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Trademark Owners Can Protect Themselves from Unauthorized Distributors Price Gouging in Their Name

In Short

The Background: Manufacturers of branded masks and other personal protective equipment and supplies have found unauthorized third-party "distributors" reselling their products—or outright counterfeits of their products—at highly inflated prices, to the detriment of the manufacturers' reputations and potentially subjecting them to regulatory scrutiny.

The Issue: Can brand owners stop distributors or resellers from offering genuine or fake products at inflated prices?

The Answer: Brand owners can obtain injunctions and monetary relief against price-gouging distributors of their genuine products if the resellers are holding themselves out as authorized distributors or dealers of the branded products when that is not the case. If the products are counterfeits, then brand owners can obtain expanded relief, including seizures.

The federal Trademark Act (also known as the Lanham Act) provides for injunctive and monetary relief to an owner of a registered or common-law trademark where a third party's use of the trademark poses a likelihood of confusion that the third party is associated with or approved by the trademark owner. Under the "first sale" or "exhaustion" doctrine, however, the right of a manufacturer to control distribution of its trademarked product generally does not extend beyond the first sale of the product.

However, the first sale doctrine does not apply where the genuine goods or related services are "materially different" from what the brand owner is selling or has authorized for sale. Importantly, the threshold for finding a material difference is low, and it is met if the difference is one that consumers consider relevant to a decision about whether to purchase a product. A material difference has been held to include minor differences in ingredients, packaging, quality control, warranties, or service commitments.

In addition, at least one court of appeal has held that different pricing can constitute a material difference. Unauthorized third parties charging inflated prices for necessary equipment could threaten irreparable harm to the trademark owner's goodwill and affect consumers' decisions about whether to purchase a trademark owner's products if the consumers believe the trademark owner is authorizing such sales to take unfair advantage of the current circumstances.

State statutory and common law can also afford a basis for injunctive relief against deceptive trade or business practices where the manufacturer can show actual loss or a likelihood of injury to its business reputation.

Federal and state law provide for temporary or preliminary injunctive relief subject to principles of equity. Manufacturers who are threatened with irreparable harm should not wait long if they intend to seek preliminary injunctive relief, as courts frequently find a lack of requisite harm if the plaintiff delays before bringing a preliminary injunction motion. The Lanham Act also provides for disgorgement of the infringer's ill-gotten profits or the plaintiff's actual damages, subject to principles of equity.

Where the unauthorized product at issue is an outright counterfeit of a registered mark, then the brand owner is presumptively entitled to injunctive and monetary relief including treble damages and attorneys' fees. Injunctive relief for trademark counterfeiting may also include seizure and an asset freeze, and may be awarded on an ex parte basis.

Three Key Takeaways

  1. Brand owners who notice unauthorized resellers attempting to price gouge in their name should immediately demand that the resellers cease and desist such conduct, and they should seek prompt relief in federal court if the resellers do not immediately stop holding themselves out as authorized by the brand owner.
  2. Brand owners who discover outright counterfeiting of non-genuine goods can also obtain immediate and expanded injunctive relief, which may be granted on an ex parte basis.
  3. Brand owners discovering fraud or deception in connection with safety-related products may also refer the matter to law enforcement, take down websites or listings on online marketplaces, and remove false or misleading social media content.
  4. Brand owners should also coordinate their brand enforcement efforts with their public relations consultants to safeguard their reputation against opportunists.

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.

 
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