Legal Briefs #2 - Authorized Seller Agreements

Transcript:

Ron: Hi there, and welcome back to Legal Briefs, where we have short discussions about important aspects of brand protection strategies. With us is Jeremy Richardson, Esquire. Hey, Jeremy.

Jeremy: How are you, Ron?

Ron: Doing great. How are you?

Jeremy: Doing excellent, doing excellent. Looking forward to having some more interesting information and helpful information for you, the brands that are interested in this topic.

Ron: So, the topic is Authorized Reseller Policies. So, e-commerce protection for brands has evolved from just minimum advertised pricing policies or minimum retail price policies to include other policy types like authorized reseller policies. That makes sense for us, given that there's no point in trying to enforce MAP against someone that they don't want selling the product. The fact of there being there is the offense. But when they go after companies like that, then they cite the First Sale Doctrine, and the brands don't really have too much to combat that with. So, what are your thoughts on authorized reseller policies and their effectiveness?

Jeremy: Sure. So, I think the first thing we want to say is the minimum advertised price policy is just one of a number of documents that companies should have, manufacturers and brand owners should have, that make up the sort of suite of documents that create the relationship with, or govern the relationship with their retailers. And, Authorized Reseller Policy or reseller policies generally should touch on a number of important business terms: Including terms and conditions of sale, you might want to have terms in there whether you're going to offer credit, whether you're going to require payment, net 10, net 30, all sorts of other business terms that really govern the relationship.

But one of the important parts of a reseller policy which you touched on in talking about the First Sale Doctrine, is quality control standard. I think that quality control standards are important to make sure that your retailer is properly representing your brand. And that may be as a luxury brand, that may be as a price sensitive brand. All sorts of different levels require different types of quality control standards and making sure that the retailer abides by those and properly represents the image of your brand and the quality standards.

Ron: OK. Are there specific criteria other than that, that you recommend a brand include? Should, let's say for instance the brand has, A MAP policy. Should they include adherence to the map policy as one of the criteria to stay authorized.

Jeremy: Well, again, the minimum advertised price policy is a unilateral policy by the company. It is not an agreement with your retailer. So, I think it's okay to say you have a minimum advertised price policy, but you don't want the retailer to agree to the minimum advertised price policy when they agree to abide by your reseller policy, or your terms and conditions of sale. We talked about this in another episode where it's okay to have a retailer acknowledge receipt of your minimum advertised price policy, but you don't want them to agree to it because that converts it from a unilateral policy to an agreement.

Ron: OK. So then again, no signature on the authorized reseller policy. So, it's not an agreement, it is a policy straight up. Would you recommend that a brand include categories of where a company is allowed to sell their products? For instance, an account must have a brick-and-mortar store if they want to sell their products online, or if it's a strictly online seller that the brand say, “okay, you may sell your product on your own branded website, but you may not sell it on the Amazon.”

Jeremy: Yes, it is perfectly okay for a brand or manufacturer to restrict or limit the channels of distribution where a retailer may sell the company’s products. So, it's perfectly fine to say, “Jeremy, you can sell through Jeremy's brick and mortar store, but you can't sell on 3rd party websites, or auction websites, or different categories of websites.” That is acceptable and some brands and manufacturers want to do that.

Ron: Let's just talk about enforcement of an authorized reseller policy. If, if I'm not going to put in my policy, me, I'm the brand, if I'm not going to put that, you have to adhere to my MAP in my Authorized Reseller Policy and then I catch. But I do have a marketplace exclusion, right? So, you're allowed to sell on your site, but you may not sell on eBay, but I find you selling on eBay. Do I go through a series of warnings and say, based on the Authorized Reseller Policy you’re in violation because you're selling here or, even more because you're violating map, you're risking giving up your authorized reseller status, or you simply cut them off with no.

Jeremy: So again, that becomes a business decision for each brand, manufacturer, whether they want to enforce whether it's the minimum advertised price policy or the reseller agreement. Where you have a reseller agreement and the reseller breaches that agreement, you have a basis for termination. You may want to terminate.

You may decide that there are good business reasons for not terminating, like it's a really important retailer for you. They do a lot of volume. The brand gets a lot of business, so they may overlook that breach of the reseller agreement. In many cases, a manufacturer may say to the reseller you're in breach of our reseller agreement. We are terminating the agreement and we are not going to sell you our products anymore and that is perfectly fine.

Ron: And so, violation of MAP would be an acceptable offense to become unauthorized.

