Legal Briefs Podcast: What Belongs in an Authorized Reseller Policy

MAP policies alone can't stop a brand from being sold in places it never wanted to be. Jeremy Richardson explains why authorized reseller policies (quality standards, channel restrictions, and all) pick up where MAP leaves off.

A MAP policy only controls advertised pricing. It does nothing to stop a brand's products from turning up on a marketplace the brand never approved. That's where authorized reseller policies come in, and Jeremy Richardson walks through what a well-built one actually covers: terms of sale, credit and payment terms, and, most importantly for brand protection, quality control standards that determine whether a retailer stays authorized.

Two practical questions come up that every brand asks eventually. First: can a brand restrict which channels a retailer is allowed to sell through (say, brick-and-mortar only, no Amazon)? Yes, that's a lawful, common restriction. Second: is a brand obligated to sell to every retailer who wants to carry its product? No. Absent discriminatory reasons (race, religion, gender, etc.), a brand can pick and choose its retail partners for any or no reason at all. The episode also revisits the first sale doctrine (the legal principle that lets anyone resell genuine goods they've purchased) and explains how a well-drafted reseller policy's quality control language builds the record a brand needs if it ever has to bring a trademark infringement claim against an unauthorized reseller who won't meet those standards.

• Quality control standards are the backbone of an authorized reseller policy: they protect brand image and, critically, create the paper trail for a first sale doctrine exception.
• Channel restrictions are lawful. A brand can limit a retailer to brick-and-mortar only, or exclude specific marketplaces like Amazon or eBay.
• No duty to sell to everyone. Brands can decline any retailer for any legitimate business reason, just not a discriminatory one.
• Keep MAP acknowledgment-only. Adherence to MAP can be referenced as a policy the retailer is aware of, but should not require a signature that converts it into an agreement.
• The first sale doctrine has limits. Material differences and quality-control failures both give a brand grounds for a trademark infringement action against an otherwise-genuine reseller.

Full Episode Transcript

[00:00] Welcome to MapTrap's legal briefs, the podcast where we explore specific strategies and tactics used by brands to protect their pricing, distribution, and intellectual property. The information in this podcast is provided for general informational purposes only. It is not legal advice. Listening to this podcast does not create an attorney-client relationship between you and MapTrap's guest presenters. Listeners should seek legal advice from a lawyer licensed in the listener's state.

[00:27] Hi there, and welcome back to legal briefs where we have short discussions about important aspects of brand protection strategies. With us is Jeremy Richardson Esquire.

[00:42] Hey Jeremy, how are you?

[00:47] Hey Ron, doing great. How are you?

[00:49] Doing excellent. Looking forward to having some more interesting information and helpful information for the brands that are interested in this topic. So the topic is authorized reseller policies. So e-commerce protection for brands has evolved from just minimum advertised pricing policies or minimum retail price policies to include other policy types like authorized reseller policies. That makes sense for us given that there's no point in trying to enforce map against someone that they don't want selling the product. The fact of their being there is the offense. But when they go after companies like that, then they cite the first sale doctrine and the brands don't really have too much to combat that with. What are your thoughts on authorized reseller policies and their effectiveness?

[01:44] Sure, so I think the first thing we want to say is the minimum advertised price policy is just one of a number of documents that companies should have manufacturers and brand owners should have that make up the sort of suite of documents that create the relationship with or governing the relationship with their retailers. And authorized reseller policy or reseller policies generally should touch on a number of important business terms, including terms and conditions of sale. You might want to have terms in there whether you're going to offer credit, whether you're going to require payment net 10 net 30 all sorts of other business terms that really govern the relationship. But one of the important parts of a reseller policy, which you touched on in talking about the first sale doctrine is quality control standards. I think that quality control standards are important to make sure that your retailer is properly representing your brand. And that may be as a luxury brand that may be as a price sensitive brand all sorts of different levels required different types of quality control standards and making sure that the retailer abides by those and properly represents the image of your brand and the quality standards. Okay, are there specific criteria other than that that you recommend a brand include should let's say, for instance, the brand has a map policy should they include adherence to the map policy as one of the criteria to stay authorized. And the minimum advertised price policy is a unilateral policy by the company. It is not an agreement with your retailer. So I think it's okay to say you have a minimum advertised price policy, but you don't want the retailer to agree to the minimum advertised price policy when they agree to abide by your reseller policy or your terms and conditions of sale. We talked about this in another episode where it's okay to have a retailer acknowledge receipt of your minimum advertised price policy, but you don't want them to agree to it because that converts it from a unilateral policy to an agreement. Okay, so then again, no signature on the authorized reseller policies, so it's not an agreement. It is a policy straight up. Could you recommend that a brand include categories of where a company is allowed to sell their products, for instance, an account must have a brick and mortar store if they want to sell their products online or if it's a strictly online seller that the brand say, okay, you may sell your product on your own branded website, but you may not sell it on say Amazon. It is perfectly okay for a brand or manufacturer to restrict or limit the channels of distribution where a retailer may sell the company's products. So it's perfectly fine to say, Jeremy, you can sell through Jeremy's brick and mortar store, but you can't sell on third party websites or auction websites or different categories of websites. That is acceptable and some brands and manufacturers want to do that. Let's just talk about enforcement of an authorized reseller policy. If I'm not going to put in my policy, me, I'm the brand. If I'm not going to put that you have to adhere to my map in my authorized reseller policy. And then I catch, but I do have a marketplace exclusion.

