Taking Control of Ecommerce Today

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The Antitrust Do’s and Don’ts of
Product Distribution
May 1, 2014
By: Irving Scher
New York, NY

27
The Concept of “Agreement”
Antitrust issues do not arise from
independent conduct if the actor lacks “monopoly
power.” Violations require “agreements.”
An “agreement” subject to antitrust scrutiny
does not have to be in writing. “Agreements” can
be inferred from written or oral communications
which may have led independent parties to engage
in anticompetitive conduct -- “circumstantial
evidence.”

28
Customer Selection
Acting independently, a supplier has the right to
select or terminate dealings with a particular customer or
category of customers (e.g. internet retailers). However, the
supplier cannot do so by agreement with any of its
competitors.
A supplier, acting independently, is free to do business
with or terminate a customer for:
• lack of a “brick and mortar” presence or sufficient locations
• credit reasons
• failure to adequately purchase or present the supplier’s
products
• reselling to the trade or otherwise diverting the supplier’s
products.
• selling or advertising below the supplier’s prices. (See
Exhibits 1 & 2.)

29
Customer Limitations
A supplier, acting independently, can
determine to sell to a particular retailer at one or
more locations, but not at other locations.
It can also prohibit a customer from:
• diverting its products to other locations or to
the trade
• reselling its products over the Internet, or it
can place conditions on such sales. (See
Exhibits 3 & 4.)
Additionally, it can limit particular products to
specific customers, or determine to sell a product
line only to one or a few customers.

30
Resale Price Maintenance (“RPM”)
While establishing a ceiling on a customer’s
resale prices (“maximum resale price maintenance”)
generally is lawful, establishing a floor (“minimum
resale price maintenance”) remains very dangerous
under the antitrust laws.
A supplier is best counseled not to enter into
agreements or understandings with customers as to
the prices below which they may not resell the
supplier’s products. Such agreements are
absolutely prohibited under the laws of some states.

31
Resale Price Maintenance (cont’d)
However, a supplier can suggest or
recommend that customers resell a product
at or above a specified price so long as the
customer remains free to decide whether to
follow the suggestion. (See Exhibit 1.)
A supplier can talk to a customer in
general terms about the profit enhancing
reasons for its pricing recommendations,
and the in-store services such prices
support. But it should not go further.

32
Specifically, the supplier should not:
• Pressure or coerce a customer to resell at the supplier’s
suggested retail prices.
• Increase wholesale prices or reduce
discounts/allowances to a customer who has resold
products below suggested prices.
• Provide rebates only if a customer resells at or above
suggested prices.
• Refuse to sell particular items or threaten to slow down
delivery to a customer who resells below suggested
prices.
• However, a supplier, acting independently, may
establish the selling prices of agents or consignees
selling products on its behalf.
Pricing Don’ts

Promotional Pricing
Retailers should not need a supplier’s approval to
promote the sale of its products.
A supplier should not prohibit customers from
reselling below the supplier’s promotional prices or beyond
a suggested end date for a promotion.
However, the supplier may require customers to
pass promotional funds on to their customers as a
condition of receiving such funds.
• E.g., a retailer can be provided a $25.00
promotional rebate only if it has passed the
promotional $25.00 through to its customers from
its independently determined selling price for
the item.
33

Retailer Pricing Complaints
If a supplier receives a pricing complaint
from Customer A about Customer B’s selling or
advertised prices, the supplier should respond as
follows:
• Customer B’s prices cannot be
discussed.
• A decision about action to be taken, if
any, will independently be made by the
supplier, and not reported back to
Customer A.
34

35
Minimum Advertised Price (“MAP”) Policies
“MAP” means “Minimum Advertised Price.”
• It does not relate to selling prices.
• It is a Policy providing that a retailer will:
• only be reimbursed for advertising at or above MAP,
• lose advertising support,
• or sales of the applicable product will be suspended for a
period of time if the retailer advertises below MAP.
A MAP Policy is permissible if the supplier:
• only withholds financial support from a retailer under
a Co-op Advertising Policy for advertisements below
MAP, so long as the retailer remains free to advertise
below MAP at its own expense, and also is free to
resell at prices it independently chooses.

