In the ever-expanding landscape of e-commerce, the presence of unauthorized resellers can pose significant threats to a brand’s reputation and bottom line. Brands should take a proactive approach in combatting unauthorized resellers.
Understanding Unauthorized Resellers
Unauthorized resellers are individuals or entities that engage in the resale of a company’s products without proper authorization. This unauthorized distribution can lead to a host of problems, including dilution of brand equity, loss of control over pricing, and potential damage to customer relationships due to substandard products or service.
The First Sale Doctrine Defense
The First Sale Doctrine, a legal doctrine rooted in copyright law, allows the purchaser of a copyrighted or trademarked item to resell that specific item without the need for the original owner’s consent. While this doctrine provides certain protections to unauthorized resellers, it is far from absolute, and brands can implement programs to overcome First Sale Doctrine defenses.
Overcoming First Sale Doctrine Challenges
Brands need to implement policies and procedures to create material differences between their products and products sold by unauthorized resellers. These do not necessarily need to be physical differences. Courts have made clear that non-physical differences can amount to material differences.
- Quality Controls: Brands should put in place quality controls for how their products need to be handled, shipped and stored, and they need to require their authorized resellers to abide by those quality controls. Unauthorized resellers who do not abide by such quality controls are then deemed to be selling materially different products.
- Warranty Policy: Brands should also consider implementing a warranty program with respect to their products that only applies to products sold by the brand or its authorized resellers. Therefore, products sold by unauthorized resellers do not come with the warranty and again, such products are deemed materially different.
- Educate Consumers: It is also beneficial to launch educational campaigns to inform consumers about the risks associated with purchasing from unauthorized resellers. It should emphasize the lack of quality controls, warranty support, and the authenticity of products sold outside of authorized channels.
Creating a Program to Combat Unauthorized Resellers
1.) Implement Robust Intellectual Property Protection
The foundation for combatting unauthorized resellers is rooted in intellectual property. It is imperative that a brand registers its trademarks and copyrights. Intellectual property serves as the basis for claims against unauthorized resellers, and registered trademarks and copyrights allows for enhanced legal recourse.
2.) Establish and Enforce Strong Distribution Agreements
Once a company’s intellectual property house is in order, the next step is establishing clear and comprehensive distribution and reseller agreements with authorized retailers. These agreements should explicitly outline the terms and conditions of resale, including restrictions on selling to unauthorized third parties, and it should include any quality controls and warranty terms.
3.) Employ Technology Solutions
Brands should leverage technology to monitor online marketplaces and identify unauthorized resellers. Advanced software tools and monitoring services can help track the distribution channels of a company’s products and promptly detect any unauthorized activity.
4.) Cease and Desist Notices
Once a brand identifies unauthorized resellers, we recommend issuing cease and desist notices demanding the unauthorized reseller take down its listing and forever cease selling. We find unauthorized resellers are most responsive to clearly articulated legal reasoning as to why their sales amount to intellectual property infringement and the consequences they face if they continue to sell.
5.) Investigate Legal Remedies
If cease and desist notices prove ineffective, consider pursuing legal action. This may involve filing lawsuits for trademark infringement, copyright infringement, or other applicable causes of action to protect your brand’s integrity.
Implementing Strategies
The battle against unauthorized resellers requires a multi-faceted approach that combines legal, technological, and strategic measures. By implementing these strategies, businesses can protect their brands, maintain control over product distribution, and overcome the challenges posed by the First Sale Doctrine. If your brand needs assistance in combatting unauthorized resellers contact Alex Jones (AEJ@kjk.com; 440-832-0599) or one of KJK’s eCommerce attorneys.