Why MAP Polices Fail and What You Can Do So Your Policy Doesn't
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Get real answers as to why your MAP policy is failing and how it can be fixed. Learn how to enforce against both authorized and stubborn grey market sellers. Minimum Advertised Price policies are effective for keeping authorized distributors from advertising unauthorized discounts. However, as e-commerce continues to grow, unauthorized sellers are going to be an increasingly important challenge for brands to address. These unauthorized online retailers are far less likely to follow a manufacturer’s price policy. A recent study published by the Kellogg School of Management found 53 percent of grey market sellers do not comply with MAP policies. Unless a brand owner has taken the proper preemptive legal steps, unauthorized sellers can be difficult to enforce against. Whitney Gibson, partner at Vorys and leader of the firm’s group focused on internet and brand reputation issues and Laura Erdman, an associate at Vorys, share strategies for creating an effective MAP policy that encourages authorized sellers to comply and gives brands legal claims to enforce against unauthorized sellers. As one of the leading law firms in the country on matters related to ecommerce brand and channel enforcement matters, Whitney and Laura are able to provide straight answers as why most MAP policy are failing today. Not only will that explain how to resolve common mistakes made by most brands, they will address how to identify and create legal claims against unauthorized sellers and how to navigate concerned distributors who may be upset with authorized reseller policies.
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Why MAP Polices Fail and What You Can Do So Your Policy Doesn't
- 1. Why MAP Policies Fail and What You Can Do So Your Policy Doesn’t Whitney Gibson Laura Erdman
- 2. Who We Are • Vorys, Sater, Seymour and Pease LLP was established in 1909 and currently has 375 attorneys in seven offices nationwide • Currently ranks as one of the 200 largest law firms in the U.S., according to American Lawyer magazine • Vorys has been identified by 17 Fortune 500 companies as a go-to law firm
- 3. Vorys Online Seller Enforcement Group • Developed comprehensive graduated enforcement systems that many companies use today to address MAP violations, unauthorized sellers, traffic diversion schemes, misleading adds, defamation attacks and other online brand threats. • Works with companies across the country on global enforcement programs. • Regularly speaks and writes on strategies for stopping unauthorized online sales, and other online brand threats, including the SF ACC, DSA Annual Meeting, DSA Global Summit, Law360, etc.
- 4. Vorys Online Seller Enforcement Whitney Gibson Partner Daren Garcia Partner Adam Sherman Partner Ken Rubin Partner Herbert Hedden Partner T. Blake Finney Associate Amanda Roe Associate Laura Erdman Associate Leslie Allen Associate Jordan Cohen Associate Maureen Kelly Associate Samuel Yamron Associate Bridget Sedlock Associate Meredith Caplan Associate
- 5. Companies Cannot Efficiently Identify Authorized Sellers Violating MAP
- 6. Need Good Technology • Sellers play games • Below MAP nights/weekends • Will deny violations • Report reliable results
- 7. Key Items to Facilitate Identifications • Need list of screennames/websites of authorized sellers • Prohibit anonymous sales • Online channel restrictions • Incorporate in online seller agreement/policy • Ability to subpoena if necessary
- 8. Unauthorized Sellers Have a Higher Tendency to Violate MAP Policies SOURCE: http://insight.kellogg.northwestern.edu/article/when-retail-prices-cross-the-line 15% of authorized retailers violate MAP policies 53% of unauthorized retailers violate MAP policies
- 9. Northwestern Study “Overall, the researchers urge manufacturers to focus on both authorized and unauthorized retailers when it comes to MAP violations” See https://insight.kellogg.northwestern.edu/article/when-retail-prices-cross-the-line
- 11. Companies Often Do Not Have Valid Legal Claims Against Third-Party Unauthorized Sellers MAP Policy
- 12. Law First Sale Doctrine: Once a trademark owner sells a product, the buyer ordinarily may resell the product without infringing the trademark
- 13. Material Difference Exception • “The threshold of materiality must be kept low . . . because it is the subtle differences that consumers are most easily confused.” • Only one material difference is sufficient to bring a trademark infringement claim • Material differences do not have to be “physical” to establish trademark infringement
- 14. Material Difference Exception #1: Warranty
- 15. Create Material Difference This limited warranty applies only to purchases from authorized [Insert Company] retailers.
