Not every brand protection problem involves a counterfeit. Sometimes the product on the shelf is entirely genuine, yet it is being sold in a country the brand did not plan for, by a seller it did not authorise, or far below the intended price. This situation — called the grey market, parallel trade or channel diversion — rests on different legal and operational ground from counterfeiting. Even so, it can affect a brand's pricing structure, dealer network and customer experience at least as much as counterfeiting does.
The concepts
- Grey market: genuine products sold outside the brand owner's authorised distribution channel.
- Parallel trade: genuine products bought in one market and moved to another to be sold there without the brand owner's consent.
- Channel diversion: stock set aside for a particular channel — for example products allocated to a specific country, a corporate customer, a tender buyer or a discount programme — being redirected to another channel.
What all three have in common is that the product itself is genuine. The problem lies in the path it took.
How it arises
There is usually an economic gap behind channel diversion:
- Price differences: differences in list prices, taxes or exchange rates between countries or channels make buying in one place and selling in another profitable.
- Volume incentives: target-based discounts can lead dealers to take more stock than they need and pass the surplus to other channels.
- Specially priced channels: products set aside for corporate sales, tenders or export can come back to the domestic market or go to another one.
- Online sales: marketplaces make it easy for unauthorised sellers to reach a wide audience with products gathered from various sources.
- Returns and stock clearance: returned products, end-of-season stock or products due for destruction can leak into uncontrolled channels.
Why it causes harm
- Pricing and dealer structure: authorised dealers have to compete with low-priced products from other sources; their motivation to invest and to provide service weakens.
- Product suitability: a product made for another market may have labelling, a user-manual language, warranty terms or a formulation that does not match the destination market's expectations.
- Storage and transport conditions: in uncontrolled channels there is no knowing how the product was stored. For temperature-sensitive products in particular, that turns into a quality risk.
- A screen for counterfeiting: unauthorised channels offer a convenient environment for mixing counterfeits in among genuine products. The 2025 OECD and EUIPO report also notes that counterfeiters are moving towards blending into legitimate trade flows rather than covert smuggling.
- Loss of data: when where and to whom a product was sold is unknown, demand planning, recalls and warranty processes all weaken.
The legal framework: not every grey product is an infringement
The first step in tackling the grey market is understanding correctly what can be prevented in law. The key concept here is exhaustion of rights.
The EU: regional exhaustion
Under Article 15 of Regulation (EU) 2017/1001 on the European Union trade mark, a trade mark proprietor cannot rely on the trade mark to prohibit its use in relation to goods that have been put on the market in the European Economic Area (EEA) by the proprietor or with their consent. Legitimate reasons, such as the condition of the goods being changed or impaired after they were put on the market, form the exception to that rule.
In its 1998 Silhouette judgment, the Court of Justice of the European Union held that member states cannot provide for exhaustion in respect of goods put on the market outside the EEA. As a result, while parallel trade within the EEA is in principle free, bringing goods put on the market outside the EEA into the EEA without the proprietor's consent can be prevented through the trade mark.
Türkiye: Article 152 of the Industrial Property Law
Under Article 152 of Industrial Property Law No. 6769, once products covered by industrial property protection have been put on the market by the right holder or by third parties with their consent, acts relating to those products fall outside the scope of the right. The trade mark proprietor nonetheless retains the right to prevent the commercial use of those products where they have been changed or impaired by third parties.
Unlike the EU provision, the text of the article contains no geographic limit on where the products were put on the market. Because the effect of that difference on a specific parallel import case calls for legal assessment, brands would do well to obtain specialist advice on their own situation.
Contracts and competition law
Where trade mark rights do not reach, distribution agreements come into play. In the EU, the Vertical Block Exemption Regulation 2022/720 keeps within the exemption restrictions on sales by members of a selective distribution system, and by their customers, to unauthorised distributors in the territory where that system operates. For the exemption to apply, neither the supplier's nor the buyer's share of the relevant market may exceed 30 per cent; the regulation runs until 31 May 2034. Designing contractual restrictions in a way that complies with competition law is a separate field of expertise.
The practical consequence of this framework is that the effect of legal and contractual tools against the grey market depends largely on being able to prove where, and by whom, the product was put on the market. And that is directly a data problem.
How traceability data makes diversion visible
Regulators have used this logic for a long time. In Türkiye, the Pharmaceutical Track and Trace System records the inbound and outbound movements of every medicine pack and follows the product's latest location and status in real time. The EU's rules on falsified medicines likewise require wholesalers to verify returned products and products coming from outside authorised sources. The same principles can be applied in sectors where no legislation requires them:
- Matching units or batches to dealers: if the serial or batch number shipped to each dealer is recorded at the moment of despatch, the point of exit for a product found in the market can be traced backwards.
- Linking packaging levels: linking individual products to cases and pallets, as defined in GS1's EPCIS standard, makes it possible to keep records at shipment level without scanning each item.
- Watching the geography of reads: a product allocated to one market being read in another country or region is the clearest sign of diversion.
- Looking at time patterns: a product appearing at a point much earlier or much later than expected can indicate that it took an unusual path.
- Separating repeated reads from single reads: the same code read many times in different places points to copying, while a single read in an unexpected market points to channel diversion. That distinction makes it possible to support the legal difference between counterfeiting and the grey market with data.
- Linking online test purchases: when the code of a product bought from an unauthorised seller is read, the dealer it was shipped to becomes clear and the matter can be handled within the contractual framework.
Points to watch in practice
Data is only useful when it is collected consistently. Dealer agreements need to define how chain-of-custody records will be kept, field staff and dealers who will carry out scans need to be brought into the process, and the data collected has to be designed in line with data protection legislation. Which products to start with is an important decision too; the product groups where the price gap is largest and diversion most frequent are a natural starting point.
Spectrace's solutions are aimed at providing exactly this visibility. The Tagvex secure label records every change of hands from the production line to the warehouse, the dealer and the customer through unique numbering at batch or unit level; reads in unexpected places or repeated reads are noticed thanks to those records. Authex monitors unauthorised sellers on marketplaces and social media and documents the findings. Verification can be done by staff, dealers and customers with the mobile app on a smartphone.
Conclusion
The grey market and channel diversion often go unnoticed because the product is genuine, and they are subject to different legal rules from counterfeiting. The strongest tool a brand has is data showing the path the product took. When records at unit or batch level, chain-of-custody information and reads from the field come together, both contractual and legal steps rest on concrete ground.
Sources
- EUR-Lex, Regulation (EU) 2017/1001 on the European Union trade mark, 2017
- EUR-Lex, Silhouette International Schmied v Hartlauer (C-355/96), 1998
- Legislation Information System, Industrial Property Law No. 6769 (Turkish), 2016
- EUR-Lex, Commission Regulation (EU) 2022/720 on vertical agreements, 2022
- OECD/EUIPO, Mapping Global Trade in Fakes 2025, 2025
- TİTCK, Pharmaceutical Track and Trace System (İTS) (Turkish), 2026
- EUR-Lex, Commission Delegated Regulation (EU) 2016/161 on safety features, 2016
- GS1, EPCIS and CBV, 2026
