On May 6, 2010, the Ninth Circuit issued an opinion shedding light on the so-called "first sale" doctrine in trademark law. The "first sale" doctrine generally prevents a producer from controlling the distribution of its trademarked product beyond the first sale, such that a purchaser who merely displays, stocks, or resells a product under the producer's trademark will not violate the Lanham Act. This doctrine also exists in copyright law where its applicability to foreign as well as domestic sales is currently before the U.S. Supreme Court in Costco Wholesale Corporation v. Omega SA.
In Au-Tomotive Gold, the Ninth Circuit affirmed that Au-Tomotive Gold, Inc.'s (Auto Gold) sale of license plates bearing the Volkswagen trademark constituted trademark infringement, notwithstanding the "first sale" doctrine, based on a likelihood of post-purchase confusion.
Marquee license plates are generally plain license plates with some type of logo or emblem displayed on them. Auto Gold began selling such plain silver or black plates bearing the Volkswagen trademark in 1999. To produce these plates, Auto Gold purchased Volkswagen "badges" (physical VW logos) from a Volkswagen dealer, altered them slightly, and then mounted the badges on marquee plates. The plate packaging contained a disclaimer which stated that the plates were not produced or sponsored by Volkswagen. After multiple demands by Volkswagen to cease production of the plates, Auto Gold filed suit seeking a declaratory judgment that its conduct did not constitute an infringement of Volkswagen's trademarks. Volkswagen counterclaimed for trademark infringement, and both parties moved for summary judgment.
The district court granted summary judgment for Auto Gold, but the Court of Appeals reversed. On remand, the district court then rejected Auto Gold's "first sale" defense—namely that the first sale of the badges from the Volkswagen dealers to Auto Gold was legal and therefore immunized subsequent or downstream uses—and granted summary judgment for Volkswagen. Auto Gold appealed.
On appeal, the Ninth Circuit held that the "first sale" doctrine did not apply, because the plates created a likelihood of confusion as to their origin. In reaching this conclusion, the Ninth Circuit discussed the history of the "first sale" doctrine. The Court noted that a number of cases have applied the doctrine where a trademarked product is incorporated into a new product. However, the Court also cited another line of cases (which did not specifically address the "first sale" doctrine) for the proposition that a producer commits trademark infringement when it sells refurbished or altered goods under their original trademark. The Court stated that those cases "establish that activities creating a likelihood of post-purchase confusion, even among non-purchasers, are not protected."
Extending this principle to the at-issue product, the Ninth Circuit held that the plates created a likelihood of post-purchase confusion because, although there were disclaimers on the packaging, when displayed to the general public Auto Gold's products did not contain any indication that such items were not affiliated with or sponsored by Volkswagen. The Court stated, "We do not base our holding on a likelihood of confusion among purchasers of the plates. Rather, we base it on the likelihood of post-purchase confusion among observers who see the plates on purchasers' cars." Accordingly, the Ninth Circuit affirmed the district court's holding and held that the "first sale" doctrine did not prevent a finding of trademark infringement.
The Ninth Circuit's holding reveals that the mere purchase of a trademarked product does not give a buyer free reign to use it in any way. If a buyer alters the trademarked product in such a way so as to suggest to its own customers that the products are sponsored by or come from the trademark owner, there may be liability.
Correspondingly, a trademark owner should remind its customers that they should not tamper with the mark or suggest that their products come from or are affiliated with the owner. Trademark licensors should also be especially careful and specific in their licenses as to what licensees may or may not do with the mark, how the mark is presented, and on what goods or products it may be used.