April 20, 2009
eBay Resales Constitute Trademark Infringement Despite First Sale Doctrine--Beltronics v. Midwest
By Eric Goldman
Beltronics USA Inc. v. Midwest Inventory Distribution, No. 07-3340 (10th Cir. April 9, 2009)
This is yet another online channel leakage case (for my last visit to this topic, see the Mary Kay v. Weber case). Beltronics makes radar detectors. Some unnamed distributors bought radar detectors from Beltronics at wholesale prices but subject to a minimum resale price promise. The distributors removed Beltronics' unique identifiers from each detector and resold them to Midwest. Midwest then resold the detectors on eBay.
Removing the unique identifier made it difficult for Beltronics to identify the rogue distributors who were supplying Midwest. Without Beltronics' unique identifier, Beltronics also refused to provide warranty coverage (and some other minor post-sale services) to buyers. However, Midwest claimed that it offered buyers its own 1 year warranty and disclosed in the eBay auction listings that Beltronics would not provide any warranty coverage. Nevertheless, Midwest's claim didn't get much credit because Beltronics claimed that it received inquiries from Midwest buyers seeking warranty coverage, thus leading the courts to conclude that Midwest's disclosures weren't doing a very good job.
The district court concluded that the resales of the Beltronics radar detectors as "new" detectors when they lacked the manufacturer's warranty and other post-sale services created a likelihood of consumer confusion sufficient to support a preliminary injunction blocking Midwest from reselling Beltronics detectors without unique identifiers (which in practice cuts off Midwest's supply because now any rogue distributors can be caught). Midwest attacked the PI on the basis that its resales were protected by the trademark first sale doctrine. The 10th Circuit, heavily citing its atrocious Australian Gold v. Hatfield decision, held that the first sale doctrine didn't apply because Midwest sold a materially different good without the manufacturer's warranty and without adequate disclosures to buyers about the differences.
The net result then is that eBay buyers willing to pay a discount for an identical radar detector but with only Midwest's warranty instead of Beltronics' won't get that choice. Instead, they get the pleasure of buying at the minimum resale price set by Beltronics. However, the 10th Circuit implies, without saying, that it could have reached a different result if Midwest had done a better job with its disclosures. But, after anti-competition rulings like this and the Australian Gold case, I'm guessing Midwest isn't too excited about experimenting in the 10th Circuit.
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