Taking Control of Ecommerce Today

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The Antitrust Do’s and Don’ts of

Product Distribution

May 1, 2014

By: Irving Scher

New York, NY

27

The Concept of “Agreement”

Antitrust issues do not arise from

independent conduct if the actor lacks “monopoly

power.” Violations require “agreements.”

An “agreement” subject to antitrust scrutiny

does not have to be in writing. “Agreements” can

be inferred from written or oral communications

which may have led independent parties to engage

in anticompetitive conduct -- “circumstantial

evidence.”

28

Customer Selection

Acting independently, a supplier has the right to select or terminate dealings with a particular customer or category of customers (e.g. internet retailers). However, the supplier cannot do so by agreement with any of its competitors.

A supplier, acting independently, is free to do business

with or terminate a customer for:

• lack of a “brick and mortar” presence or sufficient locations

• credit reasons

• failure to adequately purchase or present the supplier’s

products

• reselling to the trade or otherwise diverting the supplier’s

products.

• selling or advertising below the supplier’s prices. (See

Exhibits 1 & 2.)

29

Customer Limitations

A supplier, acting independently, can determine to sell to a particular retailer at one or more locations, but not at other locations.

It can also prohibit a customer from:

• diverting its products to other locations or to the trade

• reselling its products over the Internet, or it can place conditions on such sales. (See Exhibits 3 & 4.)

Additionally, it can limit particular products to specific customers, or determine to sell a product line only to one or a few customers.

30

Resale Price Maintenance (“RPM”)

While establishing a ceiling on a customer’s

resale prices (“maximum resale price maintenance”)

generally is lawful, establishing a floor (“minimum

resale price maintenance”) remains very dangerous

under the antitrust laws.

A supplier is best counseled not to enter into

agreements or understandings with customers as to

the prices below which they may not resell the

supplier’s products. Such agreements are

absolutely prohibited under the laws of some states.

31

Resale Price Maintenance (cont’d)

However, a supplier can suggest or recommend that customers resell a product at or above a specified price so long as the customer remains free to decide whether to follow the suggestion. (See Exhibit 1.)

A supplier can talk to a customer in general terms about the profit enhancing reasons for its pricing recommendations, and the in-store services such prices support. But it should not go further.

32

Specifically, the supplier should not:

• Pressure or coerce a customer to resell at the supplier’s suggested retail prices.

• Increase wholesale prices or reduce discounts/allowances to a customer who has resold products below suggested prices.

• Provide rebates only if a customer resells at or above suggested prices.

• Refuse to sell particular items or threaten to slow down delivery to a customer who resells below suggested prices.

• However, a supplier, acting independently, may establish the selling prices of agents or consignees selling products on its behalf.

Pricing Don’ts

Promotional Pricing

Retailers should not need a supplier’s approval to

promote the sale of its products.

A supplier should not prohibit customers from

reselling below the supplier’s promotional prices or beyond

a suggested end date for a promotion.

However, the supplier may require customers to

pass promotional funds on to their customers as a

condition of receiving such funds.

• E.g., a retailer can be provided a $25.00 promotional rebate only if it has passed the promotional $25.00 through to its customers from its independently determined selling price for the item.

33

Retailer Pricing Complaints

If a supplier receives a pricing complaint

from Customer A about Customer B’s selling or

advertised prices, the supplier should respond as

follows:

• Customer B’s prices cannot be discussed.

• A decision about action to be taken, if any, will independently be made by the supplier, and not reported back to Customer A.

34

35

Minimum Advertised Price (“MAP”) Policies

“MAP” means “Minimum Advertised Price.”

• It does not relate to selling prices.

• It is a Policy providing that a retailer will: • only be reimbursed for advertising at or above MAP,

• lose advertising support,

• or sales of the applicable product will be suspended for a period of time if the retailer advertises below MAP.

A MAP Policy is permissible if the supplier:

• only withholds financial support from a retailer under a Co-op Advertising Policy for advertisements below MAP, so long as the retailer remains free to advertise below MAP at its own expense, and also is free to resell at prices it independently chooses.

