The first sale doctrine is a defense to trademark infringement. In the US, federal trademarks are governed by the Lanham Act. The Lanham Act prohibits unauthorized persons or entities from using a registered trademark “in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.” See 15 U.S.C. § 1114. When a trademark is registered with the Trademark Office, after a while, that registration confers upon the owner the presumptions that the trademark is valid and that the owner has the exclusive right to use the mark nationwide.

If a person or entity uses a trademark without authorization, the holder/owner of the trademark may bring a lawsuit for trademark infringement. To win, the trademark holder/owner must show two legal elements:

• A valid trademark
• That the infringer’s use of the same or similar trade mark is likely to cause consumer confusion

However, depending on the facts of the case, there are several defenses that an accused infringer can raise, including what is known as the “first sale doctrine.” In general, the Lanham Act only protects the first sale of manufactured goods. This means that if an individual RESELLS trademarked items, there can be no claim for trademark infringement (as long as the goods are genuine and bear a true mark). This is true even if the original manufacturer does not authorize the RESELLING of its goods. Courts have held that the first sale doctrine flows from the text of the Lanham Act and from the public policy principle that a manufacturer has only the right to control the original distribution of its products. To allow otherwise would endanger the free flow of products in the marketplace.

Where a defendant invokes the first sale doctrine as a defense to a claim of trademark infringement, the defendant must first prove that the trademark holder/owner authorized the first sale of the goods. Usually, proof of that is straight-forward; but not always. A recent case involving Hallmark greeting cards provides an interesting example where the first sale doctrine was rejected as a defense. See Hallmark Licensing, LLC v. Dickens, Inc., Case No. 17-cv-2149 (E.D.N.Y. October 21, 2020). In that case, Hallmark sold 20 truck trailers of greeting cards to a pulp and paper company. This was after Hallmark closed one of its processing and manufacturing centers. The trailers of greeting cards were destined to be destroyed and recycled.

However, instead of destroying the greeting cards, the pulping company sold them and, eventually, a subsequent buyer, defendant Dickens, began to sell the greeting cards to the public. This prompted Hallmark to sue Dickens for various causes of action including Lanham Act trademark infringement. Dickens defended by raising the first sale doctrine. Dickens highlighted the undisputed fact that Hallmark sold all the greeting cards to the pulping company.

However, the court rejected the argument. In simple terms, the “sale” to the pulping company was not a “sale” as contemplated by the Lanham Act. The “sale” was not for the purpose of injecting the goods into the stream of commerce; but rather for the purpose of having the greeting cards destroyed. As such, there was no “first sale” and, therefore, Hallmark retained its rights under the Lanham Act to control the distribution of its goods. Dickens was found to be infringing Hallmark’s trademarks. For more information or if you have questions about creating and registering a trademark or if you need legal services related to trademark litigation, contact the trademark lawyers at Revision Legal at 231-714-0100.

The First Sale Doctrine: Statutory Foundation and Rationale

The trademark first sale doctrine—also called the exhaustion doctrine—rests on the interpretation of the Lanham Act’s use requirement. Courts have reasoned that the Act’s prohibition on unauthorized trademark use in connection with a sale is satisfied when the trademark holder first places the goods into the stream of commerce. Once that first authorized sale occurs, the trademark’s function of indicating source is not disrupted by subsequent resales of the identical, genuine goods. See Sebastian International, Inc. v. Consumer Contacts (PTY) Ltd., 847 F.2d 1093, 1096 (3d Cir. 1988). The policy rationale is rooted in property law: a trademark owner who places goods into commerce should not be able to dictate every subsequent transaction involving those goods.

When the First Sale Doctrine Does NOT Apply

The doctrine has important limitations. First, as the Hallmark case illustrates, the “sale” that triggers exhaustion must be an authorized sale into the ordinary channels of commerce—a transaction intended to inject the goods into the marketplace. A bulk sale to a destruction contractor, a recall of defective goods, or a transfer to a liquidation company with express instructions not to resell are not “sales” in the relevant sense. Courts look at the totality of circumstances, including any representations made at the time of the transaction and any restrictions communicated to the buyer.

Second, the doctrine does not protect resellers who materially alter the goods after purchase. A reseller who removes or substitutes labels, repackages products in a way that damages the goods, or modifies the product itself cannot claim first sale protection. See Warner-Lambert Co. v. Northside Development Corp., 86 F.3d 3 (2d Cir. 1996). Third, the first sale doctrine provides no protection for counterfeit goods. If the goods bearing the mark are not genuine, no first sale of genuine goods occurred and the doctrine is unavailable.

Gray Market Goods and the First Sale Doctrine

A particularly contested application involves gray market or parallel import goods—genuine trademarked goods manufactured abroad and imported into the United States without the US trademark holder’s consent. The Supreme Court addressed this issue in K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988). Courts generally hold that material differences between the gray market goods and the authorized US products—different formulations, language, warranty terms, or customer support—defeat the first sale defense because the mark no longer accurately signals to US consumers the nature of what they are purchasing.

Amazon and Online Marketplaces

The first sale doctrine has taken on new urgency in the era of online marketplaces. Brand owners increasingly use Amazon’s Brand Registry and Transparency programs to combat resellers, sometimes filing complaints that go beyond legitimate IP enforcement. Resellers of genuine goods who face trademark infringement complaints from brand owners should understand that the first sale doctrine is a recognized legal defense. In cases of bad-faith abuse of Amazon’s Brand Registry by brand owners seeking to exclude legitimate resellers, the reseller may have independent claims for tortious interference with business relations or abuse of process.

Speak with a Trademark Attorney

Whether you are a brand owner seeking to protect your distribution channels or a reseller asserting the first sale doctrine against an infringement claim, the trademark attorneys at Revision Legal can evaluate your position and advise on the best strategy. Contact us at 231-714-0100.