Why MAP Policies

Fail and What You

Can Do So Your

Policy Doesn’t

Whitney Gibson

Laura Erdman

Who We Are

• Vorys, Sater, Seymour and Pease LLP was

established in 1909 and currently has 375 attorneys

in seven offices nationwide

• Currently ranks as one of the 200 largest law firms in

the U.S., according to American Lawyer magazine

• Vorys has been identified by 17 Fortune 500

companies as a go-to law firm

Vorys Online Seller Enforcement Group

• Developed comprehensive graduated enforcement systems

that many companies use today to address MAP violations,

unauthorized sellers, traffic diversion schemes, misleading

adds, defamation attacks and other online brand threats.

• Works with companies across the country on global

enforcement programs.

• Regularly speaks and writes on strategies for stopping

unauthorized online sales, and other online brand threats,

including the SF ACC, DSA Annual Meeting, DSA Global

Summit, Law360, etc.

Vorys Online Seller Enforcement Team

Whitney Gibson,

Partner

Daren Garcia,

Partner

Laura Erdman,

Associate

Adam Sherman,

Partner

Leslie Allen,

Associate

Jessica Baverman,

Associate

Companies Cannot Efficiently Identify

Authorized Sellers Violating MAP

Need Good Technology

• Sellers play games

• Below MAP nights/weekends

• Will deny violations

• Report reliable results

Key Items to Facilitate Identifications

• Need list of screennames/websites of authorized sellers

• Prohibit anonymous sales

• Online channel restrictions

• Incorporate in online seller agreement/policy

• Ability to subpoena if necessary

Unauthorized Sellers Have a Higher

Tendency to Violate MAP Policies

SOURCE: http://insight.kellogg.northwestern.edu/article/when-retail-prices-cross-the-line

15% of authorized retailers

violate MAP policies

53% of unauthorized retailers

violate MAP policies

Northwestern Study

“Overall, the researchers urge manufacturers

to focus on both authorized and unauthorized

retailers when it comes to MAP violations”

See https://insight.kellogg.northwestern.edu/article/when-retail-prices-cross-the-line

Stopping Price Erosion

Companies Often Do Not Have Valid Legal Claims

Against Third-Party Unauthorized Sellers

MAP

Policy

Law

First Sale Doctrine:

Once a trademark owner sells a product,

the buyer ordinarily may resell the product

without infringing the trademark

Law

Material Difference Exception

What Constitutes a Material Difference

• “The threshold of materiality must be kept low . . .

because it is the subtle differences that consumers are

most easily confused.”

• Only one material difference is sufficient to bring a

trademark infringement claim

• Material differences do not have to be “physical” to

establish trademark infringement

Create Material Difference

This limited warranty applies only to purchases

from authorized [Insert Company] retailers.

Trademark Claim Supported by Case Law

• Material difference found when the non-genuine product is not subject to the same

warranty as the genuine product.

• Bayer Corp. v. Custom Sch. Frames, LLC, 259 F. Supp. 2d 503 (E.D. La. 2003);

TracFone Wireless, Inc. v. Pak China Grp. Co., 843 F. Supp. 2d 1284 (S.D. Fla.

2012); Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067 (10th

Cir. 2009); Fender Musical Instruments Corp. v. Unlimited Music Ctr., Inc., No.

3:93CV2449, 1995 U.S. Dist. LEXIS 15746 (D. Conn. Feb. 16, 1995); RFA Brands,

LLC v. Beauvais, No. 13-14615, 2014 U.S. Dist. LEXIS 181781 (E.D. Mich. Dec. 23,

2014); Heraeus Kulzer LLC v. Omni Dental Supply, No. 12-11099-RGS, 2013 U.S.

Dist. LEXIS 91949 (D. Mass July 1, 2013); Bel Canto Design, Ltd. v. MSS HiFi,

Inc., 837 F. Supp. 2d 208 (S.D.N.Y. 2011); Montblanc-Simplo GmbH v. Staples,

Inc., 172 F. Supp. 2d 231 (D. Mass. 2001).

Customer Service/Repairs

Access to Promotions, Discounts,

Other Programs

Trademark Claim Supported by Case Law

• The fact that the non-genuine product did not inform consumers of

or allow consumers to participate in the company’s promotions

constituted a material difference.

