.S. trademark owner. That holding invalidated the Customs Service's "affiliate exception" as applied to differing goods and gave the doctrine its enduring name: the Lever rule.

Argued October 27, 1992, and decided January 15, 1993, before Chief Judge Mikva and Circuit Judges Sentelle and Randolph, with Judge Sentelle writing, the decision is the source of a Customs enforcement regime brand owners still invoke daily whenever they ask the agency to detain "restricted gray market" imports under 19 C.F.R. § 133.23.

## At a glance

- **Case:** *Lever Bros. Co. v. United States*, 981 F.2d 1330 (D.C. Cir. 1993) (No. 92-5185)
- **Decided:** January 15, 1993, by Sentelle, J., joined by Mikva, C.J., and Randolph, J.; affirmed on the merits, remedy vacated as overbroad and remanded
- **Holding:** Section 42 of the Lanham Act bars importation of foreign goods bearing a valid U.S. trademark when the goods are physically and materially different from authorized U.S. goods, regardless of affiliation between the U.S. and foreign markholders, so Customs' affiliate exception could not be applied to such goods.
- **Significance:** Final; codified by Customs in 1999 as the Lever rule, 19 C.F.R. § 133.23, the framework that still governs materially different gray market imports.

## The gray market and section 42's importation bar

Gray market goods, sometimes called parallel imports, are genuine articles: they bear a trademark lawfully applied abroad, but they enter the United States outside the brand owner's authorized distribution channels. No one forged the mark. The hard question has always been what happens when the foreign genuine article is not the same product as the American genuine article.

Two statutes police the border. Section 526 of the Tariff Act of 1930, 19 U.S.C. § 1526, bars importation of foreign-made goods bearing a U.S.-owned mark without the owner's consent, but the Supreme Court in *K Mart Corp. v. Cartier, Inc.*, 486 U.S. 281 (1988), upheld Customs' regulation exempting goods made by companies under common ownership or control with the U.S. markholder. *K Mart* construed only the Tariff Act. It expressly left open whether the same "affiliate exception," codified at 19 C.F.R. § 133.21(c)(2) (1988), could survive under section 42 of the Lanham Act, which directs that no article "shall be admitted to entry" if it bears a mark that "cop[ies] or simulate[s]" a registered U.S. trademark.

Customs' theory was syllogistic: a mark applied by an affiliate of the U.S. owner is by definition genuine, and a genuine mark cannot "copy or simulate" itself. *Lever Bros.* tested that syllogism against products that shared a name and almost nothing else.

## Two soaps, one mark

Lever Brothers Company, a U.S. corporation, and its British affiliate Lever Brothers Ltd. each sold a deodorant soap under the SHIELD mark and a hand dishwashing liquid under the SUNLIGHT mark, formulated for local tastes and conditions. The American Shield lathered more generously, used FDA-certified colorants, and contained a bacteriostat to enhance its deodorant properties; the British bar did not. Even the packaging diverged: a block-letter logo and grid pattern in the United States, a script logo and foil wrapping in Britain. British Sunlight was formulated for the United Kingdom's hard water and produced fewer suds in the soft water of most American cities, and it was labeled "washing up liquid" rather than "dishwashing liquid."

Third-party importers bought the cheaper British versions and shipped them into the United States, where consumers who bought them got something measurably different from what the brand had taught them to expect, and Lever's U.S. company fielded the complaints. When Lever asked Customs to exclude the imports under section 42, the agency refused, invoking the affiliate exception: because British Lever and American Lever were under common control, the imports bore a "genuine" mark and could enter freely.

## From Lever I to Lever II

Lever sued, and the litigation reached the D.C. Circuit twice. In the first appeal, *Lever Bros. Co. v. United States*, 877 F.2d 101 (D.C. Cir. 1989) (*Lever I*), Judge Stephen Williams' panel read section 42 tentatively but pointedly: the "natural, virtually inevitable reading" of the statute is that it bars foreign goods bearing a mark identical to a valid U.S. mark but applied to physically different products, without regard to the mark's validity abroad or corporate affiliation. Because Customs insisted its practice and the legislative history supported the exception, the court remanded to give the government the chance to produce "persuasive evidence running against our tentative conclusion."