[05:37] Right. So you're allowed to sell on your site, but you may not sell on eBay. But I find you selling on eBay. Do I go through a series of warnings and say based on the authorized reseller policy or in violation because you're selling here or even more because you're violating map, you're risking giving up your authorized reseller status where you simply cut them off with no reason. So again, that becomes a business decision for each brand manufacturer, whether they want to enforce whether it's the minimum advertised price policy or the reseller agreement where you have a reseller agreement and the reseller breaches that agreement. You have a basis for termination. You may want to terminate. You may decide that there are good business reasons for not terminating like it's a really important retailer for you. They do a lot of volume. The brand gets a lot of business. So they may overlook that breach of the reseller agreement. In many cases, a manufacturer may say to the reseller your in breach of our reseller agreement. We are terminating the agreement and we are not going to sell you our products anymore. And that is perfectly fine. And so violation of map would be an acceptable offense to become unauthorized.

[07:00] Well, let's not distinguish between authorized and not authorized. There's no requirement in the United States that a brand or manufacturer except request to purchase from all offers. So you brand owner manufacturer do not have to do business with every single retailer who wants to sell your product. You can pick and choose. And you don't have to give a reason for it. No, you don't have to you don't have to give a reason. One caution I would be careful not to not to make those decisions based on discriminatory criteria, race, religion, gender, etc. I would not I would avoid that. But as far as whether you decide to do business with a retailer or not that is really your decision and it's a business decision and there are certainly many valid business reasons for doing business with Ron. But not doing business with Jeremy. But getting back to the violation of the minimum advertised price policy. It's not a breach of contract because again the minimum advertised price policy is not a contract. It's not an agreement between the manufacturer and the retailer. It is a policy and a violation of the minimum advertised price policy by a retailer may cause a manufacturer to simply say we don't want to do business with you anymore. That's a little bit different than a breach of a reseller policy or a reseller agreement really where you have a written contract that has all the business terms and the reseller violates that contract. You have a basis for termination and stopping the relationship. So I'm glad you brought that up because you did say agreement. So again, we're back to when we had this podcast about that policy versus map agreement. And it seems to me that you're saying that an authorized reseller policy could also be an authorized reseller agreement. Yes, I should be clear on that. When I talk about a reseller agreement, I'm really talking about the terms and conditions that govern the relationship between the manufacturer and the retailer. And I would really call that a retailer agreement, reseller agreement, but loosely speaking, you could call it, you might call it a policy. It really is bilateral. It's an agreement between the parties. And often the reseller agreement will include qualities for which a reseller will become an authorized reseller. And that often includes quality standards or the reseller maintaining certain quality standards, quality control, a retail environment that meets with the brand's status, maybe as a luxury brand or perhaps as a price sensitive mass brand customer support and a number of other items that the manufacturer or brand owner really wants to control to maintain the reputation of its brand and the value in its trademark. So I'm glad you brought up trademark. Let's just say that there is a retailer who who gets property, who gets product from a source unknown to the manufacturer. And therefore, in the manufacturer's mind, it's not an authorized reseller. They don't want them to be there. But they own the product. And so they can turn around and they can throw up the first sale doctrine at the manufacturer. Does there is there anything in the authorized reseller policy that would help them against that?

[10:26] Well, you bring up a really interesting area of law under intellectual property, the first sale doctrine, broadly speaking, the first sale doctrine says that a reseller who purchases genuine product can sell that genuine product without violating the brand owner's intellectual property rights. And broadly speaking, that's true that the first sale doctrine is a defense trademark infringement. But the exception has to do typically with quality control or availability warranties or other items of that nature that will distinguish the genuine product from what we would call non genuine product even though it is legitimately from the manufacturer. Or if it doesn't comport with the quality control standards, there is what courts talk about as a material difference, which take it outside the first sale doctrine and actually allow a brand owner to sue a reseller or trademark infringement as an example where they don't comply with the quality control standards. This could be really important where a product is subject to spoilage if it's not refrigerated or kept at the right temperature or if it has an expiration date and a reseller wants to sell it after the expiration date or even not quite so formal product issues, but customer support issues. So a customer might want help with assembly or questions about continuing support of a product and if the manufacturer brand owner has quality control standards that an authorized reseller must comply with and this other reseller who purchases product from an unknown source doesn't comply with. That's that there is a basis for the exception to the first sale doctrine and a trademark infringement lawsuit by the brand owner against that unauthorized reseller. So the authorized reseller agreement policy can set the can set the framework for that correct. Yes, that's exactly right and the reseller agreement, the retailer agreement can have those quality standards built in either within the body of the document or as an event them or simply as a separate set of standards that are referenced in the reseller agreement. That information to have I appreciate it. I'm sure that all of our listeners appreciate it as well. So authorized reseller policy absolutely should be one piece, one arrow in the quiver of brand protection and now we know a bit more about it and I thank you again Jeremy for for all of your insights and your knowledge. Always my pleasure. Good speaking with you Ron. If you'd like to submit a question or topic for a legal briefs podcast, email them to legal briefs at maptrap.com. For more information about how maptrap can help you with your online brand protection needs, visit www.maptrap.com.