November 12, 2021

Unauthorized Sales of iPhone Cases at Center of New Decision, Amid Fashion’s Gray Market Fight

The Fashion Law - View the full article here.

A new decision centering on unauthorized sales of cell phone and tablet cases online, including on Amazon’s marketplace, in a pending trademark and false advertising case is likely to have a striking impact on fashion’s longstanding fight against gray market goods. In an order and opinion dated November 10, Judge Regina Rodriguez of the U.S. District Court for the District of Colorado sided with Otter Products, granting the Colorado-based electronics accessory company’s motion for partial summary judgment in the case that it filed against Triplenet Pricing over its unauthorized sale of OtterBox products.

The case got its start in February 2019 when Otter Products (“Otter”) filed suit against Triplenet Pricing and affiliated entities (the “defendants”) accusing the companies of trademark infringement, unfair competition, false advertising, and deceptive trade practices in violation of the Colorado Consumer Protection Act. According to Otter’s complaint, the defendants were offering up products bearing its trademarks on various e-commerce sites, including Amazon’s third-party marketplace site, and advertising them as “100% authentic” and as coming with an “OtterBox limited lifetime warranty,” despite falling outside of the company’s carefully-controlled network of authorized sellers.

The problem, according to Otter, is that the “products sold by Triplenet are materially different from genuine Otter products because they do not come with the Otter warranty,” as the company’s warranty only extends to products sold by authorized sellers. (For reference, to be an authorized seller, a company must be vetted – and approved – by Otter and thereafter, must observe the “quality control program” mandated by Otter, which requires sellers to maintain a strict product inspection and reporting process with Otter. Sellers must also “adhere to customer service standards, including familiarity with products, warranties, and return policies,” and must “respond to customer questions and concerns.”)

Given that Triplenet is not an authorized seller of Otter products, the terms of the company’s warranty make it so that “Otter products sold by Triplenet are not covered,” and so, by “advertises that the products they sell come with the Otter warranty,” Otter claims that the defendants were causing confusion among consumers and running afoul of the law.

Unauthorized Sales & the First Sale Doctrine

Fast forward to early this year and Otter filed a Motion for Partial Summary Judgment as to its trademark infringement, unfair competition, false advertising, and deceptive trade practices claims, and also sought summary judgment on all of Triplenet’s counterclaims, including tortious interference with contract and intentional interference with prospective economic advantage. In her judgment this week, Judge Rodriguez sided with Otter on all fronts, holding that, among other things, Triplenet is not shielded by the first sale doctrine.

Addressing Triplenet’s argument that it is shielded from Otter’s trademark infringement and unfair competition claims by the first sale doctrine (i.e., the trademark tenet that provides that the resale of genuine trademarked products generally does not constitute trademark infringement), Judge Rodriguez pointed to the two exceptions to the doctrine – the “material difference” and “quality control” exceptions – and held that both are apply in the case at hand.

Primarily, the court stated that Otter has “cited uncontradicted evidence establishing that the products sold by Triplenet are not covered by the Otter warranty,” (emphasis courtesy of TFL) and that this is a “material” difference, something that Triplenet did not dispute. On this point, the court noted the importance of the Otter warranty to consumers, which the Triplenet products lack, citing survey evidence provided by Otter that “suggest[s] that more than 85 percent of respondents reported that they were ‘much more likely’ or ‘somewhat more likely’ to purchase an Otter product on Amazon if the product included the manufacturer’s warranty.”

Even if the material difference exception did not apply, Judge Rodriguez held that “Otter would still be entitled to summary judgment under the quality control exception to the first sale doctrine,” as the company maintains – and abides by – “legitimate, substantial, and non-pretextual quality control procedures.” These include requirements that authorized sellers follow specific shipping and handling instructions for Otter products, engage in product inspection and reporting processes in case of any product damages or defects, and observe specified product display requirements. In that same vein, the court also determined that the unauthorized sales by Triplenet “will diminish the value of [Otter’s] trademark.”