36
MAP POLICIES (cont’d)
The legality of a MAP Policy is unclear if it goes
beyond just refusing to support below MAP
advertisements, for example:
• suspending financial support for a period of time
if a retailer’s advertisement is below-MAP.
• suspending sales of the product if a retailer’s
advertisement is below-MAP.
• terminating a retailer for failing to comply with the
MAP Policy. (See Exhibit 5.)
Legal counseling should be obtained for the
development of a MAP policy.

37
Pricing Incentives
• A supplier can offer a customer better prices or higher
discounts if a purchase from the supplier:
• is increased in quantity (quantity discounts);
• is at or above stated percentages of the customer’s
requirements for products in a category (loyalty
discounts);
• is in an amount that approaches, equals, or
exceeds the supplier’s market share (market share
discounts); or
• is for two or more different products (bundled
discounts).
• “Most Favored Nation” (MFN) provisions can assure a
customer that the supplier will reduce the customer’s
prices to a lower price that has been offered to a
competing customer.

©2011. All rights reserved.
GREENBERG TRAURIG, LLP  ATTORNEYS AT LAW  WWW.GTLAW.COM
“The New Frontier” of Brand
Enforcement on the Internet:
A U.S. Perspective
Steven J. Wadyka, Jr.
Shareholder
Greenberg Traurig, LLP
Washington, D.C. USA
(202) 331-3105
wadykas@gtlaw.com

Overview of Internet Brand Enforcement
 Challenges/costs/benefits
 Internet marketing, search engines and
keyword advertising
 Secondary liability for online service
providers
 Brand enforcement in social media
 Remedies against “rogue” websites
 Conclusions and predictions

Challenges Facing Brand Owners in Internet
Enforcement
 Potential IP rights violators
• Search engines selling trademarks as “keywords”
(Google, Yahoo!, Bing)
• Domain name registrars (GoDaddy)
• Social networking sites (Facebook, Twitter,
LinkedIn)
• “Rogue” websites/online counterfeiters
• Auction sites (eBay)
• Web hosting providers/ISPs
• Payment processors (PayPal)

Challenges Facing Brand Owners in Internet
Enforcement
 Jurisdictional issues
• How to subject offshore (and often anonymous) IP
rights violator to the courts and laws of the U.S. and
obtain relief that can be enforced against the violator?
 Cost considerations
• Private investigators
• Monitoring/watching services
• Legal fees
 Efficiency and effectiveness
• Identify and choose targets wisely
 Deterrence and Return on Investment
• Substantial relief may provide disincentive to would-be
violators and help brand owner recoup losses and cost
outlays

Challenges Facing Brand Owners in
Internet Enforcement
 Secondary liability
• Hold online service providers responsible for the
infringing acts of others
• Hold brand owners responsible for the actions of
third parties
• Two theories:
– Vicarious infringement: Principal liable for
acts of its agent
– Contributory infringement: Analogous to
aiding and abetting

Search Engines & Keyword Advertising
Rosetta Stone v. Google, 676
F.3d 144 (4th Cir. 2012)
Rosetta Stone sued Google for
trademark infringement based
on sale of keywords consisting
of Rosetta Stone’s trademark to
trigger ads for competitors’ and
counterfeit products
District court granted summary
judgment for Google on Rosetta
Stone’s direct and contributory
infringement claims

Rosetta Stone v. Google
 Direct trademark infringement
• Disputed issues of fact regarding Google’s intent;
evidence showed that Google expected uptick in
litigation due to AdWords policy change
• District court ignored evidence of actual confusion as
to sponsorship
• Sophistication of consumers – internal Google study
showed seasoned Internet users were confused by
Google’s sponsored links
• Functionality doctrine inapplicable – Irrelevant that
Google’s computer program functioned better by use of
Rosetta Stone’s mark

Rosetta Stone v. Google
 Contributory trademark infringement
• Insufficient for service provider to have
general knowledge that some percentage of
purchasers use the service to engage in
infringing activities
• Must provide service to identified individuals
that it knows or has reason to know are
engaging in trademark infringement
• District court improperly weighed conflicting
evidence regarding Google’s allowance of
known counterfeiters to bid on Rosetta Stone
keywords

