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The essence of the first sale doctrine is that a purchaser who does no more than stock, display, and resell a producer's product under the producer's trademark violates no right conferred upon the producer by the Lanham Act, 15 U.S.C.S. § 1051 et seq. The United States Court of Appeals for the Federal Circuit and the United States Court of Appeals for the First Circuit have held that differences in warranties or service commitments may constitute material differences. The Federal Circuit has held that physical material differences are not required to establish trademark infringement because trademarked goods originating from the trademark owner may have nonphysical characteristics associated with them, including services, such that the sale of similar goods lacking those associated characteristics may mislead the consumer and damage the owner's goodwill. Similarly, the First Circuit has observed that the appropriate test for materiality should not be strictly limited to physical differences, but should include other differences such as warranty protection or service commitments that may well render products non-identical in the relevant Lanham Act sense.
Beltronics is a provider of aftermarket vehicle electronics, including radar detectors. As early as 2003, Beltronics began selling electronics equipment under its Beltronics trademark. At all times relevant to this case, Beltronics sold its equipment to at least two authorized distributors who agreed to sell the products for a specified minimum price. Apparently in violation of their distribution agreements, those distributors sold Beltronics radar detectors to Midwest (a consumer electronics company), which in turn resold them as "new" on the internet auction site eBay. To prevent Beltronics from discovering that Midwest's inventory had been supplied by the two distributors, the distributors either replaced each radar detector's original serial number label with a phony label or removed the original label altogether before shipping equipment to Midwest. On rare occasions, when the distributors supplied Midwest with a radar detector bearing an original serial number label, Midwest removed the label prior to resale. It is Beltronics's policy that only those who purchase Beltronics radar detectors bearing an original serial number label are eligible to receive certain products and services, including software upgrades, rebates, product use information, service assistance, warranties, and recalls. Beltronics learned that its radar detectors were being sold without original serial labels when Midwest's purchasers contacted Beltronics with warranty requests for detectors that had phony serial numbers. These customers became irate whenever they learned their radar detector was not covered by Beltronics's warranty and did not come with other services such as recalls and product upgrades, and that Beltronics alleged that it was extremely harmful to its reputation and goodwill. Thus, in September 2007, Beltronics filed this action against Midwest. The complaint asserted (1) counterfeiting and federal trademark infringement under 15 U.S.C. § 1114; (2) false designation or origin under 15 U.S.C. § 1125; and (3) trademark infringement, unfair competition, and passing off in violation of state law. Following an evidentiary hearing on October 31, 2007, the district court determined that Beltronics had satisfied all of the necessary requirements for a preliminary injunction and enjoined Midwest from selling or offering for sale any Beltronics products that do not bear an original serial number label. Midwest filed a timely notice of interlocutory appeal.
Does the first sale doctrine shield Midwest from liability against infringements of Beltronics’s rights?
The district court did not commit an error of law in concluding that material differences may include the warranties and services associated with Beltronics's radar detectors. Were the first sale doctrine the only legal principle shielding resellers from liability in this scenario, Midwest's argument might have availed. However, the fact that "the resale of a trademarked product that is materially different can constitute a trademark infringement," does not mean that it always does. The Lanham Act does not proscribe material differences per se; it proscribes sales and offers for sale that are "likely to cause confusion, or to cause mistake, or to deceive." 15 U.S.C. § 1114(1)(a)-(b). The purpose of the material difference test is to assist courts in determining whether allegedly infringing products are likely to cause confusion in the marketplace and undermine the goodwill the trademark owner has developed in its trademarked goods. So long as resellers of materially different products take the necessary steps to adequately alleviate this confusion and prevent injury to the trademark's goodwill--by, for example, sufficiently disclosing that the product differs from the originally sold product--those differences will be unlikely to trigger the liability Midwest envisions. In this case, however, the two products at issue were nearly identical in all physical respects, they are used in the same manner, and Midwest did not offer any evidence showing that consumers were not confused.