Going to Court: Legal Weapons
If self-help measures are not adequate, using the courts may be necessary. Assuming you can identify the offender and it is subject to jurisdiction in the United States, the following approaches give you weapons to assert against unauthorized, online dealers.
Trademark infringement is the principal weapon brand owners have in combating unauthorized dealers. Without more, however, there is nothing improper about selling genuine product by an unauthorized dealer, insofar as trademark or other law is concerned. The first sale doctrine in both trademark and copyright law bars the brand owner from controlling the downstream sales. But trademark infringement can still arise regardless of the first sale doctrine.
The first sale doctrine provides that one who purchases a branded item generally has a right to resell that item in an unchanged state. The trademark rights of a brand owner are “exhausted” once the particular item has been sold in the market. But there is an exception to that which often applies in the context of unauthorized online dealers: the “material difference” exception.
The first sale doctrine does not protect alleged infringers who sell trademarked goods that are “materially different” from those sold by the trademark owner or its authorized dealers. A material difference from authorized goods creates confusion over the source of the product and results in loss of the trademark owner’s good will. In other words, materially different goods sold by an unauthorized seller are not considered “genuine,” because they are confusingly different.
Courts define “material difference” broadly: it is virtually any difference that exists between the authorized goods and unauthorized goods that a consumer would likely consider relevant when purchasing the product. Even subtle differences apply. As one court put it, “it is by subtle differences that consumers are most easily confused.”
Material differences may include differences in battery life between authorized and unauthorized batteries; differences in the variety, presentation, and composition of product; differences in the formulation, content, and blends of product; alterations to packages such as removal, grinding off, or cutting away reference numbers, SKUs, bar codes, and batch codes; differences in package shape and labels and lack of required warning labels.
Of a non-physical nature, material differences include changes in operator manuals and service plans, and differences in available services for authorized versus unauthorized goods. Perhaps most commonly, differences in warranty protection coverage between authorized and unauthorized sales often lead to trademark infringement.
In some jurisdictions, notably in Second Circuit law, a difference in quality control measures also constitutes trademark infringement of otherwise “genuine” goods under the owner’s mark.
Copyright infringement is the unauthorized copying of a work protected by a copyright registration. In the digital age, it is now simple for unauthorized dealers to blatantly copy images of products taken by the manufacturer or large blocks of text (product descriptions, specification, etc.) written by the manufacturer. Look for unauthorized copying by the dealer on their website or eBay/Amazon listing of images, block text, and logo use. Logos of the manufacturer used in a manner which falsely implies authorization may be copyright infringement and not fair use.
Recently, the Supreme Court made a major pronouncement that mere unauthorized resale of a particular copyrighted item that is imported into the United States is not infringement. In Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1357 (2013), the Court held that the first sale doctrine applies to copies of a copyrighted work (like textbooks) which were lawfully made abroad, sold there, and then imported into the United States for resale as a “new” book. This second sale was held to be beyond the scope of copyright protection. This was a major victory for Costco, eBay, and Walmart, which regularly import gray market goods for resale in the United States. However, that does not bar copyright protection against unauthorized dealers in other respects. The unauthorized copying of images and text does not involve the question of selling the product itself; it instead involves using the copyrighted works on the product.
Recent cases reflect that these principles play out with subtle standards of the quantity of proof required by the manufacturer to trigger copyright and trademark infringement or other liability, even when material differences may exist. See, e.g., L’Oreal USA, Inc. v. Trend Beauty, 2013 U.S. Dist. Lexis 115795 (SD NY 2013) (pretextual vs. non-pretextual standards). Even a slight difference may suffice to establish infringement, the court noted. The effect of removing the seal vector and coding that would be visible to a consumer was open to factual interpretation, however, causing denial of summary judgment.
As is obvious, expertise is needed to appreciate the scope of unauthorized dealership law. Not all jurisdictions have the same standards. Further, as noted below, the issue reaches across a variety of bodies of law and can take place in a forum quite different from federal court.
Other Theories, Other Arenas for Combat
Customs and ITC Proceedings. Combating unauthorized dealers is possible beyond simply DMCA takedowns and federal court actions. If the offender is overseas and exports products into the United States, options exist against U.S.-based distributors. Further, working with the Customs Service and bringing an action before the International Trade Commission (ITC) are also options. Samples of the valid trademark to compare against a trademark infringer can stop goods at the border, where the difference is readily discernible. However, Customs will generally have a hard time barring “genuine,” validly marked goods that originated from the trademark owner. As for the ITC, Section 337 of the Tariff Act declares “unlawful” the importation, sale for importation, or sale after importation of any article that infringes a valid patent or registered copyright or registered trademark. For the above restrictions to apply, an industry relating to the protected articles must exist within the United States or be in the process of being established.
Unfair Competition, False Advertising, and Other Theories. Many unauthorized online dealers use false and/or misleading statements in their online advertisements. For example, some online dealers falsely represent that they are “authorized dealers” or that they are “authorized by leading manufacturers.” Many dealers also represent that the products they sell are covered by the manufacturers’ warranty, while the truth is that many warranties are void when products are sold by unauthorized dealers. These subject the dealer to liability under both the federal Lanham Act and various state “unfair competition” statutes.
Additionally, under certain facts one may allege the common law tort of interference with prospective business advantage or inducement to breach contract. Also, state statutes (as in New York and California) may specifically deal with gray market goods, although those two statutes are markedly different in their purpose.
Service providers, such as eBay, may be liable for contributory infringement with proof that the provider had sufficient notice of the infringing conduct by the direct infringer. Cases brought by Louis Vuitton and Tiffany point out the need for proving clear appreciation on the service provider’s part of the specific activity in question. Generalized notice is not sufficient.
Yet another avenue of attack is to go against one’s own authorized dealers. They may be breaching the terms of their contract with the trademark owner, in selling new product out the back door to unauthorized dealers. This is somewhat cannibalistic, but it can effectively cut off an illicit channel and keep other dealers in line.
The sale by unauthorized dealers of “genuine” goods poses the greatest legal challenge to makers of well-known brands. Manufacturers should implement self-help measures such as instituting an effective warranty policy, or covert tracking measures. Take-down measures through the DMCA and programs like eBay’s VeRO can remove a particular unauthorized sale listed online, at least in its present form.
There is nothing per se illegal about an “unauthorized” sale of “genuine” goods. The first sale doctrine under both trademark and copyright law prohibits brand owners from controlling downstream sales in the first instance. However, such sales can constitute trademark or copyright infringement if material differences exist in the product. One of the more common avenues is to attack such sellers on the grounds that their “genuine” products are not covered by the manufacturer’s warranty, and thus are materially different from authorized goods. Additional remedies can be available under business tort theories such as interference with contractual relations. Further, outside the courts one can approach the Customs Service or seek administrative relief through the International Trade Commission if imported goods are involved.