unauthorized, online dealers robert w. payne ©2009 lariviere, grubman & payne, llp...
TRANSCRIPT
UNAUTHORIZED, ONLINE DEALERS
Robert W. Payne©2009 LaRiviere, Grubman & Payne, LLP
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Introduction
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• Recent developments re unauthorized dealers• Rise of online dealers of “genuine,” new goods• US Supreme Court decision 2007 striking down per se vertical pricing restraints with dealers
• Focus today on sales of allegedly new, genuine goods by unauthorized dealers & unauthorized sales by authorized dealers• Not on:
• Counterfeit• Infringing – from another source• Used product resale
The Problem
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• Online sales by e-tailers – free riding and minimal overhead: no investment in customer service & promotion required of dealers but benefit from ads • Undercutting authorized dealers on sales, who can’t compete well
• Undermining mfr-dealer relationships • Affects mfr preferences and strategy for initial sale and treatment of products/channels of trade
• Increased commoditization of branded goods, competing only on basis of price
The Problem – Authorized Dealer Investment
• Manufacturer/producer (Dell computers, Nunn Bush shoes) may want dealers to make substantial investment to meet consumer demand and grow in areas of:• Installation• Servicing• Product demonstrations• Show rooms• Sales personnel & staffing• Training• Retailer advertising
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New vs. Used Products – The Terrain
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• “Used” and the 1st Sale Doctrine
• “New” – genuine products & unauthorized dealer
• How the unauthorized dealer gets “new” product • Resale – out the front door• Liquidated, discontinued, seconds, returned• Out the back door (off-shore “auth’d” mfr, etc.)• Gray market• Stolen in quantity
The Terrain – the Dealer-Distribution Agmt
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• In addition to issues with downstream seller
• Contract provisions with dealer• transshipments• channels of trade (internet sales?)• liquidation vs. return for credit to producer• training, promotion assistance• product familiarization
• Contract provisions with ex-dealer• less concerned with being “cut off”• left with inventory – sell-off provisions?
Nothing is Per Se Improper About Being an Unauthorized Dealer
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• Genuine goods, bearing true mark
• No IP basis to block
• Usually no contract privity
• Need “something more”
Trademark Infringement Theory: First Sale Doctrine
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• Obstacle to infringement when sale of genuine goods with actual brand: first sale doctrine
• Doctrine: Rights of trademark owner extend only to first sale, not the resale of genuine goods in unchanged state
• Rationale: Implied license that buyer of branded goods can resell. TM owner got value from first sale.
Trademark Infringement Theory: Exception to First Sale Doctrine
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• Gray market goods analogy (imported w/o consent)
• First sale doctrine does not apply when goods materially altered/different from authorized goods
• creates confusion over source & loss of good will• are not considered “genuine” because are “confusingly different”
• 2nd Cir: also differences in quality control stds
Trademark Infringement Theory: Material Difference Standard as Exception
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• Defined broadly – any that consumer would likely consider relevant
• Physical differences – tangible product quality, e.g.
• battery life • variety, presentation & composition of chocolates• formulation, content of cigarettes• packaging (batch codes, container shape, labeling)
Trademark Infringement Theory: Material Difference Standard as Exception, p.2
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• Non-Physical Differences – intangible qualities, e.g.• warning and safety labels, operator manuals, service plans• warranty protection (no warranty or invalidated by online sale)• differences in available services (Cabbage Patch Dolls speaking Spanish, w/out birthday card)
• Low threshold for materiality (subtle differences)
Trademark Infringement Theory: “New”
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• Implications when selling “new” product• says is “new”• implies is “new”
• If unauthorized re-seller tells full truth about product (e.g., not covered by warranty, imported and differently bottled/labeled) – eliminate possible confusion as to origin/sponsorship/quality?
Fair Use by Unauthorized Dealer
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• Trademark infringement defense
• Irrespective of first sale doctrine defense
• Right to truthfully inform (but not confuse re quality/affiliation) as to dealership specializing in these products
• E.g., “Independent VW Service”; “We sell used HP products.”
• Problems with prominence of use – affiliation?
Copyright Infringement Theory: Types
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• Unauthorized sellers will use:• images of products taken by manufacturer• blocks of original text written by manufacturer• logos of manufacturer (cf. trademark infringement too)
• Ease in circumvention, after take down
Copyright Infringement Theory: Advantages
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• Useful tool when can assert this theory – weapons
• In addition to injunctive relief, remedies include:• DMCA take down notice – off the website• Actual damages and profits of infringer• Possibly statutory damages ($750-$30,000) for each Work, without proof of causation• Statutory: $150,000/Work max if willful infringement• (How many Works?)• Potentially costs and attorneys’ fees
Copyright Infringement Theory: Registration
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• Potential problem – Work already registered?
• 17 USC Sec. 411 – No action until registration
• Consider registering important works now, before infringement
• Registration, or application to register enough?• Some courts (10th, 11th Cir., ND Cal, CD Cal) –registration is a prerequisite• 5th Cir (Texas) & SDNY –application OK
Copyright Infringement Theory: Misc.
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• Expedited registration – costly but can be done
• Copying vs. hyperlinking – latter is usually not infringement (no copying, directed to legitimate owner)
• First sale doctrine and copyright – similar to trademark
• material alteration defeats defense• gray market wrinkle: goods originally made & sold in US (defense if made in US, exported & re-imported)
Non-IP Legal Theories
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• Unfair competition (federal and state)
• Interference with contractual relations
• Breach of contract
• Violation of Warranty Statutes
• Antitrust & minimum pricing
• Franchising laws
California Unfair Business Practices (B&P Section 17200 et seq.)
