You see a brand-name television set or a beauty product for sale online. The price seems like a bargain. Being a smart shopper, you ask yourself, is there is a catch? Is the product legitimate? Is it okay to buy from an “unauthorized” dealer?
Many consumers are confused about the terms “authorized” and “unauthorized” retailers. Partly due to the efforts of manufacturers, who discourage unauthorized retailers, consumers may be reluctant to purchase legitimate products from an unauthorized retailer who is offering a genuine product.
What is an “authorized” retailer?
An authorized retailer has a contractual relationship with a big manufacturer. This benefits both the retailer and the manufacturer. Big corporations like to have as much oversight over their marketing as possible, because more control means bigger profits. They like to operate vertically-that is, with direct control over everything from research to manufacturing to retail sales. This makes it easier to keep retail prices high and generate bigger profits.
Big companies want customers to buy from their authorized dealers because they make a bigger profit. However, many retailers operate outside the corporate system. Why? To offer lower prices. The unauthorized retailer can often purchase and then re-sell products at a lower price than the authorized retailer. Generally, the unauthorized retailer can do this by obtaining genuine products overseas and bringing them back to the U.S. for sale.
Who does this? Surprisingly, not just Internet or regional operations; even some big-box names like Costco, Amazon, and Target have engaged in unauthorized retailing.
Is This Legal?
Yes! In the case of Quality King Distributors v. L’Anza Research International, No. 96-1470, the Supreme Court held unanimously that an American company cannot block the domestic sale of genuine products that the company had originally sold overseas. The Court ruled that once a product had been distributed in an authorized manner (the “first sale,” according to Federal copyright law), the copyright owner had no further control over the product’s fate.
The Supreme Court’s decision overturned a lower court case establishing copyright law as a defense against unauthorized retailers. In 1996 the United States Court of Appeals for the Ninth Circuit, in San Francisco, had ruled that a distributor of genuine beauty products had infringed the copyright on a brand of hair products manufactured in the United States for sale at a discount overseas. In the U.S. market, the products were intended for exclusive sale in salons.
The Supreme Court ruling supports free trade that benefits American consumers. The products in question are authentic American-made goods, not counterfeit or pirated. Trademark law was not at issue in this case because the challenged products were legitimate products authorized by the manufacturer for sale. So big corporations sought to use copyright law as a source of protection.
How Does the Consumer Benefit?
Simple-lower prices! Because unauthorized retailers are free to purchase genuine products from a variety of sources-not just from the manufacturers-they can offer lower prices than other stores. So if you know you are buying a genuine product, you may be able to get a great deal from an unauthorized retailer.