Brands that sell goods on eCommerce websites such as Amazon, eBay and Walmart have undoubtedly been confronted with the issue of unauthorized resellers. Unauthorized resellers damage a company’s brand, tarnish the company’s reputation and cut into profit margins. Brands attempting to stop these unauthorized resellers have also undoubtedly been met with the First Sale Doctrine defense.
What is the First Sale Doctrine Defense?
The First Sale Doctrine stands for the proposition that a person can buy a product and resell that product, using the brand’s trademarks without any type of infringement. This assumes, however, that the resold products are the same as genuine products sold by the brand. Courts have consistently held that the First Sale Doctrine is not absolute and that there are exceptions to this general rule.
One such exception is known as the quality control exception. Courts have held that the First Sale Doctrine does not apply where a reseller fails to abide by a company’s quality controls – the rationale being that while a reseller may have initially purchased a genuine product, if the reseller does not handle, store and ship the products under the same conditions as the brand, then the product received by the ultimate end-user is no longer genuine.
Brands Should Abide by Quality Controls
All brands, particularly those in the eCommerce space, should implement, document and abide by quality controls for the sale of their products. Not only do quality controls generally assist with brand development, but they can be used to overcome the First Sale Doctrine by establishing differences between genuine products and products sold by unauthorized resellers. Quality controls should be tailored to product in question. They can be as simple as requiring product inspections or ensuring that products are stored in climate-controlled facilities. It could also be requiring some sort of customer support services with respect to the products. The more specific to the product, the better.
After implementing quality controls, brands need to document them. A brand’s reseller and distributor agreements should require those sellers to abide by all such quality controls. Brands should document these quality controls in their internal policies as well, such as in employee training manuals.
Finally, brands need to actually abide by the quality controls. It is not enough to just put these quality controls in a document or policy, they actually need to be put into practice.
If your brand needs assistance with implementing quality controls or combatting unauthorized resellers, contact Alex Jones (AEJ@kjk.com; 216.736.7241) or another attorney within KJK’s eCommerce and Brand Protection practice group.