By: Alex Jones
In Part 1 of this series, we looked at the importance of registering and protecting your trademarks as a means of warding off unauthorized resellers of your products. While trademark infringement claims are an important tool in fighting unauthorized resellers, entering into and executing strategic, enforceable contracts with your true authorized sellers are also key to stopping unauthorized resellers.
Authorized reseller contracts are so important because:
- They ensure sales policy compliance. These contracts ensure that resellers comply with a company’s sales policies, such as minimum advertised price (MAP) policies. This contractually binds these resellers and establishes a breach of contract claim against any reseller that departs from the contractual terms.
- They help cut off supply to unauthorized resellers. A well-drafted reseller contract can actually be used to stop unauthorized resellers. Generally, unauthorized resellers purchase products for resale through a company’s network of authorized resellers. In order to cut off supply to unauthorized resellers, the reseller contracts should include a provision that prohibits authorized resellers from making bulk sales to buyers whom they suspect are unauthorized resellers. Not only does this limit supply, but also, once a business identifies an unauthorized reseller, it can issue a cease-and-desist letter to that unauthorized reseller putting it on notice of the reseller’s restrictions against bulk sales. After notice is given, any further bulk purchases will give rise to a claim for tortious interference with a contract.
In effect, reseller contracts bind true resellers to certain selling policies, help limit the supply of products available to unauthorized resellers, and can set up claims for tortious interference against unauthorized resellers.
Finally, reseller contracts are only effective if they are enforced. Therefore, it is crucial for businesses to ensure that each authorized seller agrees to and executes a reseller contract. Companies must then routinely monitor the conduct of their resellers and take action when necessary.
For additional information or assistance in drafting and creating strategic, enforceable reseller contracts, contact KJK.
David Posteraro, Partner, Intellectual Property and Cybersecurity & Internet Privacy
Alex Jones, Associate, Intellectual Property and Corporate