A recent federal court decision serves as another reminder to manufactures and brands of the importance and benefits of reseller and distribution agreements. These types of agreements govern the relationship between a manufacturer of goods and the reseller of those goods. Carefully drafted reseller agreements not only help to control a company’s distribution channels, but they can also be used as a weapon to combat unauthorized resellers.
Manufacturers increasingly face the problem of unauthorized resellers on e-commerce platforms like Amazon and eBay. Unauthorized resellers cut into profit margins and upset a company’s authorized resellers. However, in Otter Products, LLC v. Wang, No. 1:18-cv-03198 (D. Colo.), the Plaintiff, cellphone case manufacturer Otterbox, was able to obtain an injunction and an award of $60,000 in damages against the defendant, one of its unauthorized resellers.
Otterbox won this matter, in part, due to its use of reseller agreements. Specifically, Otterbox relied on its reseller agreement to prove tortious interference with a contract. Tortious interference occurs when a third party knowingly induces a party to a contract to breach said contract. Otterbox’s reseller agreements prohibit the sale of its products to consumers who intend to resell the products – such as the defendant in this matter. Otterbox informed the defendant of these reseller agreements, however, the defendant continued to purchase Otterbox products for the purposes of resale, which amounted to tortious interference with the reseller agreement.
All manufacturers should ensure that they have reseller and distribution agreements in place. It is better to be proactive than to wait until a problem with unauthorized resellers arises. These agreements should be tailored to the manufacturer’s business, and they should include specific language which can be used offensively to stop unauthorized resellers.
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