Resale and The First Sale Doctrine

Can reselling products get you into trouble? Or, can you stop people from reselling your product? Let’s dig into the spirit of trademark protection and an important rule- The First Sale Doctrine.

Yen-Yi Anderson, Managing Partner of Anderson & Associates, founded the law firm in January 2014. Yen-Yi Anderson focuses her practice on excellence in business immigration, commercial law, and civil litigation.

Jim Shih-Chun Hou is an Associate at Anderson & Associates and a contributing author for the Anderson & Associates blog.

Have you ever sold your stuff like bikes or phones on the internet? Have you purchased one? Since the early 2000s when E-commerce platforms have mushroomed, much of the trade has taken place at both brick-and-mortar shops and online stores. Reselling goods, among other things, has become more feasible and convenient than ever before. However, can you sell any goods in any way you like even if it’s trademarked and tagged with “®” and “™”? Will your resale business constitute trademark infringement? Let’s take a look at the following examples.

  1. Kelly is always unsettled about technology and desperate to keep abreast of new phones. Knowing a new model is coming out, Kelly wants to sell her old phone “AA Note 8™” online as used product to compensate for the upcoming expense. Will Kelly’s sale infringe the mark owner AA Tech Inc’s right?
  2. Tim has an issue with impulsive buying. On Monday morning, he went out for a cup of coffee but ended up having a brand-new AA Note 8™ in hands. As much as he regretted, within a second, Tom wants to sell the phone online and earmarked it as a brand-new product. Will Tom’s sale infringe the mark owner AA Tech Inc’s right?
  3. Bob is fond of AA Tech products and is a maestro of dropshipping. He was somehow able to acquire a batch of brand-new AA Note 8™ at wholesales prince. He now plans to retail it at his online business storefront “Smartphone Bob” for a fortune. Will Bob’s sale infringe the mark owner AA Tech Inc’s right?

The critical mission of Trademark Law is to identify the source of goods and protect owners’ goodwill and reputation from being diluted or tarnished by consumer confusion. It is all about the protection of goodwill and prevention of confusion. When it comes to resale and trademark infringement, one specific rule needs to be taken into account: the first-sale doctrine (or exhaustion rule). The first sale doctrine limits trademark owner’s right by dictating that those who resell genuine trademarked products are generally not liable for trademark infringement. The rationale behind that is the sale of genuine products will not damage owners’ goodwill or cause confusion to consumers.

However, the first sale doctrine does not apply when there is a material difference between resold products and original products. If a resold product is materially different from those sold by the owner, the resold product is not genuine. The material difference exists when a reseller does not maintain the same level of quality control, customer service, warranty, or return policy. These nonphysical characteristics are expected by consumers. If consumers’ expectation falls short with resentment, the reputation, goodwill, and integrity of a brand will decline.

Let’s go back to the previous examples. Kelly’s sale of the phone as a used product might not infringe AA Tech’s right. The phone is genuine. And the buyer knows that the phone was used by Kelly and has no expectation that Kelly would provide the same service as AA Tech will do. The phone is going to be sold as it is. There will be no confusion of the buyer about the source of product and thus no detriment to AA Tech’s goodwill.

Tim’s sale is pretty much the same. Although he is planning to sell the phone in brand-new condition and a buyer will expect the quality as it should be, the buyer will not be confused with the source of the phone; the buyer knows that he or she is not buying the phone from AA Tech but from Tim, a random individual.

However, Bob’s sale might be a different story. Bob wants to sell a batch of phones through his online storefront Smartphone Bob, where consumers are likely to perceive it as authorized seller, franchisee, branch, or affiliation. Buyers will expect Smartphone Bob to provide the same service and quality control that AA Tech is providing. They will also assume that Smartphone Bob has in depth knowledge of the phone. If Smartphone Bob cannot provide and maintain such, even though there may have been no physical change in the phone, there was a material difference in the nonphysical characteristics associated with the phone. Since a materially different phone is not genuine, the sale of such phones may result in trademark infringement. And consumers may be confused about the source of the phone.

In real life, to determine whether the first purchase doctrine applies to your resale or dropshipping business is not easy and always subject to the totality of circumstances. But keep it in mind: the less confusion you contribute to consumer, the less likelihood that infringement would occur. Other than the trademark issue, copyright is also a major concern where the first sale doctrine also applies.

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