Caterpillar Inc. Cat seeks used-excavator ban.

Caterpillar Inc. is asking an administrative court in Washington, D.C., to grant it the exclusive right to bring into the U.S. used, foreign-made excavators bearing the Cat label. Facing off against the Peoria, Ill.-based giant are five equipment dealers who say Cat has no business meddling in the business of pre-owned machinery.

As a fast-paced lawsuit before the International Trade Commission gears up for trial, the defendants in a case originally lodged against 21 dealers are speaking out against what they call "sham" legal maneuvers by Cat to control the pre-owned market. A decision could be issued as early as December.

Caterpillar "would like to control a machine, right or wrong, from the time it¹s born to the time it dies,² says Jack Lyon, president of Alex Lyon & Sons Inc. of Syracuse, N.Y., a defendant.

Caterpillar "thinks they have everybody by the balls," adds Gregg Hoss, president of Hoss Equipment, an independent dealer in Irving, Texas, and defendant. "This is an attempt by Caterpillar to get the U.S. government to help them monopolize the trade," he says.

Cat filed the suit last August under Section 337 of the Hawley-Smoot Tariff Act of 1930, which protects producers from unfair trade. It claims that "gray" products, or unauthorized items brought into the U.S. because of price differences or currency exchange rates, are protected.

Cat is seeking a general exclusion order that would prohibit unauthorized trade of Cat-made hydraulic excavators. U.S. Customs officials enforce ITC exclusion orders by seizing illegal imports at the border.

Independent dealers, which don't sell new Cat equipment, argue that Cat is inhibiting free trade "because they know there is money to be made in the used market," says Adam Greenberg, senior vice president of Houston-based Worldwide Machinery Inc., a defendant.

"If Cat wants to shut down the gray market, all they have to do is stop price-gouging the U.S. customer," adds Lyle Vander Schaaf, a Washington, D.C.-based lawyer for defense firm Bryan Cave LLP.

Trademark law is at the heart of most gray market cases; however, complaints usually center on new machines. But used machines also could open up manufacturers to "regulatory noncompliance and potential safety issues," Cat says in a statement. In its complaint, it cites problem units that lack emission controls and safety features, such as back-up alarms.

Defendants argue that Cat is trying to inhibit free trade. The suit "is a safety and brand protection issue, not a free trade issue," counters Cat.

The court ultimately will have to decide what constitutes "materially different" features between excavators designed for the U.S. and those sold abroad. Cat makes a wide range of excavators in Belgium, Brazil, China, France, Japan, U.K. and U.S.

Virtually all of the machines' features are similar, dealers say. For example, most machines have engine stickers that denote U.S. compliance, making regulatory claims a weaker argument than in the past, lawyers note.

There are some exceptions. Machines made for Southeast Asia, where safety and emission controls are held to a lower standard, may have trouble competing in the U.S. and may even be illegal to import and operate. Cat "can't afford to bring our [clean diesel] technology to China," admitted Cat Chairman and CEO Jim Owens at an equipment conference earlier this year.

Another issue is what lawyers call a "clean-hands" standard that calls into question whether or not Cat and its authorized dealers regularly dip into the...