- 16. Trademark Claim Supported by Case Law • Material difference found when the non-genuine product is not subject to the same warranty as the genuine product. • Bayer Corp. v. Custom Sch. Frames, LLC, 259 F. Supp. 2d 503 (E.D. La. 2003); TracFone Wireless, Inc. v. Pak China Grp. Co., 843 F. Supp. 2d 1284 (S.D. Fla. 2012); Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067 (10th Cir. 2009); Fender Musical Instruments Corp. v. Unlimited Music Ctr., Inc., No. 3:93CV2449, 1995 U.S. Dist. LEXIS 15746 (D. Conn. Feb. 16, 1995); RFA Brands, LLC v. Beauvais, No. 13-14615, 2014 U.S. Dist. LEXIS 181781 (E.D. Mich. Dec. 23, 2014); Heraeus Kulzer LLC v. Omni Dental Supply, No. 12-11099-RGS, 2013 U.S. Dist. LEXIS 91949 (D. Mass July 1, 2013); Bel Canto Design, Ltd. v. MSS HiFi, Inc., 837 F. Supp. 2d 208 (S.D.N.Y. 2011); Montblanc-Simplo GmbH v. Staples, Inc., 172 F. Supp. 2d 231 (D. Mass. 2001).
- 18. Access to Promotions, Discounts, Other Programs
- 19. Trademark Claim Supported by Case Law • The fact that the non-genuine product did not inform consumers of or allow consumers to participate in the company’s promotions constituted a material difference. PepsiCo v. Pacific Produce, Ltd., No. 99-1326-PMP-RLH, 2000 U.S. Dist. LEXIS 12085 (D. Nev. May 4, 2000); PepsiCo, Inc. v. Longmont Packing, No. 99 D 1077, 1999 U.S. Dist. LEXIS 12811 (D. Colo. Aug. 2, 1999); PepsiCo, Inc. v. Giraud, 7 U.S.P.Q. 2d 1371 (D. P.R. 1988); Bayer Corp. v. Custom Sch. Frames, LLC, 259 F. Supp. 2d 503 (E.D. La. 2003).
- 21. Exception #2 – Quality Controls • “A product is not truly ‘genuine’ unless it is manufactured and distributed under quality controls established by the manufacturer.” • “[A] trademark holder is entitled to an injunction against one who subverts its quality control measures upon a showing that (i) the asserted quality control procedures are established, legitimate, substantial, and nonpretextual, (ii) it abides by these procedures, and (iii) sales of products that fail to conform to these procedures will diminish the value of the mark.”
- 22. Policy For Vetting Potential Retailers • Review legal claims • Bankruptcies • Online reviews • Any complaints about delivering damaged/defective products
- 23. Policy/Practice for Checking on Authorized Sellers • Checking on your authorized retailers to make sure they are selling quality, non-damaged • Practice/policy for terminating retailers that sell damaged or expired products to customers
- 24. Quality Control Example 1: Policy for Retailers to Remove, Return Damaged/Defective Products
- 25. Prohibit Anonymous Online Sales
- 26. Recall Policy • Involves quickly reaching out to authorized sellers • Involves being able to contact customers through information obtained by authorized sellers
- 27. Quality Control Example #2: Policy Reporting Customer Complaints
- 28. Quality Control Example #3: Proper Storage/Remove Expired Products
- 29. Add Provision to Support Tortious Interference Claim • Retailers cannot sell to others for purposes of resale. e.g. Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1235-38 (10th Cir. 2006) (affirming $500,000 damages award for tortious interference with a dealer agreement)
- 30. Legal Claims Against All Unauthorized Sellers We make subtle revisions to retail agreements to create: 1) Material differences; 2) Differences of quality controls; and 3) Tortious interference with contract claims. MAP Policy
- 31. Enforcing MAP in Traditional Model Manufacturer Unknown Reseller Reseller Manufacturer Distributor Distributor Reseller Reseller Reseller MAP Policy & Enforcement MAP Policy & Enforcement
- 32. Uncontrolled Distribution Manufacturer Distributor Unknown Reseller eBay Jet Other 3P Marketplaces Unknown Reseller eBay Jet Other 3P Marketplaces Unknown Reseller eBay Jet Other 3P Marketplaces Unknown Reseller eBay Jet Other 3P Marketplaces Unknown Reseller Distributor Unknown Reseller eBay Jet Other 3P Marketplaces
- 33. Authorized Reseller Program Manufacturer Distributor Distributor Authorized Reseller Authorized Reseller Authorized Reseller Authorized Reseller Authorized Reseller Control Online Sales Control Online Sales Control Online Sales
- 34. Authorized Reseller Program Manufacturer Distributor Distributor Authorized Reseller Authorized Reseller Authorized Reseller Authorized Reseller Authorized Reseller Communicate and Enforce MAP and Other Policies
- 35. Example: Authorized Distributor Policy By purchasing manufacturer’s products for resale, they acknowledge: ― They have received the MAP Policy ― They will adhere to quality controls ― They will only sell to Authorized Resellers ― They will not sell online without permission ― They will not sell to any reseller on the “do not sell” list
- 36. Example: Authorized Reseller Policy Products purchased from distributors may only be resold by Authorized Resellers that adhere to policy; by offering products for sale, Resellers agree to the following: ― They can only sell to end-users or to other Authorized Resellers ― They have received the MAP Policy ― They are prohibited from selling online without the manufacturer’s permission ― They are required to abide by applicable quality controls ― The warranty is available only on products sold by Authorized Resellers
- 37. Example: Authorized Online Reseller Policy Products may be sold online only by Authorized Resellers who: 1. Register and get approval for all websites, storefronts, and screennames 2. Agree to abide by Authorized Online Reseller Policy: • No anonymous selling • Follow manufacturer’s marketing/trademark use guidelines • Data security/privacy • Manufacturer may revoke approval for Authorized Reseller to sell online at any time
- 38. Lack of Comprehensive Enforcement Technology C&D notices Then What?
