(iProperty® is an electronic publication of the Law Firm of LaRiviere, Grubman & Payne, LLP, focusing on unauthorized, online dealer sales of genuine, infringing and counterfeit goods)
An Introduction to the Problem of Unauthorized, Online Dealer Issues -- A Look at Sales of "Genuine" Goods
The rise of online resellers of well-known goods outside of authorized channels presents a daunting problem for the producers of such goods and their distributors. They also deliver a mixed blessing for consumers. This is especially complex when we are dealing with so-called "genuine," "new" goods that actually originated from the producer and have not been previously sold at retail.
Why is this a "problem"? What's wrong with someone selling genuine goods on eBay, even if they are not authorized by the manufacturer-producer-trademark owner to do so? Doesn't the "first sale doctrine" under trademark and copyright law protect such unauthorized sellers?
The problem stems from the practical, and expands to consequent legal issues. For the producer, its e-tailer competitor selling these "genuine" goods has minimal overhead and often little investment in customer service or promotion. Such sales tend to undermine the producer's authorized dealer relationships. Such dealer networks rely on producer requirements that dealers invest in and maintain costly show rooms, sales personnel, provide servicing of the product, training and engage in retailer advertising. This raises dealer costs, making it difficult to compete with unauthorized e-tailers who invest in none of these things. And yet the e-tailers benefit from the advertising and the customers who go to the show room to view the product, perhaps see a demonstration with a sales associate and then go back home to purchase a comparable product online.
The unauthorized dealer thus becomes a free rider, benefitting from the tailwind created by the authorized network, yet commoditizing the branded product to a point that price becomes the only consumer concern. Carried to its extreme, it undermines the range of choices in service and sales available to consumers, as producers are driven to cut back on a dealership model.
Legal issues and obstacles arise from this new phenomenon.
Counterfeit goods sold online is of course another serious issue. The Congress is currently considering legislation to permit the U.S. Attorney General to go after internet domains and their owners located overseas which are dedicated to infringing activities. Here is the link a legislative watch on
S. 968, the PROTECT IP Act.
Here's a recent PowerPoint presentation by Robert Payne of LGP, which addresses these major issues.