As a brand selling in an online marketplace, you may find yourself facing unauthorized sellers on the marketplace who are undercutting your price, creating bad reviews with quality issues, and disrupting your e-commerce strategy.
The good news is – a recent court ruling may provide help to brands who are currently struggling with grey market sales on Online Marketplace.
New Court Ruling to Assist Brands Struggling with Unauthorized Sellers:
*This is an announcement from Vorys, Sater, Seymour and Pease LLP – Online Seller Enforcement
A California federal court has entered a final judgment that strengthens brands’ mission to rid online marketplaces of unauthorized sellers and preserve their brand equity.
The ruling confirms that manufacturers have a viable strategy to combat grey market sellers and stop the unauthorized sale of their products.
Tyler B. Pensyl at Vorys, Sater, Seymour and Pease LLP argued on behalf of ADG Concerns Inc. d/b/a Health Concerns, a health supplement company (See ADG Concerns, Inc. v. Tsalevich LLC, No. 18-cv-00818-NC, 2018 U.S. Dist.).
The Northern District of California entered judgment against the defendant for trademark infringement and unfair competition arising from the unauthorized sale of Health Concerns products on the online marketplaces.
The court’s decision is significant because it recognizes the unlawfulness of grey market sellers selling products online in an unauthorized manner.
Here’s what Whitney Gibson, leader of Vorys Online Seller Enforcement group had to say regarding the ruling:
We hear from hundreds of global manufacturers each year struggling with a growing number of unauthorized sellers that are hurting their brand equity on the online marketplaces. This ruling is significant because it gives brands a roadmap to combat unauthorized sellers. Brands that have struggled with unauthorized and grey market sellers can now integrate this approach into their comprehensive strategy to tackle the problem.
Why is this ruling important for brands selling online?
The court’s decision is also noteworthy because it discredits unauthorized sellers’ attempts to rely on the “first sale doctrine” to justify their sale of products. The first sale doctrine is the primary defense raised by grey market and other unauthorized sellers when targeted by a brand with enforcement efforts.
The court’s decision confirms, however, that the first sale doctrine is not absolute and does not apply when an unauthorized seller is selling goods that are materially different or that do not meet the trademark holder’s quality control standards.
Specifically, the court held that because the defendant did not comply with Health Concerns’ quality controls, the products it sold were materially different and likely to cause customer confusion. As such, the court held that the defendant had engaged in trademark infringement and unfair competition.
The court issued a permanent injunction against the unauthorized seller defendant, prohibiting it from, among other things, advertising or selling Health Concerns products on online marketplaces. As a result, the defendant’s online marketplace storefront has now been shut down.
Further, the court disgorged the unauthorized seller defendant’s profits and awarded Health Concerns damages of more than $175,000, as well as attorneys’ fees of over $70,000.
This ruling makes clear that brands with legitimate quality controls for their authorized goods can bring legal claims against unauthorized sellers peddling products outside of those quality measures.
Some examples of quality control measures that are important in protecting brands in today’s marketplace era include maintaining clear storage, handling and shipping requirements; requiring authorized sellers to conduct thorough inspections of products and execute other heightened quality controls; prohibiting commingling of inventory in marketplace warehouses; and prohibiting the resale of products that have been returned or repackaged.
Stopping Unauthorized Sales On Online Marketplaces
Stopping unauthorized sellers is vital to your brand’s success. But without proper foundational policies and enforcement strategies in place – unauthorized sellers can easily erode your brand name and undercut your margins.
While there is no ‘silver bullet’ for brand protection, there is a strategic approach you can take to ensure authorized sellers are making nearly all sales on the marketplaces and to ensure they are able to advertise prices consistent with your Minimum Advertised Price (MAP) or related policy.
To learn more, check out our full interview with Vorys, Online Seller Enforcement program here.