 1-800 CONTACTS, Inc. v.
Lens.com, Inc., 722 F.3d 1229
(10th Cir. 2013)
• Lens.com used an “affiliate
network,” managed through an
aggregator, to assist with
online marketing
• Affiliates purchased keywords
containing 1-800’s mark
• Some impressions displayed 1-
800’s mark
• 1-800 argued “initial interest
confusion”
• Sued Lens.com based on
theories of vicarious and
contributory infringement

 1-800 CONTACTS, Inc. v. Lens.com, Inc.
• Relevant issue for consumer confusion is not what
keyword was purchased, but what language was
used in the ad generated by keyword
• Likelihood of confusion existed as to impressions
containing plaintiff’s mark
• No vicarious liability
 Affiliate had no authority to act on behalf of
defendant and thus was not an “agent”
• BUT, there was contributory liability
 Lens.com could have stopped use of infringing ads by
requiring its aggregator to send e-mail blast to
affiliates forbidding such use

Domain Name Registrars
 Petroliam Nasional Berhad (Petronas) v.
GoDaddy, 737 F.3d 546 (9th Cir. 2013)
• A third party registered “petronastower.net” and
“petronastowers.net” and used GoDaddy’s domain
forwarding service to direct users to a porn site
• Petronas sued GoDaddy for contributory cybersquatting
under the federal anti-cybersquatting statute (ACPA)
• Appeals court held that neither the plain text nor
purpose of the ACPA supports a claim for contributory
cybersquatting
• Would saddle registrars with nearly impossible task of
“divining the intent of their customers”
• Issue may soon be before US Supreme Court

Auction Sites & Online Marketplaces
 Tiffany v. eBay, 600 F.3d 93 (2d Cir. 2010)
• First U.S. case to apply contributory trademark
infringement standard to online marketplace
• Tiffany claimed that eBay was liable for contributory
trademark infringement by supplying its services to
sellers of counterfeit Tiffany goods while knowing or
having reason to know that such sellers were infringing
Tiffany’s marks
• District court ruled in favor of eBay; Tiffany appealed

Auction Sites & Online Marketplaces
 Tiffany v. eBay
• Affirms judgment in favor of eBay
• For contributory trademark infringement, a service
provider must have more than a general knowledge or
reason to know that its service is being used to sell
counterfeit goods
 Some contemporary knowledge of which particular
listings are infringing or will infringe in the future is
necessary
 Tiffany’s generalized allegations of counterfeiting
failed to provide eBay with the required knowledge
• eBay’s extensive anti-piracy efforts – Trust & Safety
Dept., fraud engine to detect listings for counterfeit
goods, VeRO Program providing rights owners with
“notice and takedown” remedies – all were critical to a
finding of no liability

Web Hosting Providers
 Louis Vuitton v. Akanoc Solutions, 658
F.3d 936 (9th Cir. 2011)
• Defendants provided web hosting
services to sites that sold counterfeit
Louis Vuitton products
• LV made several demands that
defendants either remove infringing
content or require their customers to
do so; No response from defendants;
sites continued to operate
• LV sued for contributory trademark
infringement
 Argued that defendants had actual
knowledge of sites’ activities, knowingly
avoided learning full extent of those
activities, and deliberately disregarded
LV’s demands, thereby knowingly enabling
the infringing conduct by hosting the sites
• Jury found for LV, awarded statutory
damages totaling $31.5 million

Web Hosting Providers
 Louis Vuitton v. Akanoc Solutions
• Affirmed on appeal as to liability
• Issue: Whether defendants exercised direct control of third
party’s “means of infringement”
• Defendants: The websites selling counterfeit goods were to
sole means of infringement
• Appeals court held that defendants physically host websites
on their servers and route Internet traffic to and from those
sites
• “The Internet equivalent of leasing real estate.”
• Defendants had direct control over the “master switch” that
kept the sites online and available
• Reduced statutory damage award to $10.5 million

