TAKING ON AMAZON:  UNAUTHORIZED DEALERS OF “GENUINE” PRODUCTS

By Robert W. Payne

The online retail marketplace bedevils major brand owners.  It provides a vast, new market channel; it destroys brand owners’ exclusive channels.  Amazon.com is not only a major force in the former but also the prime mover in the second.  Take, for example, Versace’s “Bright Crystal” eau d’toilette.  As shown in the accompanying pictures, multiple sellers are linked to the product page on Amazon, offering the same, new product, often at reduced prices which may compromise Versace’s authorized dealer network’s profitability and stability.

Trademark infringement is the principal weapon brand owners have in combating unauthorized dealers.  But there is nothing improper about selling genuine product by an unauthorized dealer, per se.  The first sale doctrine in both trademark and copyright law bars the brand owner from controlling the downstream sales.  The first sale doctrine provides that one who purchases a branded item generally has a right to resell that item in an unchanged state.[1]  There are two exceptions.

Trademark Infringement and “Genuine” Goods

The first sale doctrine does not protect alleged infringers that sell trademarked goods that are “materially different” than those sold by the trademark owner or its authorized dealers.  This is so at least where there is a difference in the product or its warranties.  The existence of a material difference between authorized and unauthorized goods sold under the same trademark creates “confusion over the source of the product and result in loss of [the trademark owner’s] good will.”[2]  In other words, materially different goods sold by an unauthorized seller are not considered “genuine” because they are “confusingly different.”

What is a “material difference”?  It is virtually any physical or non-physical difference (however subtle) that exists between the authorized goods and unauthorized goods, if a consumer would likely consider it relevant when purchasing the product.  As one court put it, “it is by subtle differences that consumers are most easily confused,” and therefore “the threshold of materiality must be kept low enough to take account of potentially confusing differences -- differences that are not blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations.”[3]  Thus, for example, material differences could include differences in battery life between authorized and unauthorized batteries or alterations to packages or reference numbers and codes, or differences in warranty protection.[4]

In the Second Circuit at least, another exception applies – lack of the same level of quality control that is exercised by the brand owner.[5]

From a brand owners’ enforcement perspective, there is trademark enforcement and then everything else.  As before, a first sale doctrine renders unauthorized importation or sales of a new, copyrighted item, per se, as not infringing.[6]  However, copyright infringement can arise from lifting the brand owner’s copy or images.  Other weapons and issues include non-intellectual property rights, such as breach of contract, restrictions violating anti-trust principles, misleading statements regarding being “authorized”[7] and state warranty statutes.[8]

Doing Something: Takedowns and Suits Against the Infringer 

Armed with these weapons, one could sue the infringer or demand a takedown.  However, Amazon has been notorious in not honoring unauthorized dealer takedown requests: It distinguishes such issues from more traditional trademark infringement or counterfeit sales.  “Asking Amazon to help police your brand will fall on deaf ears, even if you have protective assets like a patent or trademark. Amazon does not view unauthorized sellers (i.e. anyone but you and your authorized distributors) as policy violators.”[9]   The Digital Millennium Copyright Act (DMCA) is of limited use, since the “primary” and more lasting offense is trademark.  Moreover, typically on Amazon Marketplace, the true name and location of the third-party seller is usually cloaked, with only a fictitious alias to deal with.  Suing the seller thus becomes problematic.

One may wonder about Amazon’s Brand Registry and Project Zero initiatives.  Neither is designed to combat the unauthorized offering of “genuine” products.  The Brand Registry enables searches across multiple platforms of entities providing inaccurate information or depictions of the product, such as counterfeits.  Project Zero also focuses on counterfeits.  Amazon’s policy however is express:  “Amazon respects a manufacturer's right to enter into exclusive distribution agreements for its products. However, violations of such agreements do not constitute intellectual property rights infringement. As the enforcement of these agreements is a matter between the manufacturer and the retailers, it would not be appropriate for Amazon to assist in enforcement activities.”[10]

Taking on Amazon:  A Problem with “Consent”

So what about suing Amazon, as the enabler?  Unfortunately for the brand owner, often it knowingly or unknowingly consented to Amazon’s practice, in its own initial listing of goods.  By doing so, Amazon claims the right to keep the product detail page on its site, even if the brand owner wishes to cease sales.  Amazon goes on to claim unfettered sublicensing rights: “Additionally, when you add your copyrighted image to a detail page, you grant Amazon and its affiliates a non-exclusive, worldwide, royalty-free, perpetual, irrevocable right to exercise all rights of publicity over the material. . . . Other sellers can list their items for sale against pages that you have created or added your copyrighted images to.”[11]  Amazon routinely refuses to provide information to brand owners of the identity of third-party sellers.

Assuming brand owners listed their products with Amazon, their enforcement path takes a tortured turn.  Challenging the “consent” provisions is one of contract law.  Three questions immediately arise:

(1) Was there an effective consent?   Perhaps “browsewrap” issues apply to assumed electronic consent. 

(2) Is the agreement unenforceable and voidable by its terms?  In other words, are the applicable provisions “unconscionable” or an “unfair business practice” under applicable state law? 

(3) Further, even if the agreement is otherwise enforceable, has it been rendered unenforceable by Amazon’s practice?  One could argue that Amazon’s practice, in refusing to reveal the identity of third-party sellers to the brand owner on request, breaches the implied covenant of good faith and fair dealing.  It arguably deprives the brand owner of the benefit of the bargain it supposedly expected in listing with Amazon in the first place.  By the same token, the mutual understanding of the brand owner and Amazon that Amazon would act “responsibly” in sublicensing is an implied-in-fact condition that often is not being met.

These are not easy issues to address, but they are necessary.  For the company with enough at stake, there is some interesting law to be made.