- 40. Misleading Ads Divert Customers to Unauthorized Sales • Advertisers use misleading ad- copy to divert customers to unauthorized sales • Ads claim to offer deep discounts • Ads direct customers to competing products Example search for “Doterra Discount”
- 41. Ads Affiliated With Unauthorized Sales and Listings for Competing Products Result: Customers purchase products from unauthorized sellers rather than authorized consultants/official channels
- 42. “Reviews” to Sell Competing Product • Reviews pass themselves off as unbiased • Usually contain some positive aspects of each products to support objective appearance
- 43. Reviews are Not Neutral or Objective Reality: The comparison review is designed to promote the “top rated product”
- 44. Review Sites Earn Money Through Affiliate Links The “top rated” product review is, unsurprisingly, the only eye cream review with purchase links.
- 45. Fraudulent Apps • Growing area of brand abuse • Difficult for consumers to distinguish official vs. fraudulent
- 46. Apps – A Growing Problem App stores have little initial screening to ensure apps are authentic Result: Widespread misuse of trademarked names/logos
- 47. Different Types of Diversion Schemes 1. Cybersquatting/Typosquatting 2. Bogus Review Websites 3. Pay Per Click Ad Abuses 4. Fraudulent/Scam Websites 5. False Associations 6. SEO Manipulation 7. Association With Offensive Content 8. Mobile App Fraud
- 48. Company Does Not Have a Sufficient Budget To Allow For Comprehensive Enforcement
- 49. Understand Financial Impact – Justification for Resources • Involve person with finance background to measure impact of MAP violations, unauthorized sales, and ROI • Track financial KPIs - sales, margins, revenues, profits
- 50. Company Sells Through Many Online Resellers, Some of Which are Not Trustworthy • Select online retailers that are supportive of MAP/Unauthorized Sales enforcement • Retailers with limited assortment more likely to violate MAP
- 51. Company is Scared to Deliver Real Consequences • Authorized ― Unclear on actions ― Unwilling to enforce against powerful resellers ― Incentives/disincentives lack teeth ― Too many allowed strikes ― Bad behaviors allowed ― Inconsistent enforcement • Unauthorized Sales ― Whack-a-mole takedowns will not work ― Need more than C&D letter (need comprehensive enforcement) ― Unauthorized sellers have to believe there will be consequences
- 52. Companies Only Take Reactive Approach, Not Proactive • Issue press release regarding enforcement against unauthorized sellers • Communicate with authorized sellers about enforcement
- 53. Significant e-Commerce Growth e-Commerce growth is 16-20% for most categories
- 54. Third-Party Marketplaces are Growing - Launched in 2005 - 1.7M active sellers - 26.1M active buyers - $2.39B annual gross merchandise sales - Originally launched marketplace for third-party sellers in 2010 - Oct. 2016, company began to role out “Marketplace” feature through its app in the United States, the U.K., Australia and New Zealand - Initially launched in 2009, had a long trial period - Apr. 2016 begins working with marketing firm to compete with eBay, Amazon - Launched in 2014 - Acquired by Walmart in Aug. 2016 - Leading Japanese e- retailer - Debuted in the United States in 2013 - Originally launched in 2010 - Re-launched in 2014 - Launched home products marketplace in 2014 - App launched in 2011 - Eyeing potential IPO, per Wall Street Journal - App launched in 2013 - Debuted in the United States in 2014
- 55. Marketplaces Make Up 31% of e-Commerce (and Growing)
- 56. Channels Make it Easy to Sell Online
- 57. Tsunami of Unauthorized Sellers Online Unauthorized sellers lack • Storage, transportation and inspection of policies and procedures • Policies for removing damaged goods • Appropriate packaging to protect the integrity of the product
- 58. Additional Resources Whitney C. Gibson Vorys, Sater, Seymour and Pease LLP 513.723.4823| wcgibson@vorys.com www.onlinesellerenforcement.com @WhitneyCGibson
Editor's Notes
- First Sale Doctrine: Once a trademark owner sells a product, the buyer ordinarily may resell the product without infringing trademark First Sale Doctrine does not apply: When products are sold with differences in warranty, guarantee, return policy, promotions, customer service, instructions or other material differences When products are sold by sellers who do not adhere to manufacturer’s quality controls
- JG
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