“3M’s lawsuit centers around an allegation that, as the effects of the COVID-19 were being most acutely felt across the United States, Performance Supply sent a quote to New York City’s procurement office offering to sell the city a very large shipment of N95 respirator masks numbering in the millions for what 3M called a ‘grossly inflated aggregate price’ representing a markup of 500% to 600% over 3M’s list price.”
On April 10, multinational corporation 3M filed a lawsuit alleging trademark infringement claims against N95 respirator distributor Performance Supply, LLC, in the Southern District of New York. Central to 3M’s suit is the company’s desire to eliminate what it calls a false and deceptive price-gouging scheme being perpetrated by entities operating outside of 3M’s authorized supply chain and taking advantage of increased respirator demand caused by the COVID-19 crisis.
3M Takes Aim Against “Shameless Price-Gouging” During COVID-19 Crisis
While the case asserts claims for relief under federal trademark law and New York state business and common law, 3M’s complaint makes it clear that the company brought this suit to take an active role in combating various exploitative activities surrounding the increased demand for N95 respirator masks during the coronavirus pandemic. 3M touts its efforts in working with law enforcement authorities at the federal, state and local level and establishing a hotline for reporting COVID-19-related fraud as part of its current efforts to reduce public safety threats. “This Complaint is another part of these efforts.”
3M’s lawsuit centers around an allegation that on March 30, as the effects of the COVID-19 were being most acutely felt across the United States, defendant Performance Supply sent a quote to New York City’s procurement office offering to sell the city a very large shipment of N95 respirator masks numbering in the millions for what 3M called a “grossly inflated aggregate price” of about $45 million, representing a markup of 500% to 600% over 3M’s list price. 3M alleges that Performance Supply used various tactics to confuse NYC procurement officials that it was an authorized dealer of N95 masks by reproducing 3M’s trademarks throughout the quote and technical specification sheets and falsely implying that the quote came from 3M. “The mere association of 3M’s valuable brand with such shameless price-gouging harms the brand, not to mention its more serious threat to public health agencies that are under strain in the midst of a worldwide pandemic,” 3M’s complaint reads.
A Tough Claim to Make?
According to Andrea Anderson, Partner and Lead Trademark Attorney at Holland & Hart, while it’s likely that the company’s lawsuit will achieve its objective in bringing about an end to the offending pricing scheme, 3M’s trademark claims in this suit may not be particularly strong. “Under exhaustion doctrine, once a manufacturer sells a trademarked product, the manufacturer can no longer control how that product is resold unless it does so contractually,” Anderson said. “They can enter into agreements with distributors about how a product can be distributed but that’s contractual and voluntary. As long as the product is described accurately and the seller doesn’t make a misrepresentation, if that seller charges an inflated price, the consumer is still getting exactly what they thought they were getting, so it’s not consumer deception.”
3M alleges that Performance Supply’s sales of the N95 respirator masks is causing consumer confusion and deception regarding whether the masks sold by the defendant originated from or were approved by 3M. The company has not alleged that the masks themselves are counterfeits but as Anderson notes, there are a few instances in which a trademark owner can allege that consumers are receiving products that are otherwise authentic but that they end up being deceived by the way in which the goods are sold. For instance, gray market goods are products that are authorized for sale in one country or region but are somehow diverted to a different market. As an example, Anderson suggested the fact pattern behind the D.C. Circuit’s 1989 decision in Lever Brothers Co. v. United States, in which Lever branded soap was diverted by third parties from the UK to the United States. While the UK soap had identical branding to Lever’s U.S. product, there were several physical differences between the products, including different lathering properties and the lack of an antibacterial agent present in the U.S. product.
Another such situation in which sales outside an authorized distribution chain could be challenged by a trademark owner is where such unauthorized sales void a manufacturer’s warranty. “One way that a manufacturer tries to control the distribution chain is to enter into agreements in which distributors can’t sell to certain retailers or through online forums,” Anderson said. “These manufacturers often rely on the expertise of authorized sellers who are trained how to handle and store the branded goods properly. When those goods are sold by someone who isn’t trained, perhaps the product can deteriorate if not stored properly so the manufacturer won’t warranty it. If the consumer’s not getting the full benefit of that product, including the manufacturer’s warranty, that’s deception.”
Using a Trademark Infringement Action to Benefit the Greater Social Good
3M’s theory that the alleged infringer is deceiving the consumer through an unauthorized price-gouging campaign with the use of 3M’s brand name is a fairly attenuated legal theory compared to others which challenge sales outside of an authorized distribution chain. From a legal standpoint, this claim is made all the more challenging due to the knowledge level of the buyers to whom 3M argues that Performance Supply made the allegedly deceptive offer. “3M would have to prove that the city procurement officials, who are pretty sophisticated in dealing with such offers, are going to be confused,” Anderson said. “However, such officials are probably dealing every day with shady actors like this and are probably pretty good at identifying the ones that are purely gouging.”
Further, even if the procurement officials paid the defendant for the N95 respirator masks at the large price markup, those officials may still be informed consumers who are willing to pay the larger cost because of their need.
However, despite any legal challenges to 3M’s claim, Anderson believed that the lawsuit, which is as much a public relations campaign as it is a suit to vindicate IP rights, is likely to achieve 3M’s objective without the company having to argue the merits of its claim. “It sounds counterintuitive but sometimes a party can bring a weak claim to achieve a greater good or higher objective,” she said. While trademark cases involving unauthorized retailers are fairly common, such cases usually settle well before they get to trial. This particular case is rather rare in that 3M’s claim isn’t predicated on the good being purchased is any different than the authentic trademarked article, but rather that consumers are being deceived about the distributor’s relationship to 3M. However, given current public sentiment during this global public health crisis, 3M’s suit is likely to help induce an end to at least this particular instance of COVID-19-related price-gouging.
Image Source: 3M complaint