PepsiCo v. Pacific Produce, Ltd., No. 99-1326-PMP-RLH, 2000 U.S.

Dist. LEXIS 12085 (D. Nev. May 4, 2000); PepsiCo, Inc. v. Longmont

Packing, No. 99 D 1077, 1999 U.S. Dist. LEXIS 12811 (D. Colo. Aug. 2,

1999); PepsiCo, Inc. v. Giraud, 7 U.S.P.Q. 2d 1371 (D. P.R. 1988);

Bayer Corp. v. Custom Sch. Frames, LLC, 259 F. Supp. 2d 503 (E.D.

La. 2003).

Law

Quality Controls Exception

Exception #2 – Quality Controls

• “A product is not truly ‘genuine’ unless it is manufactured and

distributed under quality controls established by the manufacturer.”

• “[A] trademark holder is entitled to an injunction against one who

subverts its quality control measures upon a showing that (i) the

asserted quality control procedures are established, legitimate,

substantial, and nonpretextual, (ii) it abides by these procedures,

and (iii) sales of products that fail to conform to these procedures

will diminish the value of the mark.”

Policy For Vetting Potential Retailers

• Review legal claims

• Bankruptcies

• Online reviews

• Any complaints about delivering

damaged/defective products

Policy/Practice for Checking

on Authorized Sellers

• Checking on your authorized retailers to make

sure they are selling quality, non-damaged

• Practice/policy for terminating retailers that sell

damaged or expired products to customers

Policy for Retailers to Remove, Return

Damaged/Defective Products

Prohibit Anonymous Online Sales

Recall Policy

• Involves quickly reaching out to authorized

sellers

• Involves being able to contact customers

through information obtained by authorized

sellers

Policy Reporting Customer Complaints

Proper Storage/Remove Expired Products

Add Provision to Support Tortious

Interference Claim

• Retailers cannot sell to others for purposes of resale.

e.g. Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1235-38 (10th Cir. 2006) (affirming $500,000 damages award for tortious interference with a dealer agreement)

Legal Claims Against All Unauthorized Sellers

We make subtle revisions to

retail agreements to create:

1) Material differences;

2) Differences of quality

controls; and

3) Tortious interference with

contract claims.

MAP

Policy

Enforcing MAP in Traditional Model

Manufacturer

Unknown Reseller

Reseller

Manufacturer

Distributor Distributor

Reseller Reseller Reseller

MAP Policy & Enforcement MAP Policy & Enforcement

Uncontrolled Distribution

Manufacturer

Distributor

Unknown Reseller

eBay Jet Other 3P

Marketplaces

Unknown Reseller

eBay Jet Other 3P

Marketplaces

Unknown Reseller

eBay Jet Other 3P

Marketplaces

Unknown Reseller

eBay Jet Other 3P

Marketplaces

Unknown Reseller

Distributor

Unknown Reseller

eBay Jet Other 3P

Marketplaces

Authorized Reseller Program

Manufacturer

Distributor Distributor

Authorized

Reseller

Authorized

Reseller Authorized

Reseller Authorized

Reseller Authorized

Reseller

Control Online Sales Control Online Sales Control Online Sales

Authorized Reseller Program

Manufacturer

Distributor Distributor

Authorized

Reseller

Authorized

Reseller Authorized

Reseller Authorized

Reseller Authorized

Reseller

Communicate and Enforce MAP and Other Policies

Example: Authorized Distributor Policy

By purchasing manufacturer’s products for resale, they acknowledge:

― They have received the MAP Policy

― They will adhere to quality controls

― They will only sell to Authorized Resellers

― They will not sell online without permission

― They will not sell to any reseller on the “do not sell” list

Example: Authorized Reseller Policy

Products purchased from distributors may only be resold by Authorized Resellers that

adhere to policy; by offering products for sale, Resellers agree to the following:

― They can only sell to end-users or to other Authorized Resellers

― They have received the MAP Policy

― They are prohibited from selling online without the manufacturer’s permission

― They are required to abide by applicable quality controls

― The warranty is available only on products sold by Authorized Resellers

Example: Authorized Online Reseller Policy

Products may be sold online only by Authorized Resellers who:

1. Register and get approval for all websites, storefronts, and screennames

2. Agree to abide by Authorized Online Reseller Policy:

• No anonymous selling

• Follow manufacturer’s marketing/trademark use guidelines

• Data security/privacy

• Manufacturer may revoke approval for Authorized Reseller to sell online

at any time

Lack of Comprehensive Enforcement

Technology C&D notices Then What?

