Sale of Expired Goods, Use of Google Adwords, Could be Trademark Infringement
March, 2009
On February 20, 2009, in the case of Mary Kay Inc v. Weber, et al., the United States District Court for the Northern District of Texas denied summary judgment to an online reseller of Mary Kay Cosmetics, affirming limits on the availability of the First Sale and Nominative Fair Use doctrines to shield alleged trademark infringers. The court held that the defendant's sale of expired goods may preclude reliance on the first sale doctrine as a defense and that the defendant's use of certain language in a Google sponsored link may preclude resort to the nominative fair use doctrine.
In Mary Kay, Weber, a former "Independent Beauty Consultant," created an online retail site known as Touch of Pink Cosmetics that sought to take advantage of the fact that Mary Kay imposes minimum monthly purchase requirements on its Beauty Consultants, resulting in large volumes of unsold inventory. Touch of Pink purchases this unsold inventory from Beauty Consultants and resells it at touchofpinkcosmetics.com.
Mary Kay tightly controls its retail sales channels, selling exclusively through an army of Mary Kay Beauty Consultants and its own website. In addition to competing directly with Mary Kay sales channels, the sale of inventory to Touch of Pink violated terms of the consultants' agreements with Mary Kay. Mary Kay sued Touch of Pink for trademark infringement and Touch of Pink moved for summary judgment.
Court Affirms Application of First Sale Doctrine But Finds Factual Issue As To Whether Touch of Pink's Sale of Expired Goods Tarnished Plaintiff's Mark
Touch of Pink claimed that it fell squarely within the protection of the First Sale Doctrine as a mere reseller of Mary Kay cosmetics. Under the First Sale Doctrine, a reseller of genuine trademarked goods does not run afoul of the trademark laws even where the sales compete directly with the owner of the mark and are without the owner's consent.
The court denied summary judgment, finding that a factual issue existed concerning an exception to the First Sale Doctrine. That exception holds that an alleged infringer who sells goods that are "materially different" from the goods sold by the mark owner is not protected by the doctrine. The exception protects the mark owner from having its mark tarnished by a reseller of genuine but inferior or degraded goods that bear the owner's mark. Mary Kay argued that Touch of Pink's sale of cosmetics whose "sell by" date had expired tarnished Mary Kay's reputation for quality and the Mary Kay brand. The court rejected Touch of Pink's contention that because expired cosmetics were sometimes sold though Mary Kay's authorized sellers, the goods were not materially different. The court held that a mark owner need not adopt the most stringent quality control measures available to make use of the exception; it need only establish: (1) "legitimate, substantial nonpretextual quality control procedures;" (2) that it abides by those procedures and (3) that the non-confirming goods will diminish the value of the mark.
Touch of Pink's Purchase of Google "Sponsored Link" Raised Factual Issue Regarding False Impression of Affiliation
The court next addressed Touch of Pink's "nominative fair use" defense. The Nominative Fair Use doctrine allows the use of another's mark in order to describe or compare a product to the mark owner's product. The doctrine does not apply, however, where the defendant gives a false impression that it is affiliated with or sponsored by the owner of the mark. Mary Kay contended that by purchasing the right to have TouchofPink.com appear as the first sponsored link in response to a Google search for Mary Kay cosmetics, Touch of Pink gave the false impression that it was a Mary Kay site. The evidence indicated that Touch of Pink paid approximately $20,000 per month to purchase 79 keywords from Google, 75 of which included the name Mary Kay or the name of a Mary Kay product.
Significantly, the court held that the defendant's purchase of key words containing the plaintiff's mark without more did not create a false impression of affiliation. To hold otherwise, the court found, would prevent all resellers who advertise via search engines from claiming fair use and would defeat one of the main purposes for which search engines were created - to present users with information they seek as well as related information they may find useful. However, the court found that in this case Touch of Pink's purchase of a sponsored link reading "Mary Kay Sale 50% off . . . touchofpink.com," combined with the website's liberal use of pink, a color associated with Mary Kay, created a factual issue as to whether Touch of Pink created a false impression of affiliation with Mary Kay.
Although the case is consistent with existing case law in this area, it is helpful in clarifying the application of the First Sale and Nominative Fair Use doctrines in the area of online sales, and provides guidance to trademark owners who may have been harmed by online resellers. If you have questions concerning how the above decision may affect your company or about trademark issues generally, please contact a member of Bullivant's Intellectual Property group toll free at 1-800-654-8972.