Jeremy: Well, let's not distinguish between authorized and not authorized. There's no requirement in the United States that a brand or manufacturer accept request to purchase from all offers. So, you brand owner manufacturer, do not have to do business with every single retailer who wants to sell your products. You can pick and choose.

Ron: And you don't have to give a reason for it?

Jeremy: No, you don't have to. You don't have to give a reason. One caution, I would be careful not to make those decisions based on discriminatory criteria, race, religion, gender, etcetera. I would avoid that. But as far as whether you decide to do business with the retailer or not, that is really your decision and it's a business decision and there are certainly many valid business reasons for doing business with Ron but not doing business with Jeremy.

But getting back to the violation of the minimum advertised price policy, it's not a breach of contract because again, the minimum advertised price policy is not a contract. It's not an agreement between the manufacturer and the retailer. It is a policy. And a violation of the minimum advertised price policy by a retailer may cause a manufacturer to simply say we don't want to do business with you anymore. That's a little bit different than a breach of a reseller policy or reseller agreement, really, where you have written contract that has all the business terms and the reseller violates that contract. You have a basis for termination and stopping the relationship.

Ron: So, I'm glad you brought that up because you did say agreement. So again, we're back to when we had this podcast about that MAP policy versus MAP agreement and it seems to me that you're saying that an Authorized Reseller Policy could also be an Authorized Reseller Agreement.

Jeremy: Yes, I should be clear on that. When I talk about a reseller agreement, I'm really talking about the terms and conditions that govern the relationship between the manufacturer and the retailer. And I would really call that a retailer agreement, reseller agreement. But loosely speaking you could call it, you might call it, policy. It really is bilateral. It's an agreement between the parties and often the reseller agreement will include qualities for which a reseller will become an authorized reseller. And that often includes quality standards, or the reseller maintaining certain quality standards, quality control or retail environment that meets with the brands status maybe as a luxury brand, or perhaps as a price sensitive mass brand, customer support, and the number of other items that the manufacturer or brand owner really wants to control to maintain the reputation of its brand and the value in its trademark.

Ron: I'm glad you brought up trademark. Let's just say that there is a retailer who gets property, who gets product from a source unknown to the manufacturer, and therefore in the manufacturer's mind, it's not an authorized reseller. They don't want them to be there. But they own the product, and so they can turn around and they can throw up the First Sale Doctrine at the manufacturer. Does there? Is there anything in the Authorized Reseller Policy that would help them against that?

Jeremy: Well, you bring up a really interesting area of law under intellectual property, the First Sale Doctrine. Broadly speaking, the First Sale Doctrine says that a reseller who purchases genuine product can sell that genuine product without violating the brand owner’s intellectual property rights. And broadly speaking, that's true that the First Sale Doctrine is a defense against trademark infringement. But the exception has to do typically with quality control or availability warranties or other items of that nature that will distinguish the genuine product from what we would call non-genuine product, even though it is legitimately from the manufacturer.

If it doesn't comport with the quality control standards there is what courts talk about as a material difference, which takes it outside the First Sale Doctrine and actually allows a brand owner to sue a reseller for trademark infringement. As an example, where they don't comply with the quality control standards. This could be really important where a product is subject to spoilage if it's not refrigerated or kept at the right temperature, or if it has an expiration date and a reseller wants to sell it after the expiration date or even not quite so formal product issues, but, customer support issues.

So, a customer might want help with assembly or questions about continuing support of a product, and if the manufacturer brand owner has quality control standards that an authorized reseller must comply with, and this other reseller who purchases product from an unknown source doesn't comply with, there is a basis for the exception to the First Sale Doctrine and a trademark infringement lawsuit by the brand owner against that unauthorized reseller.

Ron: And so, the Authorized Reseller Agreement policy can set the framework for that, correct?

Jeremy: Yes, that's exactly right. And the reseller agreement, the retailer agreement, can have those quality standards built in either within the body of the document or as an addendum or simply as a separate set of standards that are referenced in the reseller agreement.

Ron: Well, that's good information to have. I appreciate it. And I'm sure that all of our listeners appreciate it as well. So Authorized Reseller Policy absolutely should be one piece, one arrow in the quiver of brand protection, and now we know a bit more about it. And I thank you again, Jeremy, for all of your insights and your knowledge.

Jeremy: My pleasure. Good speaking with you, Ron.

Ron: If you'd like to submit a question or topic for a Legal Briefs podcast email them to legalbriefs@mapptrap.com. For more information about how MAPP Trap can help you with your online brand protection needs visit www.mapptrap.com.