Misleading Ads Divert Customers to

Unauthorized Sales

• Advertisers use misleading ad-

copy to divert customers to

unauthorized sales

• Ads claim to offer deep

discounts

• Ads direct customers to

competing products

Example search for “Doterra Discount”

Ads Affiliated With Unauthorized Sales and

Listings for Competing Products

Result:

Customers purchase

products from

unauthorized sellers rather than authorized

consultants/official

channels

“Reviews” to Sell Competing Product

• Reviews pass themselves

off as unbiased

• Usually contain some

positive aspects of each

products to support

objective appearance

Reviews are Not Neutral or Objective

Reality:

The comparison

review is designed to

promote the “top

rated product”

Review Sites Earn Money Through Affiliate Links

The “top rated” product review is, unsurprisingly,

the only eye cream review with purchase links.

Fraudulent Apps

• Growing area of brand abuse

• Difficult for consumers to

distinguish official vs. fraudulent

Apps – A Growing Problem

App stores have little

initial screening to ensure

apps are authentic

Result:

Widespread misuse of

trademarked names/logos

Different Types of Diversion Schemes

1. Cybersquatting/Typosquatting

2. Bogus Review Websites

3. Pay Per Click Ad Abuses

4. Fraudulent/Scam Websites

5. False Associations

6. SEO Manipulation

7. Association With Offensive Content

8. Mobile App Fraud

Company Does Not Have a Sufficient

Budget To Allow For Comprehensive

Enforcement

Understand Financial Impact – Justification

for Resources

• Involve person with finance background to measure

impact of MAP violations, unauthorized sales, and ROI

• Track financial KPIs - sales, margins, revenues, profits

Company Sells Through Many Online Resellers,

Some of Which are Not Trustworthy

• Select online retailers that are supportive of

MAP/Unauthorized Sales enforcement

• Retailers with limited assortment more likely to

violate MAP

Company is Scared to Deliver

Real Consequences

• Authorized

― Unclear on actions

― Unwilling to enforce against powerful resellers.

― Incentives/disincentives lack teeth

― Too many allowed strikes

― Bad behaviors allowed

― Inconsistent enforcement

• Unauthorized Sales

― Whack-a-mole takedowns will not work

― Need more than C&D letter (need comprehensive enforcement)

― Unauthorized Sellers have to believe there will be consequences

Companies Only Take Reactive Approach,

Not Proactive

• Issue press release regarding

enforcement against

unauthorized sellers

• Communicate with authorized

sellers about enforcement

Significant e-Commerce Growth

e-Commerce growth is 16-20% for most categories

Third-Party Marketplaces are Growing

- Launched in 2005

- 1.7M active sellers

- 26.1M active buyers

- $2.39B annual gross

merchandise sales

- Originally launched

marketplace for third-party

sellers in 2010

- Oct. 2016, company

began to role out

“Marketplace” feature

through its app in the

United States, the U.K.,

Australia and New Zealand

- Initially launched in 2009,

had a long trial period

- Apr. 2016 begins working

with marketing firm to

compete with eBay,

Amazon

- Launched in 2014

- Acquired by

Walmart in Aug.

2016

- Leading Japanese e-

retailer

- Debuted in the United

States in 2013

- Originally launched in 2010

- Re-launched in 2014

- Launched home products

marketplace in 2014

- App launched in 2011

- Eyeing potential IPO, per

Wall Street Journal

- App launched in 2013

- Debuted in the United

States in 2014

Marketplaces Make Up

31% of e-Commerce (and Growing)

Channels Make it Easy to Sell Online

Tsunami of Unauthorized Sellers Online

Additional Resources

Whitney C. Gibson

Vorys, Sater, Seymour and Pease LLP

513.723.4823| wcgibson@vorys.com

www.onlinesellerenforcement.com

@WhitneyCGibson

Questions?

Whitney C. Gibson

Vorys, Sater, Seymour and Pease LLP

513.723.4823| wcgibson@vorys.com