Citing a previous decision from the U.S. Court of the Appeals for the Second Circuit, Judge Rodriguez stated that “distribution of a product that does not meet the trademark holder’s quality control standards may result in the devaluation of the mark by tarnishing its image.” When that is the case, as the court found that it is here, the non-conforming product may be “deemed for Lanham Act purposes, not to be the genuine product of the holder, and its distribution constitutes trademark infringement.” The court also sided with Otter on its false advertising and deceptive trade practices claims, as well as on Triplenet’s counterclaims.

A Useful Tool for Brands

The court’s decision is certainly a striking one in light of fashion and luxury brands’ enduring efforts to crack down on the sale of goods outside of their meticulously-curated networks of authorized sellers and in particular, in conditions that do not meet the ones that they and their authorized retailers observe – from how products are marketed and priced to the services that are available to consumers in connection with the sale process.

The allegations that Chanel made in the case that it filed against British e-commerce company Crepslocker in January of this year in court in the United Kingdom provide a pretty good idea of where brands are coming from on this issue – and likely, serve as a telling peek into what brands are likely to argue in cases of their own in the wake of the judgement in the Otter case.

In the since-settled Chanel v. Crepslocker matter, Chanel alleged that the shopping experience provided by reseller Crepslocker diverged from its strict retail standards. For example, packaging and presentation was an issue. Chanel asserted that one product was not sent to its purchaser in Chanel packaging, and instead, came “crumpled and scrunched in a recycled bag [from another company].” Other differentiating factors included Crepslocker’s requirement that consumers pay via PayPal (and not credit card), its no-return policy and price premiums for certain items, and the alleged unavailability of authentication cards for various Chanel bags.

Maybe most importantly though, Chanel took issue with Crepslocker’s offerings of its goods online, arguing that it “has never made nor permitted any online sales” of its “fashion products,” and instead, “such products can only be purchased in person, in a very small number of carefully chosen and controlled luxury retail environments.” For “fragrance and beauty [products], watches and eyewear,” which are available for purchase online, Chanel asserted that it “very carefully controls the location, environment, and circumstances” in which they are sold by way of requirements governing “the location, interior arrangement, and signage of the store from which the goods will be sold,” staff training, “point of sale guidelines,” and “quality standards in relation to marketing, including appropriate brand adjacencies.”

With the foregoing in mind, Chanel claimed that Crepslocker’s sale of its products and use of Chanel trademarks in the process diverged from the conditions traditionally associated with the sale of Chanel products, and thereby, infringed its famous trademarks. At the heart of the case, of course, was Chanel’s argument that it was being deprived of the ability to maintain the “luxury, exclusivity and prestige associated with [it] products, [which] form an integral part of the CHANEL brand, and of its promise and attraction to consumers and potential consumers.” (Chanel goods have since disappeared from the reseller’s site.)

It is not difficult to see how brands might use the outcome in the Otter case to address their concerns when it comes to unauthorized sales of their products – in unauthorized conditions – by a growing number of third parties, but most immediately, resale sites that have already ruffled some brands’ feathers for allegedly selling counterfeit or infringing products and also for selling otherwise authentic products in conditions that are damaging to the brands in that they do not mirror the conditions mandated by the brands, themselves.

Reflecting on the potential impact of Judge Rodriguez’s decision going forward, Vorys, Sater, Seymour and Pease LLP partner Daren Garcia tells TFL that “while the case does not directly involve a fashion or brand, it will have direct relevance to any such brands struggling to stop gray market unauthorized product on online marketplaces.” He further noted, “This is a major win for brands of all types and establishes the legal framework required to effectively stop unauthorized online sellers from causing further damage to their businesses.”

The case is Otter Products, LLC, et al. v. Triplenet Pricing, Inc., et al, 1:19-cv-00510 (D. Col.).

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