Luxury goods manufacturers have their hands full trying to police the Internet for counterfeits and knockoffs. An online auction, eBay is one of the places where vendors of counterfeit luxury goods are known to frequent. Are the trademark enforcement actions getting out of hand, however, or being used for the wrong reasons? That is the question raised by a class action lawsuit pending against luxury handbag manufacturer Coach.
A former Coach, Inc. employee and Coach handbag owner filed a class action complaint in a US District Court in Seattle, Washington against Coach, Inc. (copy here), alleging misrepresentation of trademark infringement, defamation, tortious interference with business expectancy, and violations of the Washington Consumer Protection Act. The complaint seeks a declaration of the parties rights under various theories including a claim that Coach is liable for falsely representing that the handbag was counterfeit and seeking attorneys fees under 17 U.S.C. 512(f), a provision of the Digital Millennium Copyright Act that creates a cause of action for falsely representing that material or activity is infringing.
Trademark Issues in Internet Sales
It is an interesting theory in trademark law to attempt to apply a provision of the DMCA, which addresses online copyright infringement, to an allegedly false claim of trademark infringement. The plaintiff, Gina Kim, claims that she bought an original Coach leather handbag at a Coach store in San Francisco for $438, but later decided to sell it on eBay because she wasn’t using it. Coach sent Kim a cease and desist letter alleging trademark infringement and demanded she pay damages of $300, as well as return the handbag to Coach.
The complaint alleges that Coach monitors the Internet, particularly eBay, and when it finds Coach bags being sold, without doing any investigation, it uses a New York City law firm to send cease and desist letters to the sellers claiming trademark infringement and also sends written complaints to eBay. This results in the product being removed from eBay and the user’s account closed because of what, the plaintiff alleges, are unfounded allegations of trademark infringement.
The complaint goes on to allege that Coach, through its actions against Kim and others, is trying to quell lawful second-hand sales of Coach products on the Internet, forcing customers instead to pay top dollar for new items or face legal consequences of second-hand sales via threats of penalties and litigation.
Re-sales Protected by First-Sale Doctrine
The problem, of course, is that second-hand sales are perfectly legal, but that they are not infrequently mixed with knock-offs. There has been a significant amount of litigation about what eBay’s rights and obligations are when confronted with claims that a seller is trying to pass off counterfeit goods as originals. (See our prior posts on on-line counterfeit goods here and the discussion of the landmark Tiffany case.) The sellers of legitimate second-hand goods rely on the First-Sale Doctrine (discussed in a prior post here) which permits the use of the trademark to accurately describe the goods being resold.
Meanwhile, the owners of the intellectual property rights in goods that are being resold at an auction have an enforcement problem. It is often difficult, if not impossible, to determine whether goods on eBay are legitimate or counterfeit and thus whether to pursue a claim for trademark infringement or copyright infringement without an expensive investigation or purchasing the goods directly.
The plaintiff’s reliance on the DMCA is also worth noting. Having items removed from the Internet based on an allegation of trademark infringement is more difficult than copyright infringement. First, of course, you have the fact that there is a statute that expressly creates a process for having infringement goods (the take-down notice and counter-notice procedure created by the DMCA) and it’s much easier to say whether something is a copy or not. There is no equivalent statutory procedure for encouraging an Internet site like eBay to remove goods that infringe a trademark. Second, it is unclear whether a court will apply the statutory remedy available under the DMCA for a material misrepresentation of infringing activity. While the remedy may be available under copyright law, it seems less likely to be available under trademark law.