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Canon v. Gray Market Retailers: One Settled & One Grinding Toward Trial

It’s been quite some time since we’ve had an update on the lawsuits Canon USA brought against Get It Digital, LLC and F&E Trading, LLC over their gray market sales of Canon DSLRs. Finally, we’re starting to get somewhere with one case dismissed (likely due to a settlement) and one case in the depths of discovery, grinding toward trial.

As a refresher, Canon USA filed a civil lawsuit in October 2015 against a couple major ebay resellers of Canon DSLRs. All the ridiculous deals you see on Canon cameras and lenses on ebay come from just a handful of big, gray market importers, two of which were Get It Digital, LLC and F&E Trading, LLC. Canon sued those companies alleging a number of legal transgressions, the most promising of which was trademark infringement brought under the Lanham Act due to the material differences in the product, accessories and warranty provided. You can get completely up to speed on the underlying issues and case progression through mid-2016 starting with this link.

Canon USA v. Get It Digital, LLC Dismissed (or Settled)

An order dismissing the Canon USA v. Get It Digital lawsuit was entered by the court in June 2016. This was in response to a joint stipulation by both parties to dismiss the case with prejudice. Reading between the lines, this most likely means the case was settled, which is what I predicted early on in the case. While the terms of the settlement agreement are not public, we can assume that it probably looks a lot like the settlement agreement in the lawsuit Olympus previously settled with F&E Trading, LLC. In the mean time, it looks like Get It Digital has ceased operations with a barren ebay storefront. In short, Canon won.

Canon USA v. F&E Trading is on Track for Trial

1. F&E Trading’s Owner is on the Hook as an Individual

In a previous update, we saw that Albert Houllou, as the president and CEO of F&E Trading, LLC, was named individually in the lawsuit. Houllou subsequently moved to dismiss himself personallyfrom the lawsuit. In January 2017, the judge denied that motion and bypassed the need to pierce the corporate veil. Instead, the court found that his actions as a corporate officer of the various companies were enough to make direct claims against him for violating trademark and unfair competition under the Lanham Act and New York common law.

2. F&E Trading’s Counterclaim Against Canon Stands

In its Answer (a legal response document) to Canon’s Complaint that initiated the lawsuit, F&E Trading filed a counterclaim and sought a declaratory judgment regarding its disclaimers that the Canon products it sold were or could be gray market products. Essentially, F&E Trading is asking the court to “declare” that its use of disclaimers on its websites and commerce channels (e.g., ebay) are sufficient to avoid a likelihood of confusion and other associated violations of trademark law. Canon, in turn, filed a motion to dismiss the counterclaim, which the court denied.

This means if Canon loses its lawsuit, F&E Trading could set some precedent by winning a declaratory judgment that its “gray market disclosures” are good enough to avoid future lawsuits. That would be a worst-case scenario for Canon and would provide a roadmap of sorts in how to sell gray market products without getting busted.

3. Discovery Requests are Getting Testy and Expensive

For the bulk of 2018, the two parties have been locked in a battle of competing discovery motions. Essentially, Canon’s attorneys want more details about the business as it relates to the sale of Canon products and F&E Trading’s attorneys want to limit the same. On October 16, 2018, the court ordered F&E Trading’s attorneys to be more responsive regarding the discovery requests by Canon and set a timeline for certain tasks to be accomplished. Notably, F&E Trading now has to provide its inventory of all Canon products every six months. The final deadline for the completion of fact discovery is now March 22, 2019.

4. Looking Ahead Toward Trial

This case could continue to drag on for many more months before trial or settlement. All the while, F&E Trading is continuing to offer substantially-discounted Canon DSLRs for much less than authorized resellers in the US.

As more and more facts trickle out in the court documents, I think Canon looks to have the upper hand. I would still love to see a case like this make its way to trial and, if we’re lucky, to appeal. However, the facts are getting messy for F&E Trading and it looks like Canon smells blood in the internal communications at issue in the discovery requests. If there are any instances of under-handed dealing with customers on warranty requests or general customer service that show up in F&E Trading’s communications, Canon will likely have its smoking gun.

What’s for certain is that there are hundreds of thousands of dollars being spent on attorneys’ fees in this case. However, there are millions of dollars in sales up for grabs by both Canon USA and F&E Trading.

I wouldn’t expect to see a settlement happen this year now that we’re in the middle of Q4; however, depending on how F&E Trading’s counsel feels the facts are shaping up, that could very well happen in Q1 2019. I believe Canon is committed to seeing this through with nothing short of complete surrender in a settlement agreement – unless we get into a post-discovery phase and F&E Trading has some success on a motion for summary judgment.

In all of the motions to dismiss so far, the court has only been evaluating the law as it relates to allegations. Once Canon gets all the documents and testimony during the discovery phase, the parties will then start arguing about specific facts and more interesting details will start to surface in the pleadings. Specifically, we’ll learn whether or not F&E Trading looks like a bad actor in its gray market dealings . . . but we’re still many months away from that happening. At that point, we’ll have a better idea of when or if a trial will actually happen.

Unless something extraordinary happens, look for another update on this case sometime in the first half of 2019.

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