The Limits of First Sale Doctrine
One clear message of intellectual property law is that mere possession, or even ownership, of a product or a copy does not vitiate the rights-owner’s interest in and right to control use or disposition of the product or copy. First sale doctrine carves out a very limited exception to this.
I often talk about first sale (or exhaustion as it is sometimes called) in reference to patent or copyright law. Trademark issues may be even more important, at least online. As with copyright and patent law, the theory behind the doctrine in trademark law in part involves defining what it means to own an item, and in part places restrictions on the intellectual property owner’s right to control the secondary market in goods for which the mark owner decided to authorize an unrestricted sale. On the other hand, even after an unrestricted sale, the doctrine preserves many of the mark-owner’s interests with respect to its mark and the product.
An owner of a genuine and unmodified item purchased at an authorized sale may resell the item, describing it appropriately, even if doing so requires use of the trademark. Thus, if I own a Dell Laptop computer, I have the right to sell it describing it as a “Dell” computer. The right to accurately describe the resold property comes from first sale doctrine and from concepts of nominative fair use.
Issues about first sale or fair use almost never arise where the reseller sells only one item. They arise when the reseller resells multiple items. In this setting, where the items resold are unused, the reseller may become the direct competitor of the mark owner and its authorized dealers. The question is under what conditions trademark law permits this. Viewed from the mark owner’s perspective, this involves its ability to control marketing channels for its product, including the online marketplace, and to protect its trademark.
Not all resale activity is allowed even if the reseller owns the item.
Trademark owners’ protected interests that continue to apply relate to maintaining the trademark as identifying the source of the goods or services involved, which is the bedrock of trademark law. The balance then is between allowing the reseller to deal with its property while preventing confusion as to its immediate source or denigrating of the value of the mark.
The most commonly litigated limitation centers on whether the reseller creates the appearance of a relationship between it and the mark owner. Basically, while the reseller can use the mark to describe the product it resells, the reseller cannot create the impression that it acts with the sponsorship or authorization of the mark owner (unless, of course, that is true). Thus, while a used car seller can sell and advertise that it sells Mercedes cars, it cannot falsely convey the impression that it is a Mercedes authorized dealership.
Some settings make clear that no sponsorship is present. For example, in Tiffany (NJ), Inc. v. Ebay, Inc., 576 F.Supp.2d 463 (SD NY 2008) the court held that Ebay and its auction resellers of genuine Tiffany products were protected by first sale concepts even though the sellers referred to their products as Tiffany and Ebay advertised the availability of Tiffany products on its auction website. In context, there was no reasonable inference that Tiffany sponsored, authorized, or was in control of the sales of Tiffany products in this environment.
Lines are drawn based on language and context. Thus, in another online case, text on a site reselling diet supplements from various manufacturers originally commented as to one manufacturer that “we” are engaged in various steps. This would have established a claim that affiliation was being suggested, but the text was removed.
Small words often make big differences.
The cases also present issues associated with the mark owner’s obligation to monitor the quality of goods or services offered under its mark. This translates into the rule that the first sale doctrine does not apply to resale where material changes have occurred in the product. An unlicensed difference between two products bearing the same trademark is material if it “confuses consumers and impinges on the trademark holder's goodwill.”
The material changes that vitiate the first sale defense vary. They often relate directly to changes in the product (e.g., reprogramming an aspect of software), but can apply to other elements related to it, such as warranty terms. The mark owner has a continuing interest in controlling changes that on resale diminish or, even, simply alter the product in a manner relevant to the customer, while still using the trademark. Changes, when not clearly made known to the customer or the public as not coming from the mark owner or with its endorsement, threaten the goodwill built up by the manufacturer and diminish the ability of the mark to identify the source of goods and the predictable quality.
The limited right to use a mark without implying affiliation or sponsorship by the mark owner extends into all marketing systems, online and otherwise. Thus, keyword advertisements or metatags may fall within the protective scope of the first sale and related fair use protection, unless circumstances create the appearance of an affiliation between the reseller and the mark owner or what is being sold is a materially altered product. Needless to say, however, this does not give the online vendor the right to a site that is named Dell Computers and sells Dell along with Toshiba etc.
So the message for online and other vendors is the same here as in patent and copyright law. Merely “owning” a product or a copy does not give unlimited rights in it when intellectual property interests are involved. The IP rights remain dominant.
Ray - This is an important topic. Because the Internet so easily crosses borders, it may be important to point out that your analysis focuses on US law. Other countries may (and do) have different laws regarding the re-selling of goods. As an example, France protects a right of "selective distribution." In a recent case, the courts there prevented eBay from selling genuine perfume (LVHM v. eBay).
Thank you for an informative and clear explanation of first sale doctrine and how it applies to resale. This question often comes up on eBay sellers forums, and this article will be a good resource for explaining the rights of resellers and trademark holders.
That was very informative and well written. I look forward for further posts from you. Recently I happened to read an article on Patent Licensing which I felt quite interesting and informative. I would like to bring your kind attention to that post. Below mentioned is an excerpt of the mentioned article.
â€ A license is an authorization given by the patent holder to exercise the exclusive rights granted by the patent. It permits the person acquiring the license to practice the patented invention in the manner allowed under the license. Therefore, a license agreement must clearly specify the terms and conditions for exercising rights with respect to the patented invention. In order to be valid, a patent license agreement must beâ€¦â€¦â€read more at http://www.sinapseblog.com/2010/12/drafting-valid-patent-licenses.html