The government could not. On remand, the district court found Customs' administrative practice "at best inconsistent" and the legislative history silent on the precise problem, and it held that section 42 "prohibits the importation of foreign goods that ... are physically different, regardless of the validity of the foreign trademark or the existence of an affiliation between the U.S. and foreign markholders." It then enjoined enforcement of the affiliate exception nationwide, for every mark and every markholder. The government appealed again.

## Genuine abroad is not genuine here

Judge Sentelle's opinion in *Lever II* affirmed the merits in full. The government leaned on a 1944 Tariff Commission memorandum describing the statute's predecessor as inapplicable to "the registrant's own merchandise," and on Customs' practice since adopting the exception in 1972. Neither carried the weight assigned to it. The memorandum never addressed the situation actually presented: a third party importing foreign goods that bear a valid foreign mark identical to the U.S. mark but that cover physically different products. And Customs had never explained the exception's rationale when it promulgated the regulation. Where Congress's will "has been expressed in reasonably plain terms," the court wrote, "that language must ordinarily be regarded as conclusive."

The heart of the opinion is its answer to Customs' genuineness syllogism. "Trademarks applied to physically different foreign goods are not genuine from the viewpoint of the American consumer," the court held. A trademark is not a certificate of corporate pedigree; it is a compressed promise about product characteristics. Quoting *Lever I*, the panel explained that "when identical trademarks have acquired different meanings in different countries, one who imports the foreign version to sell it under that trademark will (in the absence of some specially differentiating feature) cause the confusion Congress sought to avoid. The fact of affiliation between the producers in no way reduces the probability of that confusion; it is certainly not a constructive consent to importation."

On remedy, however, Lever lost some ground. It had sued about Shield and Sunlight, not every mark in the country, and its boilerplate prayer for further relief was, in the panel's words, "too slender a reed upon which to rest a nationwide injunction." The court vacated the global decree and directed an injunction limited to the foreign versions of Lever's own two marks. The merits holding was categorical; the judgment was party-specific.

## The Lever rule in Customs practice

The decision's operational life began six years later, when Customs amended its regulations in a final rule published in February 1999 to implement the holding. The result, 19 C.F.R. § 133.23, defines "restricted gray market" goods to include articles Customs has determined to be physically and materially different from those the U.S. owner authorized. A companion provision, 19 C.F.R. § 133.2(e), lets the owner of a registered and recorded U.S. trademark apply for what the agency itself calls Lever-rule protection by stating the physical and material differences with particularity and supporting them with competent evidence. CBP publishes granted protections in the Customs Bulletin, and covered imports are subject to detention and exclusion.

The regulation also built in a safety valve the opinion had hinted at with its reference to a "specially differentiating feature." A materially different gray market good may still enter if it bears a conspicuous label stating: "This product is not a product authorized by the United States trademark owner for importation and is physically and materially different from the authorized product." Disclosure, in other words, cures the deception that justified exclusion.

## Open questions

- **How different is "materially" different?** The court excluded soaps with distinct formulations and packaging but never quantified a threshold. Courts and CBP have since treated the bar as low, sometimes extending it to warranty or quality-control differences, and the outer edge remains contested.
- **How far does the labeling cure reach?** Section 133.23(b)'s disclaimer lets differing goods enter, but whether a label at the border immunizes downstream sellers from Lanham Act infringement suits is a separate question the case never decided.
- **Border remedy versus courtroom remedy.** *Lever Bros.* construed section 42's importation bar; private infringement actions over gray market goods proceed under sections 32 and 43(a) with their own materially-different-goods case law, and the doctrines do not always move in lockstep.

