Authorized Reseller Agreements
Inevitably, there will be sellers in the marketplace who sell your products without authorization, who violate your resale policies (such as your minimum advertised price policy aka MAP Policy), and who, overall, hurt your brand. It is critical for manufacturers to eliminate (or at the very least limit) the number of such unauthorized resellers. However, the problem that manufacturers run into is that these unauthorized resellers are not necessarily violating any law. Under what is known as the First Sale Doctrine, individuals are free to resell your products, and they are even permitted to use your trademarks, so long as the goods being sold are genuine.
So how can you stop these unauthorized resellers? Answer: Authorized Reseller Agreements.
What is an Authorized Reseller Agreement?
An authorized reseller agreement is a contract between you and resellers of your products. Authorized reseller agreements lay out the rules and policies that resellers must follow if they wish to sell your products. No seller should be permitted to sell your products without a signed authorized reseller agreement in place. This allows for greater control over your distribution channels, ensures that all resellers are operating under a uniform set of policies, and allows you to identify unauthorized resellers and take action against them.
What Terms should my Authorized Reseller Agreement Include?
There is no “form” authorized reseller agreement; each one needs to be tailored to the specific manufacturer. However, there are basic provisions that all agreements should have, such as:
- The Reseller’s Name (and DBA’s). In the Internet age, companies are able to operate under various names, which can make it difficult to identify who is actually selling your products.
If you can’t identify the reseller, then you can’t enforce your rights. The reseller agreement should expressly state each of the reseller’s fictitious names and DBA’s, including any online storefront names, and require that the reseller only sell under those names.
- Permitted Sales Locations. This is entirely up to the manufacturer, but the agreement needs to clearly state where resellers are and are not permitted to sell your products. You should consider whether resellers can sell on sites like Amazon or eBay or whether they are only permitted to sell on their own websites.
- Retail Sales Only. Resellers should only be able to sell to retail customers. They should not be permitted to make any bulk sales of your products or sell to any buyer that intends to resell your products. Otherwise, you then end up with resellers who are not bound by any reseller agreement or even aware of your resale policies.
- Product Warranty. Assuming that your product has some type of manufacturer’s warranty, the agreement should inform resellers of the warranty and further inform them that the warranty is only valid if the product is sold by an authorized reseller (i.e. it becomes void when sold by unauthorized resellers).
- Trademark Policy. Again, this may differ for each manufacturer, but the agreement needs to set forth some type of trademark usage policy, which establishes how and when resellers’ may use your trademarks. Many times manufacturers will limit trademark usage to only advertisements/displays that come directly from the manufacturer.
- MAP Policy. If you have implemented a MAP Policy (or some type of resale price maintenance policy), the reseller agreement should note that such a policy exists and request that the reseller review it. Your MAP Policy should, however, be separate from the reseller agreement. For more information on MAP Policies, visit our MAP Policy FAQ.
The purpose of these specific provisions is two-fold. First, they inform your resellers of your resale policies, and second, they put in place enforcement mechanisms for violators of your resale policies.
How Can I use the Reseller Agreement to Enforce my Resale Policies?
A well-drafted reseller agreement provides you a legal basis to go after resellers, and it gets you around issues like the First Sale Doctrine. The authorized reseller agreement is a binding contract, which means that a violation of the agreement is a breach of contract that can be enforced by a court. Breach of contract claims are the main tool used to stop authorized resellers that are violating your policies. Let’s say for example you notice a reseller violating your MAP Policy, but is also selling on a prohibited website. It is generally ill-advised to threaten legal action for violations of the MAP Policy because you risk facing price-fixing allegations. But, it is perfectly acceptable to threaten legal action based on a breach of the reseller agreement for selling on a prohibited website. In effect, you are able to take down listings that violate your MAP Policy, without ever referencing the MAP Policy.
How can Reseller Agreements Stop Unauthorized Resellers?
Authorized reseller agreements when drafted correctly can also be used to stop unauthorized resellers, that is, resellers who have not signed an agreement. There are two main claims to assert against unauthorized resellers:
(i) Trademark Infringement and
(ii) Tortious Interference
Under the First Sale Doctrine, there is generally not a claim for trademark infringement stemming from the resale of products; however, there are exceptions to this rule. Courts have held that resellers cannot use your trademark if the resold product is “materially different” than the genuine product. Fortunately, the bar for a material difference is quite low. Courts have found that products with different warranty coverage are materially different. This is why the reseller agreement includes the warranty provision, which renders any warranty void for a product sold by an unauthorized reseller. Accordingly, unauthorized resellers’ use of your trademark amounts to trademark infringement because their products do not come with a warranty and are therefore “materially different.”
The claim of tortious interference arises when a third-party induces a party to a contract to breach that contract. This claim is a bit confusing, but it works like this. If you (as the manufacturer) only sell to authorized resellers, and those resellers are prohibited from selling to other resellers, then any unauthorized reseller must be getting these products from a reseller that is breaching their reseller agreement. So the authorized reseller is breaching the reseller agreement, but you can also assert that the unauthorized reseller is inducing the authorized reseller to breach the reseller agreement. The key to this though is that the unauthorized reseller must be put on notice. This is easily accomplished with a cease and desist letter informing the unauthorized reseller of the agreement. If, following the receipt of the cease and desist letter, the reseller continues to sell your products, the reseller’s actions constitute tortious interference.
It is these claims which make reseller agreements invaluable. The most egregious violators of your resale policies are likely to be unauthorized resellers, but you can combat these unauthorized resellers with reseller agreements. Importantly, you can rely on these claims to take down resellers violating your MAP Policy or other resale price maintenance policies without risking the possibility of any price fixing counterclaims.
Authorized reseller agreements are not a full-proof method for stopping all unauthorized resellers or MAP Policy violators; however, carefully drafted agreements help lay the groundwork for solid claims to enforce your rights. These reseller agreements only work though if they are implemented across the board, meaning every reseller must agree to the terms, and that you monitor resellers and take action when necessary. You should consider hiring counsel to draft your reseller agreement to ensure that your rights are protected.