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• A form of unfair competition
• Includes unlawful business practices, unfair business practices, fraudulent business practices
• Also includes “misleading advertising”, e.g. stating:• covered by manufacturer’s warranty• is an “authorized dealer”• goods are “new”
• Must suffer “injury in fact”
False Advertising Under Lanham Act – Section 43(a)(2)
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• Another form of unfair competition
• E.g., calling/implying product is “new” if material alteration
• 43(a)(2) – misrepresentation/misleading re• nature or qualities of goods, or• nature of affiliation or sponsorship of seller
Interference with Contractual Relations
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• Not party to contract between producer/mfr and distributor
• Interference with prospective business advantage; interference with contract
• Key– “wrongful” conduct by defendant (e.g., proscribed by statute, common law) in interfering
• Unauthorized seller selling below minimum authorized price set by contract with dealers? Interferes with sales, causes discounts.
Breach of Contract
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• Between manufacturer/producer and (former?) authorized dealer
• Breach of dealership agreement
• Termination rights if current dealer + other remedies
• Specific obligations not otherwise mandated in law
Breach of Contract – Special Issues
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• Injunctive relief? Enjoining a breach – CC 3423(e)
• Attorneys’ fees if contract provides – harder with Lanham Act
• Clear provision breached or implied in fact/course of dealing/industry custom terms?
• Contract formation: statute of frauds if oral contract; parol evidence (CCP 1856) – varying terms or supplementing
Statutory Violation of Warranty Laws
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• California Civil Code sec 1797.8 & 1797.81 (enforce through B&P sec 17200)• Definition of “gray market – express warranty; imported other than through auth’d distributor without valid US warranty•Duties – must “post” at POP and “affix to product/ packaging” conspicuous tag & in advertising if not:
• covered by mfr express warranty valid in US• compatible with current/frequencies/other stds• replacement parts/accessories not avail in US• no English instructions • not eligible for rebate
Avenues of Attack Against Unauthorized Dealers
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• Federal court (diversity, federal question) – copyright & venue? Quality control issue needed?• State court (concurrent trademark; no copyright)• Customs – blocking at the border if gray market (or counterfeit or infringing). Need registered mark, copyright.• UDRP takedown of domain name if trademark issue (e.g., dellgoods.com)• ITC complaint if IP infringement -- exclude imports• DMCA “self help” take down
ITC Proceedings – IP Infringement & Imports
• Initiate detailed complaint with ITC with numerous exhibits – 30 days for Commission to decide to launch “Investigation”
• Proceeds much like federal litigation, ending in Initial Determination by administrative law judge, which can become final in 45-60 days
• Shorter time frame to trial• Remedies: cease and desist order, exclusion
order, consent order• No damages
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DMCA Take Downs
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• Copyright issues (only)• Written notice to ISP per Sec. 512, swearing in good faith that infringement, identifying materials• ISP immunity if complies; notifies posting party• Posting party may file Counter Notice that not infringing• If no suit by Owner within 14 days, ISP restores• Abuse – right to sue for Sec 512(f) violations – damages and atty fees for “bad faith” take downs • Beware of using “unauthorized” seller or for trademark infringement
eBay – VeRO Take Downs
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• Like DMCA but expanded to trademark & patent infringement as well• Give “reason” code• Unlike DMCA, reinstates if Counter Notice and copyright infringement was alleged/denied but not if trademark/patent infringement alleged – needs Owner permission/court order.• Counter Notice – venue & jurisdiction conceded• Black marks from numerous complaints – can be delisted by eBay (& also DMCA)• Other self help measures with ISPs -- contractual
Special Issue – “Unlawful Franchising” Defense
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• Case: Defendant claimed dealer agreement was an unlawful franchise, when attacked as unauthorized dealer
• Franchise agreement – TM owner controls not just use of mark but also instills “marketing system” re methods and mode of sale
• Minimum pricing can be a factor
Special Issue – “Unlawful Franchising” Defense
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• Indicia of a franchise, control by TM owner over:• claim successful marketing plan• uniform marketing terms/sales pitches• terms of payment• collateral services• sources of supply• employee uniforms• hours of operation• appearance of business premises/décor• approval of locations & signage
Special Issue – Antitrust & Minimum Pricing
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• Complaint against unauthorized dealers – interfering with pricing with authorized dealers
• Defense – minimum pricing standards in dealer agreement violates antitrust laws
• Minimum pricing re challenges of intrabrand competition among authorized dealers
• Ensures profit margins for authorized dealers• Enhances producer profits – dealers have sufficient revenue to invest in servicing, show rooms etc.
Minimum Pricing – Rule of Reason
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• Leegin case (2007) – vertical price restraints no longer per se illegal. Look to Rule of Reason re reduction of interbrand competition
• May stimulate interbrand competition by reducing intrabrand competition• Reduction of intrabrand price competition encourages dealers to invest in tangible/ intangible services and promotion, aiding manufacturer’s competition with rivals• Gives consumers more options – discount or value-added brands• Facilitates new mkt entries – dealer investment
Minimum Pricing – Anticompetitive Effects
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• Cartels at retailer level to force manufacturer to help with resale price maintenance – preventing efficient charging of lower prices, by agreement
• Horizontal cartels – mfr or retailer level – decreasing output or competition to increase prices – per se unlawful still
• Forestall innovation in distribution that increases costs
Minimum Pricing – Unilateral Pricing
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• Unilateral pricing policy of manufacturer –
• Colgate S Ct case 1919 says where no agreement manufacturer can refuse to deal with dealer not accepting pricing policy
