Even in default, it's not TM infringement to resell legitimate goods (but maybe false advertising to call them new)

Quincy Bioscience, LLC v. BRYK Enters., LLC, 2023 WL 2933464, No. 22-cv-658-jdp (W.D. Wis. Apr. 13, 2023)

I don’t usually blog default cases because there’s usually little legal analysis; this case is an exception around the fraught area of first sale, showing unusual diligence by the court. Quincy sued BRYK “under multiple legal theories for making unauthorized sales of products branded with Quincy’s PREVAGEN trademark.” In evaluating the question of personal jurisdiction, the court concluded that it existed, but Quincy’s submissions exposed

a problem with the merits of its claims for trademark infringement and unfair competition: the products alleged to have been sold by BRYK were genuine PREVAGEN products. The sales were unauthorized, in the sense that Quincy didn’t want or authorize BRYK to make them, but whether those sales were unlawful is another matter.

The court dismissed most of Quincy’s claims (counterfeiting, trademark infringement, and false designation of origin) except for false advertising—a rare (and conceptually sound) approach that other, non-default cases could benefit from.

Quincy had two theories of harm: (1) some of the products weren’t true Prevagen supplements and didn’t contain the putatively active ingredients; (2) other products were sold “in defective condition, including with outer box packaging completely missing, damaged or compromised.” “These included six products which arrived with no outer packaging whatsoever, an additional four products whose packaging was significantly damaged, and an additional six that did not include an accessory pill-minder shown and described in the Amazon listings from which the test orders were placed.”

In response to the court’s order to develop more information about personal jurisdiction, Quincy submitted evidence of test orders, including one with a Wisconsin billing address (but shipping them elsewhere). But the test orders didn’t include counterfeit supplements; instead, Quincy said it was aware of a single counterfeit order sold by BRYK, and that order was sent to a different customer, who then sent it to plaintiff. There were no allegations that the customer had any contacts with Wisconsin, which was a problem because the plaintiff must show that there is a connection between its injury and the defendant’s contacts with the state. Quincy agreed to dismiss its claims based on a counterfeiting theory without prejudice and to withdraw its request for damages. But its other claims were based on the theory that BRYK shipped PREVAGEN products in defective condition to a customer with a Wisconsin billing address. Fulfilling orders of a forum-state resident with a forum-state billing address was minimally sufficient under the facts of this case to show purposeful availment. Quincy alleged that some of the products it ordered using its Wisconsin billing address arrived in defective condition, constituting a sufficient connection between BRYK’s Wisconsin contacts and Quincy’s injury.

“Even after default ... it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action.” Quincy alleged all the elements of false advertising: BRYK allegedly states on its Amazon storefront that the PREVAGEN products it sells are in “new” condition, but Amazon defines “new” to mean that the product is sold in “the original manufacturer packaging.” Quincy also alleges that some of the orders it received from BRYK “arrived with no outer packaging whatsoever.” (Damaged packaging and missing pill boxes supposed to accompany the supplements didn’t count, because Quincy didn’t show that any language in Amazon’s definition of “new” that requires the packaging to be undamaged or to include pill boxes.) A representation of new condition would have “a tendency to lead consumers to believe that they were receiving all of the packaging,” and the failure to provide all packaging could influence a consumer’s decision whether to buy the product. Quincy was likely to be injured as a result of diverted sales or loss of good will. (Why would there be diverted sales? The first sale took care of that. It’s also not obvious, though standard to assume, that consumers would blame Quincy rather than Amazon or the third-party seller in terms of harm to goodwill.)

But the unauthorized sale of a genuine product does not violate trademark law. True, a product [sold as new] that doesn’t meet the trademark holder’s quality control standards is not really a “genuine” product, so it may confuse consumers and erode customer goodwill. But this theory requires the TM owner to show three things: (1) it has established legitimate, substantial, and non-pretextual quality control procedures; (2) it abides by these procedures; and (3) the non-conforming sales will diminish the value of the mark. Quincy didn’t show or allege anything about Quincy’s quality-control practices and procedures. Quincy could submit a new fee petition and a new proposed injunction to proceed.