It is generally understood that trademark law protects against a third party’s use of your mark or a confusingly similar mark to mislead consumers into thinking goods manufactured by someone else were made by your company. But what happens if those goods were in fact made by your company, but you didn’t authorize their sale?  The Eastern District of New York recently answered one version of that question in granting Hallmark summary judgment on its trademark infringement and trademark dilution claims against defendant Dickens, where Dickens obtained twenty trailers of Hallmark greeting cards and related paper products that were intended for destruction, and began to sell them for resale to the public.

In 2015, Hallmark closed its distribution facility in Enfield, Connecticut, and delivered seventy-three trailers of greeting cards and related paper products to Northstar Pulp & Paper Company to be turned into paper pulp and recycled.  Instead, Northstar sold the intact greeting cards to Square Peg Logistics, which in turn sold twenty trailers worth to defendant Dickens.  Dickens then began to sell these cards for resale to the public, prompting Hallmark to send Dickens a cease and desist.  When Dickens refused to comply, Hallmark filed a federal lawsuit, alleging Lanham Act trademark infringement, trademark dilution, unfair competition, and other claims under New York State law.

In granting Hallmark’s motion for partial summary judgment on its trademark infringement and dilution claims, the court recognized that “[a]s a general rule, trademark law does not reach the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner,” since “the right of a manufacturer to control distribution of its products does not extend beyond the first sale of the product.”  However, the court found the “first sale” doctrine did not apply here since the first sale was not authorized.  Although Hallmark “sold” the greeting cards to Northstar, it did so with the restriction that Northstar would destroy them.  Pointing to the record evidence that Hallmark intended for Northstar to destroy the cards, as well as the contract between Hallmark and Northstar, which expressly referred to the transfer of goods to Northstar as a sale of “commodities” (i.e. a paper source to be converted to paper pulp), and not as a sale of trademark-protected retail greeting cards, the court found “the transfer of goods from Hallmark to Northstar was never with the intention of placing trademark-protected greeting cards (and other trademark-protected products) into the stream of commerce for consumer consumption.”  The court thus likened this transaction to a bailment, rather than a sale, whereby Hallmark entrusted the cards to Northstar for destruction, and found Dickens could not shield itself from liability by invoking the “first sale” doctrine as a defense.

Citing Hallmark’s careful controls over its product distribution to protect the goodwill and value of the brand, the court also found that the cards sold by Northstar outside that carefully controlled distribution network “were not genuine,” even though Hallmark had previously sold the exact same style of Hallmark cards to its retail outlets.  In El Greco Leather Prods v. Shoe World, the Second Circuit held: “One of the most valuable and important protections afforded by the Lanham Act is the right to control the quality of the goods manufactured and sold under the holder’s trademark. For this purpose the actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain” for purposes of protecting its brand.  Citing El Greco, the court credited Hallmark’s argument that eliminating trademarked product from the market through destruction was a means of protecting the brand and its goodwill, and that allowing Dickens to flood the market by selling cards intended for destruction as “genuine” products would be damaging to Hallmark’s brand and a violation of trademark laws.

In granting summary judgment on Hallmark’s trademark dilution claim, the court cited the fact that the cards sold by Dickens “were actual Hallmark trademarked greeting cards” as weighing in Hallmark’s favor.  Since these cards naturally bore the Hallmark trademark, the court found the alleged infringement was by an “identical junior mark,” giving rise to a presumption of actual dilution, which Dickens failed to rebut.

While this case does not undercut the “first sale” doctrine as a defense to trademark infringement as a general rule, it does provide a potential roadmap for companies to protect against the unauthorized sale of goods obtained through some improper channels.  With the explosion of independent online sellers, many unauthorized, this ability to control distribution channels of products that might otherwise be considered “genuine” is perhaps more important now than ever.

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Photo of Jennifer Yang Jennifer Yang

Jennifer Yang is a senior counsel in the Litigation Department. She is a commercial litigator with a particular emphasis on false advertising and other intellectual property disputes, including Lanham Act and consumer class action false advertising litigation, advertising challenges before the National Advertising…

Jennifer Yang is a senior counsel in the Litigation Department. She is a commercial litigator with a particular emphasis on false advertising and other intellectual property disputes, including Lanham Act and consumer class action false advertising litigation, advertising challenges before the National Advertising Division, as well as trademark, trade secret and copyright litigation. She has experience representing clients in a variety of industries, including medical device companies, consumer products companies, food and beverage companies, fashion retailers and art foundations.

