Online Marketplace Not Enjoined Over Gray Market Goods Sales–Dentsply v. Net32
Dentsply Sirona is a dental supply company. They use a chain of distributors and engage in international price discrimination (i.e., goods in the US market are priced higher than in international markets). Net32 runs an e-commerce site for dental supplies that relies on third party merchants. The court describes Net32 as an “online marketplace,” but Net32 describes itself as a “comparison shopping site,” and the court doesn’t specify the exact financial arrangement between Net32 and the merchants.
Merchants are selling Dentsply’s goods on Net32, including gray market versions, i.e., genuine Dentsply international products not meant for the US market that are being sold in the US at a lower price than the goods marketed for the US. Some differences between the US and international goods appear to be superficial; the court-identified differences include “the quantity of items available per package, missing or illegible source codes, customer support information, packaging denoting that the item is intended for sale outside of the United States or identifying an unauthorized dealer, and packaging that is defaced or different in coloring.” Nevertheless, the court calls the differences “material.” As typical for gray market goods, Dentsply does not know how the goods are leaking out of its authorized channels (or else it would cut off those distributors). Dentsply has sued at least one of the merchants (Dental Wholesale Direct) for direct trademark infringement.
The court says Net32 lacks the requisite knowledge per Tiffany v. eBay. Whether an item is genuine or not isn’t obvious to Net32: “although Net32 may have had contemporaneous knowledge that some of the Dentsply products sold by its vendors are different from the Dentsply products authorized for sale in the United States, Net32 did not have contemporaneous knowledge of which differences in certain products, if any, are material.” Therefore:
the court cannot find that Net32 has or is knowingly web-hosting vendors that are engaging in direct trademark infringement through the sale of gray market goods manufactured by Dentsply
The court also questions if Dentsply has suffered any goodwill loss due to minimal consumer complaints; and a 5 year enforcement delay undercuts the case for preliminary injunctive relief. Thus, the court denies the preliminary injunction request, though Denstply might still find success in future case proceedings.
This case complements the Tiffany line of cases. Since the Second Circuit’s ruling in 2010, online marketplaces have been virtually untouchable when it comes to trademark-infringing activity by their merchants. To me, the high point was the Tre Milano v. Amazon ruling, which absolved Amazon of liability for counterfeit goods because neither Amazon nor Tre Milano couldn’t accurately determine which listed items were counterfeit. This court similarly doubts the marketplace’s ability to determine the legitimacy of the merchant’s offerings.
But on the question of Net32’s scienter, eBay honored item-by-item takedown notices from Tiffany, and we don’t have evidence of Net 32’s corresponding practices. Apparently, Dentsply may not have sent actual item-by-item takedown notices. So perhaps Dentsply can easily improve its litigation posture (or extra-judicially fix its problem) by sending better takedown notices….?
Meanwhile, while the trademark liability news has been generally good for online marketplaces, the news is less good for print-on-demand vendors. The Sunfrog case resulted in an unworkable trademark injunction that imperiled all of the vendor’s operations.