27 Nov 23

First Sale Doctrine Defense in Counterfeiting Cases

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Last Updated on: 14th December 2023, 10:32 pm

Using the First Sale Doctrine Defense in Counterfeiting Cases

The first sale doctrine is an important defense that can be used in counterfeiting cases involving the resale of goods. This doctrine states that once a copyright or trademark owner sells an authentic item, the new owner can resell that item without needing further permission from the original owner. However, there are limitations on when and how this defense can be applied in counterfeiting situations. In this article, we’ll break down what you need to know about using the first sale doctrine as a defense against counterfeiting claims.

Overview of the First Sale Doctrine

The first sale doctrine is codified in Section 109(a) of the Copyright Act and Section 32 of the Lanham Act. It establishes that once a copyright or trademark owner voluntarily sells a particular copy of a work, the owner’s interest in that particular copy is exhausted. This means the new owner can dispose of that copy however they choose, including by reselling it or giving it away.The doctrine only applies to copies that have been legally made and sold under authorization from the copyright or trademark holder. It does not apply to bootleg or pirated copies. The defense also only allows resale of legitimate copies – it does not permit making reproductions or derivative works.

Using First Sale in Counterfeiting Cases

Counterfeiting involves making or selling goods that bear a trademark without the trademark owner’s consent. This includes making unauthorized copies as well as reselling legitimate goods that were not intended for sale in a particular market. Defendants accused of counterfeiting sometimes try to claim first sale protection when they have simply resold authentic goods.However, there are limitations on when first sale can be used as a defense in these situations:

  • The goods must be authentic and legally made – First sale only applies to legitimate copies, not counterfeits. The defendant has the burden of proving the goods are real.
  • The first sale must be authorized – If the goods were stolen or otherwise obtained illegally, first sale rights are not conferred.
  • The goods must be intended for sale in that market – First sale allows resale within the distribution channel intended by the trademark owner. Selling goods in a market they are not authorized for violates trademark rights.
  • There must be no material differences – Minor differences like removing tags may be acceptable, but significant alterations indicate counterfeiting.
  • Consumer confusion must not be created – Selling the goods in a misleading way that confuses consumers also defeats a first sale claim.

Examples of First Sale Use in Counterfeiting Cases

Here are some examples of how the first sale doctrine has been applied as a defense in counterfeiting lawsuits:

  • In Omega S.A. v. Costco Wholesale Corp., Costco lawfully purchased authentic Omega watches intended for sale overseas, imported them to the US, and sold them here without Omega’s consent. The court ruled Costco could not invoke the first sale doctrine because Omega did not intend for those particular watches to be sold in the US market.
  • In Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, the defendants resold authentic radar detectors on eBay that were intended for other distribution channels. The court found this was likely not protected by first sale because consumer confusion could be created about the source.
  • In Davidoff & CIE, S.A. v. PLD Int’l Corp., the defendants removed batch codes and serial numbers from perfume bottles before reselling them. The alterations went beyond what first sale allows, indicating counterfeiting.

Using First Sale Requires Careful Proof

Because of the complex limitations involved, asserting a first sale defense in counterfeiting cases requires strong proof that all the doctrine’s conditions have been met. Vague claims are unlikely to succeed. The evidence must demonstrate:

  • The goods are genuine, not counterfeits
  • The first sale was authorized and legal
  • The products were intended for sale in that market
  • There are no material differences from the originals
  • Consumer confusion was not created

Meeting this burden often requires extensive documentation about the chain of custody and distribution of the goods. Even then, differences in international trademark law mean first sale claims face hurdles when goods are imported.Thoughtful planning is required to stay on the right side of the law. Those reselling goods should consult an attorney to be sure their specific situation qualifies for first sale protection. With smart precautions, the first sale doctrine can be an effective defense against some counterfeiting claims. But it is not an automatic get-out-of-jail-free card, and careful proof is essential.