May 11, 2010

“First Sale” Doctrine Does Not Apply When There Is a Likelihood of Post-Purchase Confusion

On appeal from the District of Arizona, the Ninth Circuit affirmed the lower court’s grant of summary judgment to trademark-owner Volkswagen of America Inc. (“Volkswagen”), holding that the “first sale” doctrine does not provide a defense when likelihood of confusion has been established.

The “first sale” doctrine allows purchasers of trademarked goods to resell those items without infringing the trademark owner’s rights. That is, the trademark owner may only control the “first sale” of its goods. The “first sale” doctrine protects these downstream sellers, so long as the goods bearing the trademark have not been materially altered.

Au-Tomotive Gold (“Auto Gold”) makes and sells automobile accessories for cars, including Volkswagen vehicles.  Auto Gold bought “VW” brand badges, as used on the hoods and trunks of Volkswagen vehicles, affixed the VW badges to marquee license plates, and sold the plates with packaging indicating that the plates were not produced or sponsored by Volkswagen.[1]  After receiving several letters from Volkswagen demanding that Auto Gold cease using the trademarks, Auto Gold filed suit in 2001 (“Auto Gold I”), seeking a declaratory judgment that its products did not infringe Volkswagen marks.  A “procedural morass” ensued, according to the Court of Appeals for the Ninth Circuit; “[f]rom this point, the case became a maze of counterclaims, stipulated dismissals, and new complaints.”  Au-tomotive Gold, Inc. v. Volkswagen of America, Inc. et al., 544 F. Supp.2d 933, 934 (D. Ariz. 2008) (citing Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc. 457 F.3d 1062, 1066 (9th Cir. 2006)).

At trial in Auto Gold I, the District Court granted summary judgment to Auto Gold, holding that the trademarks were functional under the doctrine of “aesthetic functionality.” The Ninth Circuit reversed on this point, further held that Volkswagen established a case for trademark infringement, and remanded for consideration of Auto Gold’s “first sale” defense.

On remand, in Auto Gold II, the District Court held that Auto Gold failed to state facts to substantiate a “first sale” defense, and granted summary judgment to Volkswagen. Auto Gold appealed.

On appeal, the Ninth Circuit held “that the ‘first sale’ doctrine does not provide a defense because the plates create a likelihood of confusion as to their origin … base[d] on the likelihood of post-purchase confusion among observers who see the plates on purchasers’ cars.” Au-tomotive Gold, 2010 U.S. App. LEXIS 9277 at *5-*6.  Accordingly, in the Ninth Circuit, if post-purchase likelihood of confusion has been established, the “first sale” defense is not available.

– by Elizabeth K. Brock, Associate, Harness IP

Au-tomotive Gold Inc. v. Volkswagen of America Inc. et al., Case No. 08-16005, 2010 U.S. App. LEXIS 9277 (9th Cir. May 6, 2010)

Au-tomotive Gold Inc. v. Volkswagen of America Inc. et al., 544 F. Supp. 2d 933; 2008 U.S. Dist. LEXIS 33233 (March 31, 2008)

[1] Auto Gold also sold license plates, license plate frames and key chains using replicas of Volkswagen trademarks. These actions are not the subject of the current appeal.