36

MAP POLICIES (cont’d)

The legality of a MAP Policy is unclear if it goes beyond just refusing to support below MAP advertisements, for example:

• suspending financial support for a period of time if a retailer’s advertisement is below-MAP.

• suspending sales of the product if a retailer’s advertisement is below-MAP.

• terminating a retailer for failing to comply with the MAP Policy. (See Exhibit 5.)

Legal counseling should be obtained for the development of a MAP policy.

37

Pricing Incentives

• A supplier can offer a customer better prices or higher discounts if a purchase from the supplier:

• is increased in quantity (quantity discounts);

• is at or above stated percentages of the customer’s requirements for products in a category (loyalty discounts);

• is in an amount that approaches, equals, or exceeds the supplier’s market share (market share discounts); or

• is for two or more different products (bundled discounts).

• “Most Favored Nation” (MFN) provisions can assure a customer that the supplier will reduce the customer’s prices to a lower price that has been offered to a competing customer.

©2011. All rights reserved.

GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM

“The New Frontier” of Brand

Enforcement on the Internet:

A U.S. Perspective

Steven J. Wadyka, Jr.

Shareholder

Greenberg Traurig, LLP

Washington, D.C. USA

(202) 331-3105

[email protected]

mailto:[email protected]

Overview of Internet Brand Enforcement

Challenges/costs/benefits

Internet marketing, search engines and

keyword advertising

Secondary liability for online service

providers

Brand enforcement in social media

Remedies against “rogue” websites

Conclusions and predictions

Challenges Facing Brand Owners in Internet

Enforcement

Potential IP rights violators

• Search engines selling trademarks as “keywords”

(Google, Yahoo!, Bing)

• Domain name registrars (GoDaddy)

• Social networking sites (Facebook, Twitter,

LinkedIn)

• “Rogue” websites/online counterfeiters

• Auction sites (eBay)

• Web hosting providers/ISPs

• Payment processors (PayPal)

Challenges Facing Brand Owners in Internet

Enforcement

Jurisdictional issues

• How to subject offshore (and often anonymous) IP rights violator to the courts and laws of the U.S. and obtain relief that can be enforced against the violator?

Cost considerations

• Private investigators

• Monitoring/watching services

• Legal fees

Efficiency and effectiveness

• Identify and choose targets wisely

Deterrence and Return on Investment

• Substantial relief may provide disincentive to would-be violators and help brand owner recoup losses and cost outlays

Challenges Facing Brand Owners in

Internet Enforcement

Secondary liability

• Hold online service providers responsible for the

infringing acts of others

• Hold brand owners responsible for the actions of

third parties

• Two theories:

– Vicarious infringement: Principal liable for

acts of its agent

– Contributory infringement: Analogous to

aiding and abetting

Search Engines & Keyword Advertising

Rosetta Stone v. Google, 676

F.3d 144 (4th Cir. 2012)

Rosetta Stone sued Google for

trademark infringement based

on sale of keywords consisting

of Rosetta Stone’s trademark to

trigger ads for competitors’ and

counterfeit products

District court granted summary

judgment for Google on Rosetta

Stone’s direct and contributory

infringement claims


Rosetta Stone v. Google

Direct trademark infringement

• Disputed issues of fact regarding Google’s intent; evidence showed that Google expected uptick in litigation due to AdWords policy change

• District court ignored evidence of actual confusion as to sponsorship

• Sophistication of consumers – internal Google study showed seasoned Internet users were confused by Google’s sponsored links

• Functionality doctrine inapplicable – Irrelevant that Google’s computer program functioned better by use of Rosetta Stone’s mark


Rosetta Stone v. Google

Contributory trademark infringement

• Insufficient for service provider to have general knowledge that some percentage of purchasers use the service to engage in infringing activities

• Must provide service to identified individuals that it knows or has reason to know are engaging in trademark infringement

• District court improperly weighed conflicting evidence regarding Google’s allowance of known counterfeiters to bid on Rosetta Stone keywords


1-800 CONTACTS, Inc. v.

