Gray market stroller case continues to trial. MONAHAN PRODUCTS v. SAM’S

Gray market stroller case continues to trial. MONAHAN PRODUCTS v. SAM’S

A trademark is a symbol that a manufacturer uses to distinguish the products it sells from the products sold by other companies.  The purpose of trademark law is to prevent consumer confusion.  A trademark owner is given the right to exclude other companies from using its trademark to prevent consumers from being tricked into purchasing inferior quality products.  A trademark owner has the exclusive right to sell products with their trademark.  If someone other than the owner of a trademark uses that trademark in commerce that is known as trademark infringement. A trademark owner must diligently enforce their trademark rights or risk loosing them.  When a trademark owner learns that their trademark is being infringed, the trademark owner can sue for an injunction to stop trademark infringement and get a judgement for damages related to the trademark infringement.

But, a trademark owner’s exclusive right to us a trademark has limits. One limit to the rights granted by trademark law in the Untied States is the “exhaustion” doctrine also known as the first sale doctrine.  The first sale doctrine of trademark law allows people that purchased products from the trademark owner to resell those products.  The resale of genuine trademarked products, even if not authorized, does not constitute trademark infringement.

Today’s global marketplace poses manufacturers with many challenges.  One of those challenges is that there is a wide disparity in the price that a product can command in different market places.  To grow sales a manufacturer may sell the same product at different prices in different markets.  This strategy can work assuming that the products cannot travel from the cheaper marketplace to the more expensive market place.  Manufacturers will frequently contract with distributors that products sold in one part of the world cannot be shipped to another part of the world.  However, when there is money to be made, there are always people who will seek to exploit price differences.

Gray market refers to products that are sold legally, but outside of a trademark owner’s permission. These products can harm relationships with distributors and damage product reputation. Common gray market goods include cameras, cars, watches and even pharmaceuticals.  The question then becomes can trademark law be used to prevent the sale of gray market products?

MONAHAN PRODUCTS LLC d/b/a UPPABABY, v. SAM’S EAST, INC. and SAM’S WEST, INC., 18-11561 (D.MA 2020) is a case which deals with gray market products.

Plaintiff makes and sells baby strollers under the UPPAbaby tradmark. Defendants operate Sam’s Club, a chain of membership-only retail warehouse stores in the United States.  Defendant is not an authorized UPPAbaby retailer.  Defendant acquired and sold UPPAbaby strollers, which were intended for sale outside the United States, through an authorized wholesaler.  The strollers were not, tangibly inferior or different versions of the products; indeed, they were physically identical.

Plaintiff sued Defendant on the theory that trademark infringement had occurred because that there were three post-manufacture differences in the strollers that were likely to cause consumer confusion and injure its brand.  First, Plaintiff contends that it maintains strict quality control in its domestic distribution chain, while Defendant does not. Second, Plaintiff contends that only its authorized retailers provide appropriate customer support, and that Defendant is not such a retailer. Third, the warranty protection provided by UPPAbaby does not apply if the product is sold by an unauthorized retailer such as Defendant.  Both parties moved for summary judgement in their favor.

The District Court denied summary judgement to both parties.  With respect to trademark infringement the court noted, the resale of trademarked products in the United States may violate the Lanham Act if the products (a) were not authorized for sale in the United States and (b) differed materially from the authorized version.  Defendant may be liable for trademark infringement if there were material differences between the strollers it sold and UPPAbaby’s authorized versions.  The question of whether the three differences the Plaintiff notes constitute material difference are a question of fact that must be left to a jury.  Therefore summary judgement is not appropriate.  The case will continue to trial.

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