In the ongoing saga of Canon versus gray market retailers, we now have an Answer from one of the defendants.
As a quick recap, Canon USA filed suit in federal court against popular gray market retailers like Get It Digital, All New Shop, Big Value, Inc. and others. Canon USA used its trademark rights to assert that the actions of Get It Digital and others are essentially tarnishing Canon’s brand in the US. Specific examples include allegations of using counterfeit serial numbers, incorrect boxes and packaging, printed manuals and non-UL rated cables.
In the lawsuit, Canon is asking the court to award damages that may include profits from these gray market retailers as well as seeking an injunction against these retailers to prevent their sale of gray market Canon products. You can read the initial story and also get the latest update.
Get It Digital Answers
Get It Digital has responded with its Answer (that’s the official name of a defendant’s first response to a lawsuit). In the Answer, which I’ve embedded below, Get It Digital and All New Shop (I’ll collectively reference them as just “Get It Digital”) essentially deny all of the alleged wrongdoings that Canon asserts in the Complaint.
In the set up to Get It Digital’s defenses, however, they admit a few facts that are indisputable – such as the fact that Get It Digital is not an authorized Canon dealer and that the company sells Canon products online.
In addition to denying essentially all of the material facts, Get It Digital lays out three affirmative defenses that would kill Canon’s claims.
Defense #1 – First Sale Doctrine
Citing the First Sale Doctrine, Get It Digital responds as follows:
1. “As a general rule, trademark law does not reach the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner.” Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 61 (2d Cir. 1992). “This idea is also referred to as the first sale doctrine, as it is in copyright law, insofar as it recognizes that the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product.” Microban Prods. Co. v. API Indus., Inc., No. 14-CV-41, 2014 WL 1856471 (S.D.N.Y. May 8, 2014) (internal quotation marks omitted).
2. On information and belief, either Plaintiff, Canon USA, Inc., or another licensee of Canon, Inc., authorized the initial sale of all goods bearing the Canon mark that were later resold by Defendants.
3. On information and belief, all goods bearing the Canon mark resold by Defendants were genuine goods, regardless of whether Defendants had the consent of the trademark owner or trademark licensee to resell them.
4. Defendants’ subsequent resale of genuine Canon goods falls outside the scope of the trademark owner or licensee’s right to control the sale of trademarked goods.
This defense was expected. The sale of gray market products in the US has been legal for many years despite the attempts of distributors to shut down gray market retailers using US customs regulations. The distinction in this case, should it actually go to court to be decided on the merits, hinges on Canon’s allegations that the gray market cameras are essentially inferior to genuine Canon USA cameras.
If you go back and read the initial Complaint, Canon goes out of its way to allege actions by Get It Digital that made Canon products inferior to those that Canon USA sells (again, Canon USA being the sole licensee of the Canon trademark in the US). In these situations, there is precedent for trademark infringement to be found if the trademark holder can demonstrate that there is confusion in the market regarding the quality of goods (e.g., Canon USA vs. Canon gray market products).
There are a number of variables concerning the facts of each case and, specifically, what Canon USA has done to build its brand value in terms of service, warranties and other consumer investment actions will be considered. The more I’ve read about these actions over the past couple weeks, it is clear that Canon’s attorneys have done their homework in digging up precedent for shutting down gray market sales using trademark law.
I’m not saying Canon has this in the bag, but it is not an open and shut defense on the First Sale Doctrine alone.
Defense #2 – Laches
Laches is a trusty common law defense, which Get It Digital is attempting to invoke as a second layer defense and responds to Canon as follows:
6. Defendants began reselling goods bearing the Canon mark in or about 2006.
7. Defendants openly and notoriously resold goods bearing the Canon mark. Defendants sold such goods on heavily-trafficked public websites such as eBay.
8. Plaintiff was aware of such resales and unreasonably delayed in asserting its rights, if any.
9. Plaintiff passively consented to Defendants’ conduct by failing to timely assert its rights, if any.
Essentially, the defense of laches is “you snooze, you lose.” If someone is harmed by someone else’s actions, it is only reasonable that they speak up when it is clear they have been harmed.
Get It Digital is saying that Canon USA has known that Get It Digital has been selling Canon cameras for roughly a decade and that, after a decade of selling cameras and building a business around that activity, Canon should not be allowed to come in all of the sudden and just shut Get It Digital down. If Canon had a problem with what Get It Digital is doing, Canon should have spoken up years ago.
Defense #3 – Acquiescence/Estoppel
Somewhat similar to laches, estoppel is an equity defense based on the reliance by one party on the prior actions of the other. Get It Digital alleges the following:
11. Plaintiff Canon USA, Inc. was aware that Defendants openly and notoriously resold goods bearing the Canon mark that they had purchased from Canon authorized dealers.
12. Upon information and belief, Plaintiff actively condoned the resale and transshipment of Canon-branded products from Canon authorized dealers to other resellers.
13. Plaintiff’s conduct estops Plaintiff from asserting the claims against Defendants that are set forth in the Complaint.
There is more to this defense than what’s on the surface. Reading between the lines, there are other retailers who are situated as middle-men to move stock from Canon USA to Get It Digital. If that’s the case, this is a really bad fact for Canon. It will be interesting to see who the middle man is between Canon USA and Get It Digital if this case continues on to summary judgment or trial.
What Happens Next?
We are still waiting on an Answer from F & E Trading, LLC (aka Big Value Inc.) in the other gray market case. That could be another few weeks since Canon recently filed an Amended Complaint, which will give F & E more time to respond.
As for Get It Digital, we now move into a discovery and/or settlement negotiation phase. For discovery, Canon and Get It Digital send a bunch of written requests to each other for specific evidence as each try to build their cases. This is also where depositions come into play. These discovered facts can then be used by either party to file a Motion for Summary Judgment, which is basically a ruling by the judge on the law of the case if either party can assert sufficient facts that are not in dispute. (If there are no facts to decide, then there is no need for a jury.) Nearly every case moves through the summary judgment phase but that is rarely the end of a case – although it is not uncommon to have the issues narrowed for trial.
The discovery process can also be used as a platform for building a settlement position, which seems a little tough here since Canon actually wants to force Get It Digital to stop selling the thing that makes Get It Digital money. But there are other camera brands and consumer electronics that aren’t suing Get It Digital right now. So, if discovery and the rest of the litigation process gets too expensive, Get It Digital may be motivated to settle. Canon USA clearly has deeper pockets than Get It Digital and litigation of this caliber can quickly reach the six-figure mark in attorney fees.
If we do get a ruling on this case (as opposed to private settlement terms), we will at least know what’s going on in the market and what kinds of trends we can expect from other camera manufacturers in the future.
I will continue to follow these cases and update you with the latest.