10th Circuit: Re-sale of materially-altered original goods not immunized by first sale doctrine from Lanham Act liability

The 10th Circuit recently handed down an important trademark decision concerning “first sale doctrine” and non-genuine goods. In Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, No. 07-3340 (10th Cir. April 9, 2009), the court held that:

(1) first sale doctrine does not immunize a re-seller of goods that are materially different from genuine goods from Lanham Act liability (no biggie here); and

(2) differences in warranty or service terms can constitute such a material difference (this was the important part).

Beltronics makes radar detectors. It had only two authorized distributors, but these two companies sometimes sold to other (unauthorized) companies for re-sale. The authorized distributors stripped Beltronics’ serial number from the product (or placed a phony serial number label on the product) before shipping to the unauthorized re-sellers. The unauthorized products were then sold on eBay. Beltronics’ warranty policy precludes coverage for detectors not bearing the original serial number. A few customers returned detectors bought on eBay for warranty service but Beltronics told them the goods weren’t covered. The customers were angry and blamed Beltronics for deceiving them.

In addition to the holdings mentioned above, the court noted that it was theoretically possible for such re-sellers of materially-different goods to avoid liability if they disclosed the differences in a manner sufficient to prevent confusion. But the 10th Circuit upheld the district court’s factual finding that the instances of actual confusion here (and resulting loss of goodwill) indicated that the defendants’ disclosures in this case were inadequate.