The hair salons are closed – now what? During this COVID-19 pandemic, many consumers are resorting to buying hair care products online, including products such as permanent hair colorants that are designed solely for use by licensed cosmetologists.

Brands should monitor e-commerce sites for the unauthorized distribution of their salon-only products that are being dumped online. Instructions and warnings are written for trained professionals, not ordinary consumers. The concern is these products are not for the ordinary consumer to use at home without professional help, and improper use can result in serious harm or injury.

What can brands do about their products being unloaded in this manner? Most e-commerce sites have a process for submitting takedown requests for infringing goods, including counterfeits. In this situation, the products are likely new and unopened, so is there a basis in trademark law for a takedown notice? The answer is found in the “material difference” exception to the First Sale Doctrine.

E-commerce sites typically do not get involved in issues pertaining to the unauthorized resale or distribution of products on their sites because this would require reviewing distribution and supply chain agreements. The sites claim that takedown programs are not designed for determining whether a seller is a legitimate reseller or whether the e-commerce site is an authorized distribution channel.

The First Sale Doctrine allows consumers to resell authentic products that were lawfully purchased even though they are protected by intellectual property (IP) rights, such as copyright (covering original works of authorship such as books, software, music) or trademarks (brand names on goods such as clothing, food, household items). The resale of these goods in the chain of commerce typically does not constitute infringement. The policy behind this doctrine is that the IP owner has the right to make the first sale of its branded item and after that, others can resell it without authorization from the IP owner.

The material difference exception to the First Sale Doctrine covers situations where the product itself may be physically identical to the genuine product, but the reseller is not providing all the services or information that accompany a legitimate sale, rendering the product “not truly genuine,” and this can cause consumer confusion. See Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir. 1991) (“A product is not truly ‘genuine’ unless it is manufactured and distributed under quality controls established by the manufacturer.”).

In ABG Prime Grp., Inc. v. Innovative Salon Prod., Inc., No. 17-12280, 2018 WL 2937327, at *1-4 (E.D. Mich. June 12, 2018), which involved an Amazon seller that purchased Loma® brand hair care products from an authorized distributor and then resold the identical, unopened products in its Amazon store, the court provided several examples of when the First Sale Doctrine does not apply:

• First Sale Doctrine does not apply where an unauthorized reseller resells a product missing a warranty term. See Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1071 (10th Cir. 2009) (involving vehicle radar detectors).
• First Sale Doctrine does not apply to “reselling products with inferior warranties” which constitutes a material difference. See RFA Brands, LLC v. Beauvais, No. 13-14615, 2014 WL 7780975, *10 (E.D. Mich. Dec. 23, 2014), report and recommendation adopted, No. 13-14615, 2015 WL 519166 (E.D. Mich. Feb. 9, 2015) (involving consumer electronics, such as headphones, audio systems, charging devices).
• First Sale Doctrine does not apply to an unauthorized retailer of tanning lotions using a trademark to give consumers the impression it is an authorized retailer. See Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1241 (10th Cir. 2006).
• “[A] physically identical product is nevertheless ‘materially different’ from the genuine article if ‘the bundle of services’ that attach to the genuine article is not available to the consumer.” Bel Canto Design, Ltd. v. MSS HiFi, Inc., 837 F.Supp.2d 208, 224 (E.D. N.Y. 2011) (involving audio electronic components).

The court explained that the “exception exists primarily because a material difference in a product is likely to cause consumer confusion and could dilute the value of the trademark.” 2018 WL 2937327 at *4. Loma’s counter-complaint thus “pleaded facts sufficient to establish that ABG Prime’s Amazon store runs afoul of the Lanham Act.” Id. at *5.

In sum, the material difference exception can be a basis to submit a takedown notice for an infringing product listed on an e-commerce site, as arguably the basis for infringement lies in the Lanham Act and does not involve ancillary contract and supply chain issues.