In Au-Tomotive Gold Inc. v. Volkswagen of America, Inc., 603 F.3d 1133 (9th Cir. May 6, 2010), the Ninth Circuit refused to extend the First Sale Doctrine as a defense in circumstances where a likelihood of post-sale confusion as to the origin of the accused goods exists.
The trademark in question was Volkswagen’s well known logo consisting of the letters “Vw” inside a circle. Au-Tomotive Gold Inc. (“Auto Gold”) produced and sold automobile accessories, including marquee license plates with badges displaying Volkswagen’s Vw logo mounted on them. Auto Gold claimed its use of the badges was legitimate under the “First Sale Doctrine” because it purchased the badges on the open market from an authorized Volkswagen dealer, and also included a disclaimer in the packaging of the marquee license plates that explained that the plates were not sponsored by or affiliated with Volkswagen.
The Ninth Circuit disagreed, ruling that the First Sale Doctrine did not apply.
The court distinguished a long line of cases applying the First Sale Doctrine to situations where consumers were not likely to be confused over the source of the accused goods, in large part, because labels contained on the packages diminished the likelihood of confusion as to their origin. Rather, the court noted that people walking down the street who saw the marquee license plates would likely affiliate it with Volkswagen, having never seen the disclaimer language in the packaging. “Indeed, customers buy marquee license plates principally to demonstrate to the general public an association with Volkswagen. The demand for Auto Gold’s products is inexplicably tied to the trademarks themselves.”
The court explained that post-purchaser confusion creates a “free rider” problem:
“Auto Gold contends that in ’First Sale‘ cases, the element of free riding present in other post-sale cases disappears because the producer has paid the price asked by the trademark owner for the ride. This contention misses the point. When a producer purchases a trademarked product, that purchaser is not purchasing the trademark. Rather, the producer is purchasing a product that has been trademarked. If a producer profits from a trademark because of post-purchase confusion as to the source of a new product, the producer is free riding even though it has paid for the trademarked product.”
The court’s decision makes it clear that the First Sale Doctrine will not extend to cases where a disclaimer is ineffective in eliminating potential confusion as to the origin of the goods. In most situations where there is a benefit being derived by confusion as to the source of the goods, there exists potential liability under the Lanham Act.