Nestle is Next to Battle the First Sale Doctrine

Nestle USA, Inc. filed a lawsuit against Market Centre, Inc. for selling in the United States genuine product purchased in Mexico from Nestle Mexico, S.A. de C.V. The goods sold in the U.S. is considered a grey market good. Société des Produits Nestlé S.A. is the owner of the NESTLE and other trademarks in the United States and Mexico. Société des Produits Nestlé S.A. exclusively licenses its U.S. trademarks to Nestle USA and exclusively licenses its Mexican trademarks to Nestle Mexico, which are its operating subsidiaries in these two countries.

Nestle USA alleged, similar to PopSockets, that it has a robust quality control program in the U.S. and provides after-sale benefits to consumers such as receiving and addressing complaints and addressing spoilage issues. Not surprising, no allegations are made with respect to the quality control program administered by Nestle Mexico or the after sale benefits to consumers provided by Nestle Mexico. However, chances are the programs are very similar if not the same.

Similar to the PopSockets case where reselling a domestic product is not per se illegal, importing a genuine good from a foreign country to the United States is not per se illegal because in the United States under the first sale doctrine a trademark owner that releases its goods into commerce cannot prevent the subsequent resale of those goods by others. Whether “material differences” between imported goods and domestic goods exist will determine whether the sale of the grey market good is illegal.

The “difference” does not need to be enormous. Slight variations in labeling, packaging, or quality control measures can be sufficient if they are likely to influence consumers’ purchasing decisions. Some U.S. courts have held that when the U.S. distributor is a wholly-owned subsidiary of a foreign manufacturer, the existence of material differences does not give rise to trademark infringement because the goodwill associated with the trademark still remains under the control of the foreign manufacturer.

This is an argument that Nestle USA will undoubtedly have to face. Despite Nestle USA and Nestle Mexico being operating entities, the goodwill associated with the marks from these countries remains under the control of the trademark owner Société des Produits Nestlé S.A. And the trademark owner has an interest in maintaining consistent quality in its products and ensuring a positive consumer experience regardless of what geographic location in which its goods are sold.

However, whether consumers are likely to be confused trumps all including the first sale doctrine. If the court believes that consumers are likely to be confused by the differences between the goods imported from Mexico and the goods authorized for sale in the U.S., the Court is likely to side to Nestle USA in this case.

Leave a Reply