Battling Digital Threats to Brands in the Online Marketplace

Although the exponential growth of e-commerce in recent years has benefited retailers and manufacturers, the continued expansion of cyber sales channels has also increased the potential for illicit activity by unauthorized sellers. The significant harm to brand owners resulting from counterfeiting are well-known. But the diversion of genuine products of a manufacturer to unauthorized online sales channels also poses a serious threat to companies’ valuable brands. Although the problem is clear, the solution is anything but. Many companies are therefore left struggling to identify the most effective and efficient means to address these digital threats to their brands. While there is no one-size-fits-all solution, the best strategy is multi-faceted and includes a combination of preventative, investigative, legal- and sometimes creative- measures. As with counterfeit goods, the unauthorized online sell of branded goods can harm a company’s brand. But enforcing trademark rights against unauthorized sellers of genuine products of the manufacture can be more complex and difficult. For example, the “first sale doctrine,” which generally allows the resell of genuine products, can prevent a brand owner from enforcing its trademark rights against an unauthorized seller. But all hope is not lost. When some aspect of a product sold by an unauthorized seller differs materially from a product sold by an authorized seller, an exception to first sale doctrine exists. Diverted products are often sold without warranties or customer service, or do not include original packaging and/or labels, any of which may be considered a material difference. This “material difference” exception to the first sale doctrine can therefore prove very useful to trademark and brand owners.

Carefully crafted policies, procedures, and agreements can also help strengthen trademark claims and negate the first sale doctrine. For example, a company can offer a warranty only for products sold by authorized dealers. But beware…consumer protection laws of some states provide warranty protection even for goods sold by unauthorized resellers. In some jurisdictions, a brand owner that maintains a bona fide quality control program may prevent an unauthorized seller from invoking the first sale doctrine under a “quality control exception” if the seller does not meet the manufacturer’s standards. The inclusion of certain provisions in agreements with authorized sellers may also provide grounds to enforce rights directly against unauthorized sellers, as well as deter authorized sellers from diverting products to unauthorized channels.

But following these guidelines is not enough. Brand owners still face unauthorized online sellers and need mechanisms in place to identify and stop these sellers. The first step is to know where your products are being sold online. Many tools are available for monitoring and identifying unauthorized online sellers (e.g., third-party software/services and internal monitoring). Once you identify your opponent, you must choose the best method to fight the unauthorized sales.

Many online marketplaces (e.g., Amazon and eBay) have takedown procedures available to rights owners. However, online marketplaces typically will not remove products simply because they are outside a company’s authorized distribution channels. While these takedown procedures are generally more effective in securing removal of counterfeit products and copyrighted material, they can still be used for asserting trademark rights against unauthorized sellers if the products at issue fall within an exception to first sale doctrine discussed above. Unfortunately, many brand and rights owners end up in a game of whack-a-mole when utilizing takedown procedures of online marketplaces since unauthorized sellers often re-list products under a different username or on other sites.

For sites without takedown mechanisms, private sites, or unauthorized resellers that engage in a game of whack-a-mole, brand owners can utilize traditional avenues of enforcement, such as sending cease and desist letters or filing actions in state or federal court. While these options can be more costly and timely, they can prove very effective and, depending on the harm being caused, the benefits of protecting a company’s valuable brand can be worth the time and costs.

The vastness of the online marketplace has made brand protection a monumental task for many companies. The key to combatting unauthorized online sellers as part of a brand protection program is to know yourself and your opponent, and to create and implement a strategy that is tailored to fit your needs. What works best for one company may not work for the next. But one thing holds true across the board – doing nothing works for nobody but the unauthorized seller. Failure to put up a fight against unauthorized online sales will likely result in serious harm to two of the most important things of a company – its brand and its bottom line.

For more information on this topic, please visit our Anti-Counterfeiting Enforcement service page, which is part of our Trademark Practice.

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution.Additional information about the trademark law firm and its trademark attorneys may be found at www.klemchuk.com.

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