## Implications for brands and businesses

- **Record, then apply.** Lever-rule protection is not automatic. A brand owner must register its mark with the USPTO, record it with CBP, and file a § 133.2(e) application documenting the physical and material differences; only then will Customs detain differing parallel imports.
- **Engineer the differences and document them.** Because protection turns on material differences, companies that regionalize products (formulation, ingredients, labeling, warranties, quality control) should keep contemporaneous records of exactly how the U.S. version differs. Those records are the application.
- **Affiliation is no defense, and no consent.** Multinationals cannot assume that goods made by their own foreign affiliates may enter freely, and unauthorized importers cannot hide behind the corporate family tree. The court was explicit that common ownership does not imply consent to importation.
- **Watch the disclaimer label.** Importers can lawfully move materially different goods through the border by using the § 133.23(b) disclosure label. Brand owners policing the gray market should verify whether detained goods were released under the label and consider Lanham Act claims where downstream marketing strips the disclosure away.

## Frequently asked questions

**What is the Lever rule?** The Lever rule is the doctrine, named for *Lever Bros. v. United States*, that section 42 of the Lanham Act (15 U.S.C. § 1124) bars importation of gray market goods bearing a genuine foreign trademark when the goods are physically and materially different from the versions authorized for sale in the United States, even if the foreign maker is an affiliate of the U.S. trademark owner. Customs implements it through 19 C.F.R. § 133.23, which defines restricted gray market articles, and 19 C.F.R. § 133.2(e), under which owners of registered and recorded marks apply for Lever-rule protection.

**Are gray market goods the same as counterfeits?** No. A counterfeit bears a spurious mark applied without authorization, while a gray market good carries a mark that is genuine where the good was first sold; it simply entered the U.S. through unauthorized channels. *Lever Bros.* narrows the gap for materially different goods: the D.C. Circuit reasoned that a mark on a physically different foreign product is not genuine from the viewpoint of the American consumer, so the import can be excluded even though it is no forgery.

**How does a brand owner obtain Lever-rule protection from Customs?** The owner must first register the mark with the USPTO and record it with CBP, then apply for Lever-rule protection under 19 C.F.R. § 133.2(e) by describing the physical and material differences between the authorized U.S. goods and the gray market versions. Once CBP grants protection and publishes notice in the Customs Bulletin, differing imports are subject to detention under 19 C.F.R. § 133.23 unless the importer shows the goods are not materially different or attaches that section's disclaimer label stating the product is not authorized by the U.S. trademark owner and is physically and materially different.

## Authorities and sources

- [*Lever Bros. Co. v. United States*, 981 F.2d 1330 (D.C. Cir. 1993) (full text)](https://law.resource.org/pub/us/case/reporter/F2/981/981.F2d.1330.92-5185.html)
- [15 U.S.C. § 1124 (Lanham Act § 42), Cornell LII](https://www.law.cornell.edu/uscode/text/15/1124)
- [19 C.F.R. § 133.2, Application to record trademark (Lever-rule protection at subsection (e)), Cornell LII](https://www.law.cornell.edu/cfr/text/19/133.2)
- [19 C.F.R. § 133.23, Restrictions on importation of gray market articles, Cornell LII](https://www.law.cornell.edu/cfr/text/19/133.23)
- [19 C.F.R. § 133.2 (2023 CFR text, govinfo)](https://www.govinfo.gov/content/pkg/CFR-2023-title19-vol1/pdf/CFR-2023-title19-vol1-sec133-2.pdf)
- [WIPO Lex case entry, *Lever Brothers Co. v. United States*](https://www.wipo.int/wipolex/en/judgments/details/936)
- [*Lever Bros. Co. v. U.S.* case brief (Studicata), covering *Lever I*, 877 F.2d 101 (D.C. Cir. 1989)](https://www.studicata.com/case-briefs/case/lever-bros-co-v-u-s/)