What to do about an infringement suit?

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What to do about an infringement suit?

I operate a small business on ebay. I buy products from legitimate online retailers during big sales or clearance and sell for a profit. Yesterday I received a non-certified letter from a law firm stating that they represent the parent company of some of the products I sell. They claim my resale is tortious as I am not an authorized dealer and that my purchase from companies that are authorized dealers for resale is “inducing” them to infringe on their contract

Asked on March 4, 2014 under Business Law, Florida


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Companies spend significant funds to develop, manufacture and market new products for sale into the marketplace.   While a company may begin with direct sales via its website and its sales team, it may eventually implement a network of resellers to more rapidly grow sales.   Authorized resellers typically follow the company’s polices with respect to use of its trademarks and maintenance of the quality of these products.   However, unauthorized resellers have utilized the Internet and online stores to sell these genuine products without authorization and without following the company’s policies.  The actions of the unauthorized resellers can damage the company’s overall sales as well as its brand and goodwill.

Operating without traditional brick and mortar store operations, these unauthorized resellers have low overhead as a result of using only their websites and online stores such as Amazon® and eBay®.   They are able to offer the company’s genuine products at lower prices, and they can decide not follow the company’s policies regarding trademarks and quality.  They also have some ability to hide their identity and become more difficult to identify.

Several clients have recently experienced an increase in unauthorized online resales.  Accordingly, a review of several steps to combat the unauthorized resellers is in order.   To place some limitations on the activities of unauthorized resellers, a company must implement a strategy that involves intellectual property protection and post-sale services policies.

Trademark infringement claims can be brought against a party that uses a trademark in such a fashion to cause a likelihood of confusion between the goods of the parties and the origin of the goods associated with the mark.  Trademark claims can also be brought in connection with false designation of origin and false description.  But the first sale doctrine bars such claims against a party who resells genuine trademarked products.   In the case of the typical reseller, the reseller would simply stock, display and resell the products under the manufacturer’s trademark.  In such cases, the right of the manufacturer to control resale of its trademarked product does not generally extend beyond the first sale.

However, there are exceptions to the first sale doctrine.  A company can use these exceptions in connection with issues that arise with the unauthorized resellers.  First, a materially different product is not genuine and may generate consumer confusion about the source and the quality of the trademarked product – so there can be trademark infringement.  To be material, a difference must exist between the authorized and unauthorized goods that a consumer would be likely to consider when purchasing the product.  Material differences can be non-physical and physical.

Non-physical differences include differences in warranty protection applicable to authorized versus unauthorized genuine products.  Fender Musical Instruments v. Unlimited Music Center, 35 USPQ.2d 1053 (D. Conn. 1995).  Accordingly, a company may limit its warranty for genuine products that are purchased via an unauthorized reseller.  Non-physical differences also include differences in post-sale services for authorized versus unauthorized products.

Physical alterations to packages of unauthorized goods can be materially different – such as removal of reference numbers, serial numbers, bar codes and batch codes.  Davidoff & Cie, SA v. PLD Int’l. Corp., 263 F.3d 1297 (11th Cir. 2001) (dealing primarily with removal of unique bottle by bottle identification etched into bottle).  Removal of serial numbers and replacement with reseller numbers could be materially different.  Beltronics v. Midwest Inventory Distribution, 562 F.3d 1067 (10th Cir. 2009). Midwest wanted to prevent Beltronics from discovering that it had purchased its inventory from two authorized resellers for resale on eBay, so the distributors removed the serial numbers and replaced them with phony serial numbers or they simply removed the original labels altogether.   Beltronics’ policy was that only products with its original serial numbers were eligible for services such as upgrades, rebates, service assistance, warranties and recalls.

Second, there are quality control exceptions.  As an example, the sale of expired or past shelf life Mary Kay® branded products, in contravention of Mary Kay’s quality control standards, have constituted trademark infringement.

Copyright infringement claims can also be brought against a party who uses another’s work of authorship without a license or approval.  The copyright owner has the exclusive right to copy, distribute, make derivative works of, public perform and publicly display the work.  For example, works of authorship with respect to the unauthorized reseller could include images of products taken and owned by a company and text prepared by a company for use in marketing materials.  The unauthorized reseller would be blatantly copying these items and using them on his posts – whether on his website or an online store like eBay or Amazon.

In conclusion, to deal with unauthorized resellers, a company can develop a clear policy of the post-sale services that it provides for genuine products sold via its authorized reseller network.  Post-sale services can include warranty protection, help desk support, repairs, product recalls and product updates.  The policy should be posted online and made available by other means.

Answer: I suggest that you consult with a business attorney in your locality. Once can be found on attorneypages.com. From what you have written, if yiu bought the item honestly and wish to resell it, I see no reason why you cannot.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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