Oral Health Group

Grey Goods – The Danger of Complacency in Purchasing Trademarked Goods covered by the Medical Devices Regulations

November 1, 2012
by Adrian Kaplan

The sale of grey market goods is of concern across diverse industries ranging from snacks and drinks to clothing and cosmetics. The concern is especially acute with health care related products such as dental materials where deficiencies can cause harm to patients.

A trademark is a name, design, logo or combination of these that a business uses to distinguish its products or services from those of its competitors. Consumers rely on a trademark as an indication of quality. Goodwill is generated in a trademark where a consensus of consumers considers the goods to be of quality and consistency. It therefore seems reasonable to assume that a product that bears the trademark of a reputable source of that product is of a particular quality and — in the case of dental materials — safe and effective. However, the existence of grey goods significantly muddies the waters. When it comes to grey goods, such assumptions can be very dangerous.


The term “grey goods” refers to goods that are a) labeled with a legitimate trademark of a company that is the source of those goods; b) imported into different markets than was intended by the trademark owner; and c) sold there (often at a lower price) by an unauthorized distributor without the consent of the trademark owner. Typically, the goods in question have been formulated or packaged for a particular jurisdiction. This leads to a situation where although the goods were produced by the owner of the trademark that enjoys a certain reputation, the goods that have been imported from elsewhere may not be of the same standard as the goods that it produces for the local market.

Grey goods are not counterfeit goods because they have been manufactured by or under license from the trademark owner. It is clear that the sale of counterfeit goods is illegal and that the use of such products knowingly by health care professionals would be unconscionable. The focus of this discussion is on the risks involved in purchasing grey goods where the original source of the goods is legitimate.

Trademark owners sell their products and arrange their distribution networks to meet consumer demands that exist in specific countries. As a result, the packaging layout and labeling may be different in different countries. Also, the composition of the actual products may vary from market to market depending on local preferences of consumers and cost sensitivities. Authorized distributors in different markets may have to comply with different requirements regarding warranties or after sales service. As a result, at the end of the day, it is possible for an unauthorized distributor to import trademarked product from one market and resell in another market at a price that is lower than what authorized distributors can offer. This could be the case, for example, where the goods imported are from a developing country into North America or Europe.

Of critical importance is that the imported trademarked goods are not approved by the trademark owner for sale in the market in question and may not be of the same quality as intended for that market. Due to local preferences, products may be formulated differently from market to market. Issues may arise with delays in delivery of imported grey goods. Old stock may sit for long periods of time. When finally delivered, the product can end up having reduced quality as a result of the loss of shelf life. Importantly for medical devices, trademarked product manufactured for sale in a particular jurisdiction may not meet the regulatory requirements that exist in another jurisdiction.

In Canada, trademark laws will be triggered where the relevant goods are not the same quality as their domestic counterparts such that the use of the trade-mark is likely to cause confusion with regards to source. This rationale is consistent with the so-called American “Lever Rule”, which provides trademark owners with protection from importation of grey goods where it can be shown that the imported products are materially and physically different from those authorized for sale. However, action may not be taken by a trademark owner until after a significant supply of inferior grey goods have been sold into a market.

Dentists should not assume that dental materials obtained from a distributor are of acceptable quality just because the goods bear the trademark of a reputable company. A discussion of the laws of civil liability for negligence is beyond the scope of this paper. However, it should be appreciated that, depending on the circumstances and actions taken by a dentist, prosecution by Health Canada for contravention of the Canadian Food & Drugs Act is possible for using unapproved and unsafe dental materials on a patient. Penalties can include both fines and imprisonment.

Dental products implanted in patients are typically classified as Class III or Class IV Medical Devices. Manufacturers must obtain a medical device license before selling such a product in Canada. The manufacturer must provide information including tests and studies to satisfy Health Canada of the safety, effectiveness and quality of the dental product before being authorized for sale in Canada. An authorized distributor must obtain an establishment license before distributing an approved medical device in Canada. Health Canada maintains a list of distributors having a valid establishment license. This list is accessible on Health Canada’s website. Dentists should consult this list to confirm that any distributor with whom she or he deals has a valid establishment license.

While a dentist is not personally required to obtain an establishment license to provide a dental material in the treatment of a patient, he or she does face potential prosecution under the Food & Drugs Act if the dental material is not covered by a medical device license or does not emanate from a distributor having an establishment license.

Section 20 of the Food & Drugs Act is worded very broadly to prohibit the sale of any medical device that deceives the ultimate purchaser into believing that the product is safe. This could arguably include a situation where a dentist uses a medical device such as a filling, crown, implant or other material on a patient. It could be argued that the dentist is effectively “selling” the medical device to the patient as part of the overall treatment plan. This section provides as follows:

20. (1) No person shall label, package, treat, process, sell or advertise any device in a manner that is false, misleading or deceptive or is likely to create an erroneous impression regarding its design, construction, performance, intended use, quantity, character, value, composition, merit or safety.

Section 2 of the Food & Drugs Act provides as follows:

2. In this Act,

“sell” includes offer for sale, expose for sale, have in possession for sale and distribute, whether or not the distribution is made for consideration;

The Food & Drugs Act provides penalties including fine and imprisonment for its contravention. Section 31 of the Food & Drugs Act provides as follows:

31. Subject to section 31.1, every person who contravenes any of the provisions of this Act or of the regulations made under this Part is guilty of an offence and liable

(a) on summary conviction for a first offence to a fine not exceeding five hundred dollars or to imprisonment for a term not exceeding three months or to both and, for a subsequent offence, to a fine not exceeding one thousand dollars or to imprisonment for a term not exceeding six months or to both; and

(b) on conviction on indictment to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding three years or to both.

It is important for dentists to appreciate the importance of diligently ensuring that dental materials that they purchase for use on patients are licensed for use in Canada as a medical device. Additionally, dentists should only buy dental materials from d
istributors having a valid establishment license in Canada. It is not safe for a dentist to rely on the fact that dental materials purchased from a distributor were produced by a reputable company and bear its trademark. In view of grey good importation activities, more thorough diligence is required. Beyond potential civil liability and disciplinary action by the Royal College of Dental Surgeons, dentists could face prosecution from Health Canada for using unsafe medical devices on patients. In view of all of these issues, it is clear that significant care must be exercised when purchasing dental materials.OH

Oral Health welcomes this original article.

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