Lens.com, Inc., 722 F.3d 1229

(10th Cir. 2013)

• Lens.com used an “affiliate

network,” managed through an

aggregator, to assist with

online marketing

• Affiliates purchased keywords

containing 1-800’s mark

• Some impressions displayed 1-

800’s mark

• 1-800 argued “initial interest

confusion”

• Sued Lens.com based on

theories of vicarious and

contributory infringement


1-800 CONTACTS, Inc. v. Lens.com, Inc.

• Relevant issue for consumer confusion is not what keyword was purchased, but what language was used in the ad generated by keyword

• Likelihood of confusion existed as to impressions containing plaintiff’s mark

• No vicarious liability

Affiliate had no authority to act on behalf of defendant and thus was not an “agent”

• BUT, there was contributory liability

Lens.com could have stopped use of infringing ads by requiring its aggregator to send e-mail blast to affiliates forbidding such use

Domain Name Registrars

Petroliam Nasional Berhad (Petronas) v.

GoDaddy, 737 F.3d 546 (9th Cir. 2013)

• A third party registered “petronastower.net” and

“petronastowers.net” and used GoDaddy’s domain

forwarding service to direct users to a porn site

• Petronas sued GoDaddy for contributory cybersquatting

under the federal anti-cybersquatting statute (ACPA)

• Appeals court held that neither the plain text nor

purpose of the ACPA supports a claim for contributory

cybersquatting

• Would saddle registrars with nearly impossible task of

“divining the intent of their customers”

• Issue may soon be before US Supreme Court

Auction Sites & Online Marketplaces

Tiffany v. eBay, 600 F.3d 93 (2d Cir. 2010)

• First U.S. case to apply contributory trademark

infringement standard to online marketplace

• Tiffany claimed that eBay was liable for contributory

trademark infringement by supplying its services to

sellers of counterfeit Tiffany goods while knowing or

having reason to know that such sellers were infringing

Tiffany’s marks

• District court ruled in favor of eBay; Tiffany appealed

Auction Sites & Online Marketplaces

Tiffany v. eBay

• Affirms judgment in favor of eBay

• For contributory trademark infringement, a service

provider must have more than a general knowledge or

reason to know that its service is being used to sell

counterfeit goods

Some contemporary knowledge of which particular

listings are infringing or will infringe in the future is

necessary

Tiffany’s generalized allegations of counterfeiting

failed to provide eBay with the required knowledge

• eBay’s extensive anti-piracy efforts – Trust & Safety

Dept., fraud engine to detect listings for counterfeit

goods, VeRO Program providing rights owners with

“notice and takedown” remedies – all were critical to a

finding of no liability

Web Hosting Providers

Louis Vuitton v. Akanoc Solutions, 658

F.3d 936 (9th Cir. 2011)

• Defendants provided web hosting

services to sites that sold counterfeit

Louis Vuitton products

• LV made several demands that

defendants either remove infringing

content or require their customers to

do so; No response from defendants;

sites continued to operate

• LV sued for contributory trademark

infringement

Argued that defendants had actual

knowledge of sites’ activities, knowingly

avoided learning full extent of those

activities, and deliberately disregarded

LV’s demands, thereby knowingly enabling

the infringing conduct by hosting the sites

• Jury found for LV, awarded statutory

damages totaling $31.5 million

Web Hosting Providers

Louis Vuitton v. Akanoc Solutions

• Affirmed on appeal as to liability

• Issue: Whether defendants exercised direct control of third

party’s “means of infringement”

• Defendants: The websites selling counterfeit goods were to

sole means of infringement

• Appeals court held that defendants physically host websites

on their servers and route Internet traffic to and from those

sites

• “The Internet equivalent of leasing real estate.”

