Thursday, June 27, 2013

Enthusiastic Fan or Dangerous Competitor?

I like Trader Joe’s.  I like the atmosphere – not unlike the small-town grocery stores I knew growing up.  I like the products – interesting choices and, at least, perceived quality.  But I’m not sure I like their legal position in a recent suit Trader Joe’s filed in the federal district court in the State of Washington against one Michael Hallatt of Vancouver, British Columbia.

Michael Hallatt is a self-proclaimed fan of Trader Joe’s.  There are no Trader Joe’s stores in Vancouver – or anywhere in Canada for that matter, so Mr. Hallatt would regularly drive to Bellingham, Washington, to shop at a Trader Joe’s.  When he realized that other Canadians also desired Trader Joe Products, he began buying in bulk for resale in Canada at a store called “Pirate Joe’s”.  

According to Mr. Hallatt, he did his shopping openly and without hiding his purpose.  He held the required Canadian licenses and permits that allowed him to cross the border with his purchased goods.  Sometime in 2012, Trader Joe’s advised its stores not to sell to Mr. Hallatt.  He nevertheless continued to purchase goods with the cooperation of friendly Trader Joe’s employees, by engaging purchasers that were not known to Trader Joe’s, and by spreading the purchases among multiple stores.  

Unable to stop Mr. Hallatt’s shopping sprees, Trader Joe’s sued Michael Hallatt.   The complaint alleges trademark infringement, unfair competition, false endorsement, false designation of origin, false advertising, trademark dilution, injury to business or reputation and deceptive business practices.  

Hallatt isn’t selling counterfeit goods.  He isn’t tampering with the packaging or relabeling the products.  Frankly, his only activity in the U.S. involves the purchase of sizeable quantities of Trader Joe’s products at full retail price from authorized Trader Joe’s stores.    Hallatt’s basic business scheme is legal under the “first sale doctrine” which permits the resale of trademarked products once the trademark owner puts the products in the market.  To support its various claims, Trader Joe’s will need to show something more than the mere resale of its goods.   Most, if not all, of the TJ’s  claims depend on whether Hallatt’s activities misrepresent his relationship with Trader Joe’s , or deceive or are likely to deceive consumers into believing he is an authorized dealer of Trader Joe’s products.  Trader Joe’s facts supporting these claims:

Hallatt is reselling TJ’s products in their original packaging bearing TRADER JOE’S trademarks
Hallatt is reselling TJ’s products at “significantly higher prices” than Trader Joe’s charges
Hallatt prominently displays the message “We Sell Trader Joe’s!” on a sandwich board outside the retail store named Pirate Joe’s
There is a sticker saying “I [heart] TJ” on the back of a cash register at Pirate Joe’s
Pirate Joe’s uses Trader Joe shopping bags (presumably recycled from Hallatt’s Trader Joe’s shopping trips)
Hallatt uses elements  of Trader Joe’s famous trade dress at Pirate Joe’s website; specific elements are not set forth in the complaint
Design aspects in the Pirate Joe’s retail store are similar to Trader Joe’s “famous South Pacific” trade dress; no specifics given
Hallatt is purchasing and selling goods outside the scope of Trader Joe’s stringent quality-control standards

This is it.  All of it.  (TJ’s complaint may suggest these are merely examples, but if they had other bad behavior, they would pile it on, or at least select better examples…).    

The first sale doctrine is what allows people to sell at garage sales and on eBay.  This allows an enterprising kid to buy cases of bottled water at Sam’s club and resell them out of a cooler at your kid’s little league game.  It allows a store to go out of business by selling its inventory to a discount house.  Hallatt is no different – unless he is fooling customers about his relationship with Trader Joe’s.  And there doesn’t seem to be any serious evidence of that – in fact quite the opposite.  In an interview on MPR, Mr. Hallatt even stated that he encourages customers to visit a Trader Joe’s to get the real experience.  

While I believe wholeheartedly in the protection of one’s trademark rights, I think Trader Joe’s should have thought about this before bringing a lawsuit.  The complaint looks petty.  The facts are weak.  Hallatt claims to be a fan; couldn’t they have worked out some kind of business deal?  Did they even try?  (Hallatt claims to have reached out to TJ’s but they refused to talk to him.)  Do they know it’s a bad claim and just want to bully Mr. Hallatt?  

If bullying was the intent, it hasn’t worked so far.  Hallatt has said he will fight this one, and has not only answered with a denial of all of the alleged violations, but has set forth several affirmative defenses (additional facts that constitute defenses to the claims) and counterclaimed for discrimination on the grounds that Trader Joe’s treatment of Hallatt is in violation of Washington law that prohibits discrimination by any business based on national origin (See RCW 49.60.030(1)(f)).   Hallatt has also dropped the “P” from his “Pirate Joe’s” sign. 

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