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May 27, 2020

Recent Federal Court Decision Reaffirms Exceptions to First Sale Doctrine for Brands Bringing Trademark Claims Against Unauthorized Resellers

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A Massachusetts federal court has held that an unauthorized reseller of a brand’s products can be liable for trademark infringement, and is not protected by the First Sale Doctrine, if the products it sells do not come with the brand’s quality controls, customer-service requirements, or manufacturer’s warranty. See Monahan Prods. LLC v. Sam’s East, Inc., No. 1:18-cv-11561-FDS (D. Mass. May 20, 2020).

In Monahan, a manufacturer and seller of UPPAbaby® brand strollers sued the companies that operate Sam’s Club for trademark infringement and other claims resulting from the unauthorized sale of the strollers in Sam’s Club stores. The U.S. District Court for the District of Massachusetts determined that the defendants could be liable for trademark infringement if a jury found that there are material differences between the strollers sold at Sam’s Club and the strollers authorized for sale by the plaintiff. The Court’s decision made a number of other key findings, including that:

  • The threshold is low for determining whether a difference between a genuine and unauthorized product is “material.” A “material difference” encompasses “any difference between the registrant’s product and the allegedly infringing gray good that consumers would likely consider to be relevant when purchasing a product.”

  • A product sold by an unauthorized reseller can be materially different – and therefore infringing – if: (1) the reseller is not subject to and interferes with the brand’s quality-control procedures, (2) the product is not accompanied by the brand’s customer-support services, or (3) the product does not come with the brand’s own manufacturer’s warranty.

  • To prevail on its claims, a brand is not required to present evidence that the unauthorized reseller’s product “was actually inferior due to different quality-control procedures.” Instead, it must show that “the absence of quality control in the distribution chain is likely to result in material differences” between the products.

  • Differences in warranty protection and customer-support services can also be material and support a finding of trademark infringement. These customer services can include differences in training on how to use and repair products.

The Monahan case is yet another in a long – and growing – list of cases from jurisdictions across the country holding that unauthorized resellers can be liable for trademark infringement for selling a brand’s products without authorization and without the quality controls, customer-service requirements, or other benefits that accompany genuine products.

Vorys eControl works with companies to identify and overcome issues relating to unauthorized sales, erosion of brand equity, product diversion and quality control. It helps companies achieve their goals with an array of services from consultations and strategy development to preparing and implementing foundational policies and conducting enforcement. In addition to these services, the Vorys eControl litigation team constantly analyzes these issues and monitors cases like Monahan to fine-tune a brand’s legal strategy and help the brand enforce against unauthorized resellers.