• Defendants had direct control over the “master switch” that

kept the sites online and available

• Reduced statutory damage award to $10.5 million

Payment Processors

Theory of liability

• Contributory infringement

Intentional inducement

Actual knowledge or willful blindness, while having sufficient control over the instrumentality used to infringe

Divergent case holdings

• Perfect 10 v. Visa, 494 F.3d 788 (9th Cir. 2007)

allegation that credit card processors can decide to stop processing payments to sites dealing in counterfeits was insufficient to state a claim (Judge Kozinski dissenting)

• Gucci v. Frontline Processing, 721 F.Supp.2d 228 (SDNY 2010)

“control” sufficiently alleged because credit card processing services are a necessary element for the transaction of counterfeit goods online; “knowingly provide a financial bridge between buyers and sellers of counterfeit products”

Social Media

Presents opportunities and challenges for brand

owners

• Opportunities:

Build brand strength/loyalty by creating official

company page and fan page

Register usernames consisting of your

company’s brands

Use social media pages commercially to provide

new ways to reach consumers

Spread branding message instantaneously across

numerous platforms

Social Media

• Challenges:

Improper suggestions of affiliation/sponsorship

– Brand appears in usernames pointing to sites

containing false information about the

company’s products

Counterfeiting - Username points to sites selling

counterfeit goods

“Username squatting” - New FB account created

solely to take advantage of grabbing a username

Dilution - Blurring and tarnishment

Imposters - Possible parody defense; permissible on

Twitter provided parody is clear

Social Media

Enforcement strategies in social media sites

• Assessment of infringing activity

Balance the need for brand protection vs. potential

alienation of customers

– Must always be mindful of duty to police your

marks

– How much of an issue does the activity create

for your business?

– Does it interfere with any ongoing advertising or

promotional campaigns?

– Is it an isolated, ephemeral instance or a

concerted attack?

Social Media


• Consider free speech issues and potential public

backlash of enforcement effort

– First Amendment to U.S. Constitution

grants broad protection to political

speech/commentary/criticism, less

protection to commercial speech

– Keep in mind that cease and desist letter

may well be posted on social media sites to

generate negative exposure for the brand

» Adjust tone of enforcement depending

on whether infringer is willful or

simply innocent or misguided

Social Media


• Become familiar with the site’s Complaint and

Takedown Policies, Community Guidelines, and Terms

of Use

• Develop takedown strategy and assess requirements

Copyright Infringement (DMCA)

Trademark Infringement

Unauthorized Impersonation

Repeat Offenders

Harassment, defamation, theft of confidential material

• Keep in mind that policies and requirements my change

over time

Social Media


Expand your internal monitoring program to include

social media sites

Develop consistent monitoring and enforcement

procedures

Use search engines to find infringing/harmful content

– Google.com/alerts (generates alerts for use of

company names and brands on the Web, blogs,

news, discussion groups)

Consider vendors and software tools with social

media monitoring capability

Keep tabs on what is being said about your brand in

“real time”

“Rogue” Websites

What is a “rogue” website?

• A site that traffics in stolen movies, TV shows and music, or counterfeit goods

• Located throughout the world

• Appear legitimate by featuring brands and advertising of reputable companies and accepting major credit cards

• Enable site operators to profit from brands and other IP they had no role in creating

• “A Web site that is set up to spread a virus, collect names for spammers or for some other illicit or repugnant purpose” (PC Magazine Encyclopedia)

“Rogue” Websites

What type of threat do they present to brands?

• The counterfeit business model is shifting toward use

of “rogue” websites

Seizures by U.S. Customs & Border Patrol jumped 24% in

2011, but overall value of goods seized decreased by 5%

from previous year

Proliferation of rogue sites in part responsible

Difficult to stop counterfeit goods from entering US if

purchased through rogue website

Hard to locate or identify operators of sites

Lack of any lasting remedy since sites are easily re-

established

A Rogue Website Case Study: Tory Burch

An example of how brand owners can

combat the sale and distribution of

counterfeit goods through “rogue” websites

under current U.S. laws


Tory Burch brought suit in Dec. 2010 in SDNY against an interrelated group of anonymous counterfeiters

Defendants established over 200 websites to sell counterfeit Tory Burch products

The sites were in English, accept major credit cards, copy Tory Burch marks, designs and photos

