The scenario is a familiar one – you’re a manufacturer and seller of goods and come to discover unauthorized retailers selling your products at lower prices on websites like Amazon and eBay. These unauthorized resellers undercut your sales, anger your true authorized sellers and harm your company’s brand and your products’ reputation. This is the first in a series of articles aimed at offering solutions to business owners who want to stop current unauthorized resellers and prevent future ones.
Manufacturers understandably want to prevent the unauthorized resale of their goods, but the problem is that reselling goods, in and of itself, is not illegal. It is, however, illegal to resell goods if they infringe on a company’s trademark rights. Trademark infringement claims are among the best tools a company has to address unauthorized resellers. Thus, the first step in combating unauthorized resellers is applying for and registering your trademarks.
However, simply registering a trademark may not be enough. Under what is referred to as the “First Sale Doctrine,” unauthorized resellers are generally permitted to resell genuine products containing another party’s trademark once they have purchased such products, that is, after the first sale. Fortunately, the First Sale Doctrine has limitations.
Unauthorized resellers may not resell products that are “materially different” than the original product. See Davidoff & CIE, S.A. v. PLD Int’l Corp., 263 F.3d 1297 (11th Cir. 2001). This certainly precludes resellers from offering counterfeit or knock-off goods, but it is actually far more expansive. What constitutes a “material difference” has been broadly construed by the courts, and in fact, even small differences have been deemed material.
Courts have held that changes to a product’s formulation, alterations to its packaging and removal of bar codes or SKUs are all material differences. Courts also recognize non-physical differences, which businesses can establish through their own policies. For example, companies can limit their product warranties to only those products sold by the manufacturer. See Beltronics USA Inc. v. Midwest Inventory Distribution LLC, 562 F.3d 1067, 1072 (10th Cir. 2009). Similarly, companies can offer post-sale services only for products purchased directly through authorized sellers.
Any one of these slight, but material, differences can set the groundwork for a valid trademark infringement claim. Business owners should proactively lay this groundwork in order to efficiently and effectively stop unauthorized resellers.
The problem of unauthorized resellers is one that is growing and unlikely to subside given the ever expanding Internet marketplace. If you need support in developing a plan to combat unauthorized resellers or need assistance with registering or protecting your trademarks, contact KJK.
David Posteraro, Partner, Intellectual Property and Cybersecurity & Internet Privacy
Alex Jones, Associate, Intellectual Property and Corporate