In today’s world of ecommerce, companies looking to protect their trademarks, brand and goodwill continue to face increasing challenges. In the past, companies typically faced only having to combat counterfeit goods and violations of their valid copyrighted material in use of selling counterfeit goods. However, as ecommerce has increased, companies now face protecting their trademarks, brand, and goodwill from unauthorized resellers using ecommerce forums to sell non-genuine goods. These unauthorized sellers are not bound by any terms relating to the services offered, quality control of items and have little to no overheard based on where they received the goods and how they are selling them. Because these unauthorized sellers often shield their true identity behind ecommerce sites, identifying, tracking and pursuing violators of valid trademarks has become increasingly difficult. However, the Federal Lanham Act, State Consumer Protection Statutes and Business Unfair Trade Practice Acts offer companies strong protection when protecting its trademarks, goodwill, and brand against third party, unauthorized, resellers.

First Sale Doctrine

Under normal circumstances, the first sale doctrine bars trademark owners from controlling the downstream sale of goods after relinquishing ownership by selling the goods. However, trademark infringement can still arise regardless of the first sale doctrine through two exceptions to the first sale doctrine.

Exceptions to the First Sale Doctrine

The first sale doctrine has exceptions. When properly used, the exceptions help companies protect the substantial monetary investment it made to create, develop, manufacture, and market new products and protect its trademarks and goodwill. The two major exceptions to the first sale doctrine are: (1) material differences and (2) quality control.

First Exception: Material Differences

The first exception to the first sale doctrine is the “materially different product”.  A material difference exists when an unauthorized goods does not have a characteristic that an authorized good has and the characteristic is one a consumer would find important and would likely consider when purchasing the goods. Material differences can be both physical and non-physical.

Non-Physical Material Differences

One of the most relevant non-physical material difference is the lack of a warranty.  Fender Musical Instr. Corp. v. Unlimited Music Center, Inc., 35 U.S.P.Q.2d 1053 (D.Conn. 1995) (stating a material difference occurs where Japanese-made guitars sold by unauthorized dealer were not covered by valid warranty).  Beltronics USA v. Midwest Inventory Distribution, 562 F.3d 1067 (10th Cir., 2009) (stating a materially different trademarked product is not genuine). Overall, a materially different product is not genuine and may create consumer confusion about the source and the quality of the trademarked product.  Beltronics USA v. Midwest Inventory Distribution, 562 F.3d 1067 (10th Cir., 2009) (genuine products that are missing a manufacturer’s warranty are materially different and infringe on the intellectual property owner’s rights when they create consumer confusion about the source and/or quality of the trademark product).  Because there can be confusion as to the source, there can also be trademark infringement.

Physical Material Differences

Physical changes to the packages of unauthorized goods can also create material differences between goods offered by authorized resellers and unauthorized resellers. This material difference occurs when serial numbers, reference numbers, bar codes, batch numbers, logos, or other items have been changed or attached to the packaging. Beltronics USA v. Midwest Inventory Distribution, 562 F.3d 1067 (10th Cir., 2009).  Often unauthorized resellers will cover up or remove all together the serial numbers or bar codes on products in attempt to disguise the  items true source or hinder efforts to validate authenticity. When the physical material differences create confusion as to the source, trademark infringement can occur exempting the item from protection of the first sale doctrine.

Second Exception: Quality Control

The trademark owner has the right to institute quality control measure to protect its trademarks and uphold the goodwill of its brand. While these quality control measures must not be perfunctory. Rather, the quality control requirements must directly correlate to the goods being offered, such as expiration dates on food or makeup.

Dealing with unauthorized resellers takes a clear strategy that includes providing services for genuine products sold through authorized reseller channels and networks that are not provided to unauthorized resellers. These services must include both physical and non-physical services. A company looking to protect its trademark from unauthorized sellers of non-genuine goods should post the policies online and make them widely available to all. The next step is policing trademark violations through use of take-down notices to companies offering ecommerce services to the unauthorized sellers, cease and desist letters, and the use of the court judicial system if needed.

If you have intellectual property you believe is being infringed upon, contact the attorneys at Gzik Law, P.C. to discuss options available to protect your rights.