Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC
90 U.S.P.Q. 2d (BNA) 1228, 2009 U.S. App. LEXIS 8233, 562 F.3d 1067 (2009)
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Rule of Law:
The unauthorized resale of a trademarked product constitutes trademark infringement if the product is materially different from the genuine article sold by the trademark owner. A material difference is not limited to the product's physical characteristics but can include non-physical aspects such as warranty coverage, service commitments, and software updates, as the absence of these features is likely to cause consumer confusion.
Facts:
- Beltronics sells its electronics, including radar detectors, through authorized distributors who agree to a minimum sales price.
- In violation of their agreements, two authorized distributors sold Beltronics radar detectors to Midwest.
- To conceal the supply chain, the distributors or Midwest removed the original Beltronics serial number labels from the radar detectors, sometimes replacing them with phony labels.
- Midwest then resold these radar detectors as 'new' on the internet auction site eBay.
- Beltronics's official policy limits warranties, software upgrades, rebates, service assistance, and recalls to products bearing an original, unaltered serial number label.
- Customers who purchased the radar detectors from Midwest contacted Beltronics for warranty service.
- These customers became confused and irate when they learned their products were ineligible for Beltronics's warranty and other services, which harmed Beltronics's reputation and goodwill.
Procedural Posture:
- Beltronics filed suit against Midwest in the U.S. District Court for the District of Kansas, asserting claims for federal and state trademark infringement.
- Beltronics filed a motion for a preliminary injunction to prevent Midwest from selling Beltronics products without original serial numbers.
- Following an evidentiary hearing, the district court granted Beltronics's motion for a preliminary injunction.
- Midwest, as the defendant, filed an interlocutory appeal of the district court's injunction order to the U.S. Court of Appeals for the Tenth Circuit.
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Issue:
Does the resale of genuine trademarked products, which are materially different from the manufacturer's authorized products due to the removal of serial numbers and the consequent loss of warranty and other post-sale services, constitute trademark infringement under the Lanham Act?
Opinions:
Majority - Tacha, J.
Yes. The unauthorized resale of a trademarked product that is materially different from the product sold by the trademark holder can constitute trademark infringement. The 'first sale' doctrine, which normally protects resellers of genuine goods, does not apply when the resold goods are materially different from those sold by the trademark owner. A difference is considered material if consumers would find it relevant to their purchasing decision. This standard is not limited to physical differences; it can include non-physical characteristics such as warranties, service commitments, software upgrades, and recalls. Because Midwest's radar detectors lacked these crucial non-physical attributes associated with the Beltronics trademark, and this difference caused actual consumer confusion and damaged Beltronics's goodwill, Beltronics demonstrated a substantial likelihood of success on its infringement claim.
Analysis:
This decision solidifies and expands the 'material difference' exception to the first sale doctrine, particularly within the Tenth Circuit. It clarifies that non-physical attributes, such as warranties and post-sale services, are legally significant and can render an otherwise genuine product 'materially different.' This precedent strengthens the ability of trademark holders to control the quality and consumer experience associated with their brand, even in the secondary market. It places a significant burden on unauthorized resellers to provide clear, prominent, and complete disclosures about any deficiencies in the products they sell to avoid liability for consumer confusion.