Sites established at URLs containing the Tory Burch marks so they would rank highly web searches for “Tory Burch” name

Defendants used multiple fake names and addresses and submitted false WHOIS data to avoid detection

New sites quickly set up once existing sites disabled



Court granted Tory Burch’s motion for default judgment and permanent injunction (Order dated May 13, 2011)

• Court had personal jurisdiction over the defendants based on their operation of fully-interactive websites through which they sold Tory Burch counterfeits

Recent 2d Cir. case upholding jurisdiction over nonresident counterfeiter based on sale/shipment of at least 1 counterfeit handbag into NY and its operation of highly-interactive website (Chloe v. Queen Bee (2d Cir. 2010))

• Found that defendants “went to great lengths to conceal themselves and their ill-gotten proceeds from Tory Burch’s and this Court’s detection by using multiple false identities and addresses as well as purposefully deceptive contact information”

• Permanently enjoined 3rd party service providers (ISPs, registries, registrars, online marketplaces) from providing any services to defendants

• Awarded Tory Burch $164 million in damages


Court also granted ongoing injunctive relief tailored to suit the unique challenges presented by the anonymity of defendants and ease by which they are able to establish new sites

Order enables Tory Burch

• to disable additional rogue sites as they are established by defendants and discovered by Tory Burch

• To freeze and recover any additional newly-discovered financial accounts used in connection with defendants’ operation, such funds to be applied toward satisfaction of $164 million judgment

• To obtain transfers of additional domain names associated with any newly-discovered rogue sites

Ongoing mechanism avoids the need to institute a separate action each time a new rogue site is established

Conclusions and Predictions

The legality of using trademarks in keyword advertising is

still unsettled

Greater challenges for brand owners in seeking to hold

online service providers liable for trademark

infringement, creating greater need for remedies against

direct infringers, wherever located

Competitors will become more aggressive in marketing

through social media sites, resulting in trademark disputes

that will test adequacy of traditional trademark law in the

social media context

Rogue websites will become more sophisticated in their

operation and more difficult to identify



Questions?



Thank You!


Be Prepared to protect your brand with strong policies –MAP, retailer agreements, etc

Strengthen retail partnerships by enforcing agreements and address distribution concerns

Start with knowing where you stand online

Consider selling direct to offset irregularities in the marketplace which degrade your brand

Marketing and Merchandising within the online channel

Manage online retailers differently - its not “set-it-and-forget-it”






COPYRIGHT 2014 DIGITAL BRANDWORKS, ALL RIGHTS RESERVED78



Work with your team to establish quantitative benchmarks and goals

related to the program and an initial demand plan. Additionally, develop a

dynamic dashboard specific to your business goals that can be regularly

updated.

As needed, develop inventory management set up, payment and inventory

reconciliation.

Work with a creative team that will update imagery, product detail page

copy and other assets in accordance with your brand guidelines.

At the conclusion of development, deploy your brand into the marketplaces

and establish a roadmap that highlights key milestones and initiatives

related to your program.


Actively manage your products and overall online presence.

Monitor your brand and competitors, manage marketplace logistics, upload

content refreshes, regular benchmark key KPIs and continually optimize

your presence to ensure we are meeting established goals.

Actively pursue merchandising value ads and paid opportunities

Perform inventory management and payment reconciliation related to the

marketplaces where your brand is present.

Provide regular reporting on sales, competitors and channel metrics along

with analysis and recommendations on how to optimize to meet your goals.



• Stakeholder interviews

• SWOT analysis

• Product training & education

• Asset audit & needs identification

• Retailer and competitive online audit

• Asset optimization

• Demand forecasting

• Content management system integration

with retailers

• KPI identification & development

• Management dashboard development

• Daily maintenance

• Maintain listings & collateral material

• Facilitate price, inventory & order

management

• Plan & coordinate marketing promotions

• Assist in communicating new product

initiatives & education

• Marketing asset development

• Sales & trends analysis item breakdown

• Sales & merchandising management


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