Jennifer is an author and editor of Proskauer’s advertising law blog, Proskauer on Advertising.

Photo of Brendan O'Rourke Brendan O'Rourke

Brendan O’Rourke is the immediate past co-chair of the Firm’s Litigation Department and chair of the False Advertising & Trademark Group. From the inception of his career, Brendan has concentrated in the field of trademark, false advertising, and unfair competition law, and has…

Brendan O’Rourke is the immediate past co-chair of the Firm’s Litigation Department and chair of the False Advertising & Trademark Group. From the inception of his career, Brendan has concentrated in the field of trademark, false advertising, and unfair competition law, and has provided day-to-day trademark, false advertising, and Lanham Act counseling to many Fortune 500 clients, as well as start-up companies and entrepreneurs. He is a first-rate, first-chair trial lawyer, having successfully tried numerous trademark, trade dress, unfair competition, false advertising, copyright and entertainment cases involving diverse products and companies, and has significant experience in obtaining emergent relief, including preliminary injunctions, temporary restraining orders, seizure orders, and ex parte relief.

His experience includes all phases of trademark and false advertising counseling and litigation, including complex issues involving consumer survey research and claim substantiation, and inter partes proceedings before the U.S. Trademark Trial and Appeal Board and the Federal Circuit.

Brendan is also a very experienced commercial litigator and has represented a diverse array of well-known clients in state and federal courts throughout the United States.

Brendan is a frequent lecturer, has had numerous articles published in the fields of trademarks, false advertising, copyrights, and patents, and has appeared on national television to discuss trademark litigation. He has chaired INTA’s advanced forum on the Trademark Law and Revisions Act, INTA’s third annual “Trademarks in Cyberspace” forum, INTA’s Annual Leadership Meeting, as well as INTA’s Annual Basics Forum. He also has served on many INTA project teams, including the joint forum between INTA and NAD on false advertising, where he led a discussion and panel on claim substantiation. Brendan is also a frequent lecturer for the AIPLA and NYIPLA.

In addition to his vast experience trying cases, Brendan has significant experience in mediation through both the federal courts and the INTA panel of neutrals for clients such as Kraft, Estee Lauder, Madonna, Bristol-Myers Squibb, Federal Signal, and EMI. Brendan’s experience includes Internet and domain name disputes, including successful ICANN proceedings for Madonna, Estee Lauder, and Shania Twain, and self-regulatory advertising arbitrations before the National Advertising Division (“NAD”) and the National Advertising Review Board (“NARB”) of the Better Business Bureau on behalf of clients such as Colgate-Palmolive, Bristol-Myers Squibb, SC Johnson, Mead Johnson, and Bausch & Lomb.

Brendan has tried and been involved in a variety of cases and reported decisions of interest in his field, including Stark v. Diageo Chateau & Estate Wines; Taymor v. 8 Legged Production; Jackson Family Wines v. Diageo Chateau & Estate Wines; Buday v. The New York Yankees; Major League Baseball v. Upper Deck; Anheuser-Busch v. Major League Baseball; GlaxoSmithKline v. Colgate-Palmolive; Mendenhall v. Hanesbrands; The London Group v. SiTV; Lester v. U2; Brando Estate v. Madonna; Perot Government Systems v. 21CSI; Colgate v. P&G; Guinness v. Anheuser-Busch; Extreme Color v. Clairol; TT Sounds Good v. Tommy Lee; EMI v. Hill Holiday; Emergency One v. American Fire Eagle; RIAA v. Napster; Parisi v. Madonna; Platypus v. Bad Boy and Sean John; SC Johnson v. Clorox; Phillip Morris v. Allen; Elk v. GAF; Fabrications v. Hygenic; Bristol-Myers v. McNeil Labs; Kunycia v. Kay Bee Toy Stores; L.A. Gear v. Thom McAn; Vision Street Wear v. Melville; Edison Bros. v. Cosmair, McDonald’s Corp. v. McBagels, and MasterCard v. American Express.

Recognized in Chambers USA and US Legal 500, Brendan is praised for “serving his clients aggressively and effectively” and is recommended for his “sound, practical advice.” Brendan was inducted into the inaugural class of The Legal 500 Hall of Fame in 2017.