Payment Processors
 Theory of liability
• Contributory infringement
 Intentional inducement
 Actual knowledge or willful blindness, while having sufficient
control over the instrumentality used to infringe
 Divergent case holdings
• Perfect 10 v. Visa, 494 F.3d 788 (9th Cir. 2007)
 allegation that credit card processors can decide to stop processing
payments to sites dealing in counterfeits was insufficient to state a
claim (Judge Kozinski dissenting)
• Gucci v. Frontline Processing, 721 F.Supp.2d 228 (SDNY 2010)
 “control” sufficiently alleged because credit card processing
services are a necessary element for the transaction of counterfeit
goods online; “knowingly provide a financial bridge between
buyers and sellers of counterfeit products”

Social Media
 Presents opportunities and challenges for brand
owners
• Opportunities:
 Build brand strength/loyalty by creating official
company page and fan page
 Register usernames consisting of your
company’s brands
 Use social media pages commercially to provide
new ways to reach consumers
 Spread branding message instantaneously across
numerous platforms

Social Media
• Challenges:
 Improper suggestions of affiliation/sponsorship
– Brand appears in usernames pointing to sites
containing false information about the
company’s products
 Counterfeiting - Username points to sites selling
counterfeit goods
 “Username squatting” - New FB account created
solely to take advantage of grabbing a username
 Dilution - Blurring and tarnishment
 Imposters - Possible parody defense; permissible on
Twitter provided parody is clear

Social Media
 Enforcement strategies in social media sites
• Assessment of infringing activity
 Balance the need for brand protection vs. potential
alienation of customers
– Must always be mindful of duty to police your
marks
– How much of an issue does the activity create
for your business?
– Does it interfere with any ongoing advertising or
promotional campaigns?
– Is it an isolated, ephemeral instance or a
concerted attack?

Social Media
• Consider free speech issues and potential public
backlash of enforcement effort
– First Amendment to U.S. Constitution
grants broad protection to political
speech/commentary/criticism, less
protection to commercial speech
– Keep in mind that cease and desist letter
may well be posted on social media sites to
generate negative exposure for the brand
» Adjust tone of enforcement depending
on whether infringer is willful or
simply innocent or misguided

Social Media
• Become familiar with the site’s Complaint and
Takedown Policies, Community Guidelines, and Terms
of Use
• Develop takedown strategy and assess requirements
 Copyright Infringement (DMCA)
 Trademark Infringement
 Unauthorized Impersonation
 Repeat Offenders
 Harassment, defamation, theft of confidential material
• Keep in mind that policies and requirements my change
over time

Social Media
 Expand your internal monitoring program to include
social media sites
 Develop consistent monitoring and enforcement
procedures
 Use search engines to find infringing/harmful content
– Google.com/alerts (generates alerts for use of
company names and brands on the Web, blogs,
news, discussion groups)
 Consider vendors and software tools with social
media monitoring capability
 Keep tabs on what is being said about your brand in
“real time”

“Rogue” Websites
 What is a “rogue” website?
• A site that traffics in stolen movies, TV shows and
music, or counterfeit goods
• Located throughout the world
• Appear legitimate by featuring brands and advertising
of reputable companies and accepting major credit
cards
• Enable site operators to profit from brands and other IP
they had no role in creating
• “A Web site that is set up to spread a virus, collect
names for spammers or for some other illicit or
repugnant purpose” (PC Magazine Encyclopedia)

“Rogue” Websites
 What type of threat do they present to brands?
• The counterfeit business model is shifting toward use
of “rogue” websites
 Seizures by U.S. Customs & Border Patrol jumped 24% in
2011, but overall value of goods seized decreased by 5%
from previous year
 Proliferation of rogue sites in part responsible
 Difficult to stop counterfeit goods from entering US if
purchased through rogue website
 Hard to locate or identify operators of sites
 Lack of any lasting remedy since sites are easily re-
established

A Rogue Website Case Study: Tory Burch
An example of how brand owners can
combat the sale and distribution of
counterfeit goods through “rogue” websites
under current U.S. laws

