Reseller accused of price gouging attracts trademark infringement suit. 3M v. PERFORMANCE SUPPLY

Reseller accused of price gouging attracts trademark infringement suit. 3M v. PERFORMANCE SUPPLY

A trademark is something that a producer of goods or services uses to distinguish their products in the marketplace.  Traditionally a trademark is thought of as a word phrase or symbol, but anything that serves the purpose of telling consumers who produced a product can be granted trademark protection.  Trademark law grants the user of a trademark the right to prevent other people from using a trademark in a way that may cause consumer confusion.  If someone other than the owner of a trademark brands products with a trademark in a way that leads consumers to be confused about the identity of the company that produced the product, that can be considered trademark infringement.  A trademark owner can file a lawsuit to stop trademark infringement with an injunction and to get monetary damages for trademark infringement which has occurred.

United States trademark law grants a trademark owner the right to combat trademark infringement, however that right comes with some limits.  One of the limits to the rights enjoyed by trademark owner is the first sale doctrine.  The first sale doctrine means that a trademark owner’s control over a particular copy of a product ends when that product enters the stream of commerce. Under the first sale doctrine, someone who resells a branded product, or advertises the availability of that product, can use the original producer’s trademark to accurately identify the product it is selling. The first sale doctrine applies even if the product itself is used or refurbished, as long as it is not materially changed and as long as it is not misrepresented as being something different than it is.

Frequently the first sale doctrine is used by resellers that are targeted by a trademark owner because the reseller is reselling used products at a low price point.  The trademark owner does not want to compete with its own product in the marketplace.  However, in times of scarcity, when prices are rising and some resellers attempt to charge more for the same product than the trademark owner.  Accusations of price gouging can damage the reputation of a trademark just as much as below market prices.

The question then becomes, does first sale doctrine apply to a reseller that is trying to price gouge?

3M COMPANY, v. PERFORMANCE SUPPLY, LLC, 1:20-cv-02949 (S.D.NY 2020) is a case which involves a reseller trying to charge a much higher price than the trademark owner.

Plaintiff in this case manufactures numerous industry-leading healthcare products and personal protective equipment (“PPE”), including Plaintiff’s 3M-brand N95 respirators.  The demand for 3M-branded respirators has grown exponentially in response to the COVID-19 pandemic, and 3M has been committed to seeking to meet this demand while keeping its respirators priced fairly. 3M has not increased the prices that it charges for 3M respirators as a result of the COVID-19 outbreak.

Defendant is a distributor of various products including PPE.  In March 2020 Defendant sent a Formal Quote to New York City’s Office of Citywide Procurement, offering to sell millions of Plaintiff’s 3M-brand N95 respirator masks at a grossly inflated aggregate price of approximately $45 million. The prices quoted by Defendant were 500%-600% above 3M’s list price. Defendant reproduced the famous 3M marks throughout the Formal Quote, and attached to it Technical Specification Sheets that prominently feature Plaintiff’s famous 3M marks.  Defendant also put plaintiff’s address on the quote and stated that quote was conditioned on acceptance by Plaintiff.  Plaintiff asserts that Defendant is not an authorized distributor of any of Plaintiff’s products.

When the Plaintiff learned of the Defendant’s activity Plaintiff filed a complaint for federal and state trademark infringement, unfair competition, false association, false endorsement, false designation of origin, trademark dilution, false advertising, and deceptive acts and practices.

The primary question in this case will be whether the Defendant was actually reselling products produced by the Plaintiff.  If Defendant was selling genuine 3M-brand N95 respirator masks, the Plaintiff has a difficult time arguing that trademark infringement has occurred.  However, the Defendant’s exorbitant prices may still create a claim trademark dilution because price gouging during a global pandemic such as COVID-19, specifically, is likely to dilute the reputation of the Plaintiff’s trademark’s.

Fundamentally this case is about the Plaintiff protecting the good name of its trademark.  Demonstrating to the public that the Plaintiff will not tolerate price gouging is the primary goal, winning the case is not necessary to achieve that goal.

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