Showing posts with label unfair competition. Show all posts
Showing posts with label unfair competition. Show all posts

Monday, August 19, 2013

"Pirate Joe": Innocent Victim or Trader Joe's Nemesis?

An interesting set of legal issues has emerged in a trademark case arising out of conduct occurring in Vancouver, British Columbia. The popular supermarket chain Trader Joe's Company apparently does not operate any retail stores in Canada, but has 390 grocery stores in 30 states, including 14 in the state of Washington.

Consequently, each week, current Vancouver/former San Francisco resident Michael Hallatt drives his van across the international border to Seattle, Washington to purchase several thousand dollars worth of genuine Trader Joe's merchandise.  He then drives back to Vancouver and resells the goods at his own shop "Pirate Joe's", for a profit.

Trader Joe's has now filed suit against Hallatt in federal district court in Seattle, claiming that his conduct amounts to trademark infringement and unfair competition with the supermarket chain there.

Hallatt's lawyer has moved to dismiss the complaint on the basis that the complained-of conduct is occurring entirely outside of the United States, is having no clear impact on U.S. commerce, and is therefore wholly outside of the U.S. federal courts' jurisdiction to regulate.

There are several quirky legal issues here.

Generally speaking, even conduct occurring outside the United States can have some effect on U.S. commerce, and could be lawfully regulated by federal courts.  For example, if some Vancouver residents were ordering online from Trader Joe's, but instead shop at Pirate Joe's, that allegation could have sufficient impact on the supermarket chain to sustain a possible cause of action for trademark infringement.  However, Trader Joe's website does not seem to offer any shipping options to British Columbia.  This threshold issue requires resolution.

Further, there may be an even deeper problem with Trader Joe's allegations of trademark infringement.

Typically, once an authentic item is sold for the first time, the intellectual property owner loses all right to control any further sale or redistribution of that item, regardless of whether the further sales occur within or outside of the U.S.

It is this "first sale" or "exhaustion" doctrine that permits both casual sellers on eBay or Craig's List, as well as secondhand antique shops and used car dealers to exist, without constant fear of being sued for patent, copyright or trademark infringement.

Since trademark laws exist primarily to protect the public from confusion, as long as the consumer is fully aware that he is not purchasing an original item from an authorized retailer, there is generally no trademark infringement or unfair competition occurring.  Hallatt noted in interviews that he posts large, conspicuous disclaimers so that customers in his store are aware that he is not operating a legitimate, authorized "Trader Joe's" establishment.

Matters get even more complicated once you add international borders to the mix.

Authentic items that are sold outside the United States and then imported for resale are often called "gray market" goods.  Gray market goods can present significant problems for those brand owners who have different quality control standards abroad as compared to the United States.  

For example, aspirin packaged and intended for sale in Mexico will be labeled differently (and may even have different dosages) than those bottles which are intended for U.S. markets.

When school text books were at issue, Justice Stephen Breyer writing for a 6-3 majority of the U.S. Supreme Court in March 2013, held that once the school textbooks were sold overseas, they were free and clear to be resold within the U.S., labeling notwithstanding.  This gray market would likely have an impact of lowering the prices of textbooks.

But here, the "gray market" is essentially operating in reverse:  Hallatt is traveling to the U.S. to purchase goods and reselling them in Canada, not vice versa.

In this context, even if Hallatt's sale of Trader Joe's goods to Vancouver residents could conceivably cause some kind of consumer confusion as to source, it is unclear how his conduct is having any appreciable impact on U.S. commerce, in light of the first sale doctrine.  

In other words, how is Trader Joe's actually injured if, instead of a Vancouver resident driving to Seattle, he instead essentially just pays a nominal fee to Hallatt to do it for him?  

In both cases, Trader Joe's is selling the same merchandise:  Hallatt is just an unauthorized middleman.  Assuming there is no confusion, Trader Joe's appears to be unharmed.

It will be very interesting to see how the district court in Seattle ultimately rules.