 Tory Burch brought suit in Dec. 2010 in SDNY against an
interrelated group of anonymous counterfeiters
 Defendants established over 200 websites to sell
counterfeit Tory Burch products
 The sites were in English, accept major credit cards, copy
Tory Burch marks, designs and photos
 Sites established at URLs containing the Tory Burch marks
so they would rank highly web searches for “Tory Burch”
name
 Defendants used multiple fake names and addresses and
submitted false WHOIS data to avoid detection
 New sites quickly set up once existing sites disabled

 Court granted Tory Burch’s motion for default judgment
and permanent injunction (Order dated May 13, 2011)
• Court had personal jurisdiction over the defendants based on
their operation of fully-interactive websites through which
they sold Tory Burch counterfeits
 Recent 2d Cir. case upholding jurisdiction over nonresident
counterfeiter based on sale/shipment of at least 1 counterfeit
handbag into NY and its operation of highly-interactive website
(Chloe v. Queen Bee (2d Cir. 2010))
• Found that defendants “went to great lengths to conceal
themselves and their ill-gotten proceeds from Tory Burch’s
and this Court’s detection by using multiple false identities
and addresses as well as purposefully deceptive contact
information”
• Permanently enjoined 3rd party service providers (ISPs,
registries, registrars, online marketplaces) from providing any
services to defendants
• Awarded Tory Burch $164 million in damages

 Court also granted ongoing injunctive relief tailored to suit
the unique challenges presented by the anonymity of
defendants and ease by which they are able to establish
new sites
 Order enables Tory Burch
• to disable additional rogue sites as they are established by
defendants and discovered by Tory Burch
• To freeze and recover any additional newly-discovered
financial accounts used in connection with defendants’
operation, such funds to be applied toward satisfaction of
$164 million judgment
• To obtain transfers of additional domain names associated
with any newly-discovered rogue sites
 Ongoing mechanism avoids the need to institute a
separate action each time a new rogue site is established

Conclusions and Predictions
 The legality of using trademarks in keyword advertising is
still unsettled
 Greater challenges for brand owners in seeking to hold
online service providers liable for trademark
infringement, creating greater need for remedies against
direct infringers, wherever located
 Competitors will become more aggressive in marketing
through social media sites, resulting in trademark disputes
that will test adequacy of traditional trademark law in the
social media context
 Rogue websites will become more sophisticated in their
operation and more difficult to identify

Questions?

Thank You!

Be Prepared to protect your brand with strong policies –
MAP, retailer agreements, etc
Strengthen retail partnerships by enforcing agreements and
address distribution concerns
Start with knowing where you stand online
Consider selling direct to offset irregularities in the
marketplace which degrade your brand
Marketing and Merchandising within the online channel
Manage online retailers differently - its not “set-it-and-
forget-it”

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Work with your team to establish quantitative benchmarks and goals
related to the program and an initial demand plan. Additionally, develop a
dynamic dashboard specific to your business goals that can be regularly
updated.
As needed, develop inventory management set up, payment and inventory
reconciliation.
Work with a creative team that will update imagery, product detail page
copy and other assets in accordance with your brand guidelines.
At the conclusion of development, deploy your brand into the marketplaces
and establish a roadmap that highlights key milestones and initiatives
related to your program.

Actively manage your products and overall online presence.
Monitor your brand and competitors, manage marketplace logistics, upload
content refreshes, regular benchmark key KPIs and continually optimize
your presence to ensure we are meeting established goals.
Actively pursue merchandising value ads and paid opportunities
Perform inventory management and payment reconciliation related to the
marketplaces where your brand is present.
Provide regular reporting on sales, competitors and channel metrics along
with analysis and recommendations on how to optimize to meet your goals.

• Stakeholder interviews
• SWOT analysis
• Product training & education
• Asset audit & needs identification
• Retailer and competitive online audit
• Asset optimization
• Demand forecasting
• Content management system integration
with retailers
• KPI identification & development
• Management dashboard development
• Daily maintenance
• Maintain listings & collateral material
• Facilitate price, inventory & order
management
• Plan & coordinate marketing promotions
• Assist in communicating new product
initiatives & education
• Marketing asset development
• Sales & trends analysis item breakdown
• Sales & merchandising management

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