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http://pubcit.typepad.com/clpblog/2007/07/leegin-and-ebay.html January 5, 2008 |
Public Citizen Litigation Group |
Tuesday, July 17, 2007
Companies Claim Right to Interfere with eBay Auctions for Charging Too Little by Greg Beck
I predicted here that companies would soon rely on the Supreme Court’s decision in
Leegin Creative Leather Products v. PSKS
In the first case, Merle Norman Cosmetics v. LaBarbera
Although Merle Norman does not claim that the eBay seller ever contracted with the company, it contends that the seller’s act of
purchasing the makeup from a salon that had entered such an agreement and then selling "at discount prices" on the Internet
constituted unfair competition, interference with its contracts, and civil conspiracy (see complaint). In other words, the
eBay seller, according to the company, is guilty of breaching somebody else’s contracts and unfairly competing by selling
to consumers on the Internet at prices that are too low. In its brief in the district court, Merle Norman relies on Leegin,
which had been decided just a few days earlier, in support of its right to “require dealers to charge certain resale prices to
promote interbrand competition.” The company claims that “the law is well settled that manufacturers like [Merle Norman] have
the right to control the manner of distribution of their products.” Although the district court denied the pro se defendant's
motion for a preliminary injunction, the case is now on track for trial.
The second case is Colon v. Innovate! Technology, Inc., No. 07-21349 (S.D. Fla.). Innovate! Technology (“ITI”) is a
company that makes high-performance car parts. According to its brief in the district court
(warning, large file), the company “sells its products only via authorized distributors and retailers” that “comply with
ITI’s policy of Minimum Advertised Pricing.” The company views sales by unauthorized sellers (i.e., those who sell too cheaply)
to be not only a violation of its minimum-price policy, but, surprisingly, as an infringement of its intellectual property rights.
ITI's eBay "About Me" page
explains that the sale of its products by anyone but an authorized dealer constitutes patent and trademark infringement.
Moreover, the company claims the right to prohibit all use of its copyrighted “technical data, photos, graphics, software,
product literature, catalogues, product specifications, installation guides, user guides, promotional material and other
types of information” without its permission. In other words, the company claims it is copyright infringement to read its
user guides and manuals, browse its catalogs, or look at its pictures without its “express written permission.” Presumably,
the company feels that selling its products at a reduced price, with the manuals included, also constitutes a prohibited “use.”
Osvaldo Izquierdo Colon is an eBay seller who purchases ITI’s car parts from an authorized wholesaler and resells them on eBay
at a discount. When ITI found out about Colon’s sales, it invoked eBay’s VeRO program (an implementation of the Digital Millennium
Copyright Act) to terminate Colon’s auctions. According to its notice of claimed infringement, ITI claimed a good faith
belief that by selling its products on eBay without its permission, Colon was violating the company’s intellectual property
rights. Pursuant to eBay’s policies, ITI’s claim of infringement led to automatic termination of Colon’s auctions and also
put him at risk of losing his eBay account (and thus his livelihood) altogether. Colon attempted to contest the company’s
claims with eBay, but after ITI once again terminated his auctions, he filed suit in federal district court for a declaratory
judgment of non-infringement.
ITI responded with a motion to dismiss that, although mostly procedural, also cites Leegin for the principle that
“manufacturers have the right to sell [their] products at the retail level at a minimum price.” The company invokes the same
fears that led the Supreme Court in Leegin to buy into the argument that higher prices are good for consumers, arguing that,
without its price-protection scheme, "ITI's authorized retailers could not compete with those unauthorized dealers selling
well below [the Manufacturer's Suggested Retail Price] and ITI would go out of business." Of course, even assuming that
ITI does have a right to impose minimum prices, it wouldn't explain why Colon’s sales of its products are unlawful, much
less intellectual property infringement. But with Leegin in place, ITI seems to feel comfortable that its minimum-price
policies will survive legal scrutiny.
Even with Leegin, the companies’ claims in these cases are pretty questionable. Leegin’s existence, however, has
given companies pursuing these sorts of claims a new potential justification for interfering with online auctions and suing
competitors that undercut their prices. These cases may be the first, but they will not be the last.
Posted by Greg Beck on Tuesday, July 17, 2007 at 03:58 PM
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