Unauthorized sales on eBay and other third-party websites are significantly impacting many businesses.
To overcome this problem, we recommend a three-step approach to addressing these unauthorized sellers as follows, with more details listed below:
First, a company should revise its policies, procedures and agreements. The goal is to be able to: 1) establish potential legal claims, and 2) differentiate its products from those sold by unauthorized sellers.
Second, a company should implement a graduated enforcement system. The purpose of this system is to eliminate unauthorized sellers through a combination of monitoring technology, investigation and enforcement tactics.
Third, we recommend implementing a communications strategy that: 1) demonstrates to authorized sellers that the company is protecting them, and 2) demonstrates that products sold by unauthorized sellers are unreliable and often do not come with certain services and benefits or do not have the quality controls that the company has established.
We explain each of these steps in more detail below.
Creating a foundation for legal claims against unauthorized sellers
We first recommend that companies work with their attorneys to review existing seller agreements, procedures and practices. The goal is to provide the best support possible for the enforcement program, described in step two.
Under what is known as the First Sale Doctrine, once a trademark owner sells a product, the buyer ordinarily can resell the product without infringing the owner’s mark. However, the First Sale Doctrine does not apply when a reseller sells a trademarked good that is materially different from the company’s genuine goods.
Case law has established a few important principles relating to material differences. This includes that: 1) the threshold of materiality is considered “low”; 2) only a single material difference is necessary to give rise to a trademark infringement claim; and 3) material differences do not have to be “physical” differences.
Courts have also held that trademark owners have the right to control the quality of their products. Thus, unauthorized sellers who do not follow a company’s quality controls can also commit trademark infringement. It is important to note that quality controls cannot be “pretextual.” Moreover, the company must actually enforce them. Quality controls can include certain packaging, tracking codes, pre-sale consultations or storage instructions, among others.
Many companies already have established strong policies, procedures and agreements. It is just a matter of tweaking them to maximize protection against unauthorized sales and sellers on eBay and other websites.
The graduated enforcement system
Once a company’s policies, procedures and agreements are adequate, it is time to roll out a graduated enforcement system. Enforcement is intended to efficiently and effectively reduce the numbers of unauthorized sales and sellers.
Our suggested model begins with a monitoring company that can find all unauthorized sales. A monitoring company can rank sellers from highest to lowest volume, based on the number of client products and total products each reseller is selling.
Cease and desist letters are usually sufficient for most unauthorized sellers. However, a more aggressive enforcement approach might be necessary for sellers offering a large number of products.
After reviewing the data from the initial monitoring report, it is ultimately up to the company which sellers to target through the enforcement system. Because eBay allows people to private message the online sellers, this can be a low cost vehicle for sending a large number of cease and desist letters online (“eC&Ds”).
A strongly-worded letter from an outside law firm is often most effective when dealing with highest volume sellers. A letter might include a detailed explanation of the illegality of the seller’s activity and why the First Sale Doctrine would not apply; an explanation that courts in the company’s state will have jurisdiction over the seller; and relevant case law, including citations to prior cases in which large damages have been awarded against unauthorized sellers.
The company itself might also choose to send additional eC&Ds to low volume sellers.
After the letters are sent, the company and its enforcement team should track which sellers comply with their demands. Then, cyber investigators can investigate the identities of any sellers who do not remove the products from eBay.
Once these identities are obtained, the outside law firm can send actual cease and desist letters to the unauthorized sellers’ physical addresses, effectively communicating that: 1) the company knows who they are and where they are and, 2) should they keep engaging in unauthorized sales, that the company will pursue them legally.
This whole process can be repeated on a monthly basis, incorporating any new sellers that pop up each month. If necessary, for any remaining sellers still online after the previous month, the attorneys can utilize additional legal tactics to put further pressure on them.
Depending on the situation, this can entail sending draft complaints to the sellers; obtaining temporary restraining orders to freeze online sellers’ PayPal accounts; obtaining injunctions to order online sellers to cease selling the products; obtaining injunctions ordering the transfer of the sellers’ website domains to the client; serving subpoenas to identify still unknown sellers; obtaining court orders that can be used to de-index unauthorized sellers’ e-commerce websites from Google; filing lawsuits and negotiating with the sellers; or preparing and executing settlement agreements.
Above is an illustration of how we often structure our own graduated enforcement program. Click on the image to enlarge it. For more on this program, check out our recent white paper.
For some companies, depending on their models and seller networks, it can be worthwhile to communicate to the authorized sellers the impact of the enforcement program.
It is helpful to educate (or remind) distributors that the company has an aggressive enforcement program. Specifically, the company can show them the data reflecting the number of unauthorized sellers removed from eBay (or elsewhere) and no longer harming the business and threatening the authorized distribution channels.
For more information, contact Vorys’ Illegal Online Seller Enforcement team.