How Serious Is That Lawsuit Threat?

By Cliff Ennico

January 17, 2017 6 min read

"I started a business selling on Amazon.com a couple of years ago. Most of our merchandise we acquire through established liquidation firms and other very reputable sources.

"Last week I received a letter from a law firm located halfway across the country ordering me to stop selling one of our most profitable products. The letter says the merchandise we are selling is counterfeit because it was not purchased through an authorized reseller. The letter also demands we notify customers that any products we sell on Amazon are not covered by manufacturer's warranties.

"This threw us for a loop because we have always bought through reputable sources and I am certain none of our merchandise is counterfeit. Yet obviously we cannot ignore a direct threat like this. What should we do?"

Whenever you receive a letter threatening you with a lawsuit, the first rule is don't panic.

When somebody wants to sue you, he rarely goes right to court and files papers. He will always send you a warning letter like this to first give you the chance to avoid being sued. The easiest way to avoid being sued is to just do what the letter demands and stop selling this particular line of merchandise on Amazon.

However (as always with anything legal), it's a little bit more complicated than that. Manufacturers — especially makers of luxury goods, like Louis Vuitton and Tiffany and Co. — are extremely careful to maintain their brand's mystique and reputation for scarcity in the marketplace. If their limited-edition merchandise can be found everywhere — on eBay, Amazon and elsewhere online — it dilutes their brand's reputation and cripples their profit margins.

So what do they do? They hire lawyers to send out hundreds of these form letters whenever they see one of their client's SKUs being sold online.

It doesn't necessarily mean you have done anything wrong. Under the first-sale doctrine in trademark law, you have every right to resell your merchandise online as long as you purchased it legally. The U.S. Supreme Court upheld your right to do so in the landmark 2013 case Kirtsaeng v. John Wiley & Sons Inc.

What you might consider is sending a letter to this law firm saying you have acquired your merchandise lawfully (name your vendor if possible) and that your legal counsel has advised that you have every right to resell the merchandise online under the Kirtsaeng case. That may well put an end to the matter, but be prepared otherwise. If the law firm responds and asks to speak to your legal counsel, you may have to get your lawyer involved. (And please, please don't send it to me!)

The manufacturer warranty issue is a bit more complicated. Manufacturers generally have the right to limit their warranties to first-time retail customers only. This means that the merchandise you are reselling is no longer covered by those warranties. You should disclose that fact in all of your eBay and Amazon listings, so customers aren't misled into thinking they can return defective merchandise to the manufacturer for a refund. (Of course, if that's the case, you should offer the opportunity to return the item to you via Amazon.)

Should you blow off the letter entirely in the hopes the manufacturer won't follow up? Here are the pros and cons.

If You Blow it Off: The manufacturer spent money on legal fees to have this letter sent, so it obviously takes it seriously. Because the law firm and its client are located in a distant state, however, the client will need to retain local counsel in your state and sue you in federal court, a process that will cost a minimum of $20,000 to $30,000. (The client could sue you in its home state, but because that court lacks jurisdiction over you the case would probably be dismissed. If you just don't show up, the case would get a default judgment that probably won't be enforced in your state.)

Also, because you ignored the first letter you have lost the innocent-infringer defense. If you continue selling and the firm sends you a second letter, you can't plead ignorance.

Consider waiting until a similar letter arrives in the mail from a local law firm. That will tell you that the manufacturer really means business and you should probably cooperate.

If You Cooperate: The threat of lawsuit will almost certainly go away, but your business will lose a major source of revenue and you will probably be stuck with a large inventory of unsalable product. If you do cooperate, get the manufacturer's permission to sell out your existing inventory (even at a loss) before you shut down.

In these situations, discretion is the better part of valor. It's much better to get the manufacturer's permission to sell online as an authorized distributor, or even better, to be its exclusive online distributor. If you must sell name-brand luxury goods online, get proof of authenticity before you list them. That way, you can send a copy of the proof to the law firm and it will have to back down.

Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.

Like it? Share it!

  • 0

Succeeding in Your Business
About Cliff Ennico
Read More | RSS | Subscribe

YOU MAY ALSO LIKE...