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eBay Bargains Soon To Be A Thing Of The Past? 488

Posted by ScuttleMonkey
from the capitalists-attacking-capitalism dept.
ScaredOfTheMan writes to mention that, as expected, companies are utilizing the decision in Leegin Creative Leater Products v. PSKS to force the take-down of auctions on eBay because auctions are priced too low or even stating the auction itself is an infringement of their intellectual property rights.
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eBay Bargains Soon To Be A Thing Of The Past?

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  • by Creepy Crawler (680178) on Wednesday July 18, 2007 @05:53PM (#19907311)
    I predicted here that companies would soon rely on the Supreme Court's decision in Leegin Creative Leather Products v. PSKS to justify interfering with competition from less expensive products sold online. It did not take long for that prediction to come true. Although interference with eBay sales is nothing new (see here and here), companies in two recently filed federal cases explicitly invoke Leegin as a justification for terminating the eBay auctions of competitors that charge lower prices online. These cases not only show Leegin's likely effect on Internet sales, but are also, unfortunately, fairly typical examples of the sort of anticompetitive actions companies take to fight lower-priced competition online.

    In the first case, Merle Norman Cosmetics v. LaBarbera, No. 07-60811 (S.D. Fla.), Merle Norman Cosmetics filed suit against eBay seller Joyce LaBarbera for selling its makeup on eBay at a discount. The company had previously terminated a variety of eBay auctions by claiming that the sale of its makeup violated an unspecified FDA regulation. In this case, however, the company concedes that the eBay seller could rightfully resell the makeup on eBay if, as she claims, she purchased the makeup at a flea market. Merle Norman, however, suspects that the eBay seller is in fact buying the makeup from a salon that, pursuant to its contract with Merle Norman, has agreed not to sell anything on the Internet. Merle Norman says it demands these contracts so that purchasers can only buy the makeup at Merle Norman stores, with the guidance of "beauty consultants" who are "specially trained in proper hygienic practices." Of course, the contracts also help ensure that the products won't be available outside the stores at reduced prices.

    Although Merle Norman does not claim that the eBay seller ever contracted with the company, it contends that the seller's act of purchasing the makeup from a salon that had entered such an agreement and then selling "at discount prices" on the Internet constituted unfair competition, interference with its contracts, and civil conspiracy (see complaint). In other words, the eBay seller, according to the company, is guilty of breaching somebody else's contracts and unfairly competing by selling to consumers on the Internet at prices that are too low. In its brief in the district court, Merle Norman relies on Leegin, which had been decided just a few days earlier, in support of its right to "require dealers to charge certain resale prices to promote interbrand competition." The company claims that "the law is well settled that manufacturers like [Merle Norman] have the right to control the manner of distribution of their products." Although the district court denied the pro se defendant's motion for a preliminary injunction, the case is now on track for trial.

    The second case is Colon v. Innovate! Technology, Inc., No. 07-21349 (S.D. Fla.). Innovate! Technology ("ITI") is a company that makes high-performance car parts. According to its brief in the district court (warning, large file), the company "sells its products only via authorized distributors and retailers" that "comply with ITI's policy of Minimum Advertised Pricing." The company views sales by unauthorized sellers (i.e., those who sell too cheaply) to be not only a violation of its minimum-price policy, but, surprisingly, as an infringement of its intellectual property rights. ITI's eBay "About Me" page explains that the sale of its products by anyone but an authorized dealer constitutes patent and trademark infringement. Moreover, the company claims the right to prohibit all use of its copyrighted "technical data, photos, graphics, software, product literature, catalogues, product specifications, installation guides, user guides, promotional material and other types of information" without its permission. In other words, the company claims it is copyright infringement to read its user guides and manuals, browse its catalogs, or look at its pictures without its "express written permission." Presumably, the company f
  • Re:Doh (Score:3, Informative)

    by imbaczek (690596) <imbaczek@@@poczta...fm> on Wednesday July 18, 2007 @05:54PM (#19907329) Journal
    Coral cache [nyud.net]
  • #1 - yes, #2 - no. (Score:5, Informative)

    by khasim (1285) <brandioch.conner@gmail.com> on Wednesday July 18, 2007 @06:01PM (#19907409)
    Yes, they are attempting to block reselling products ... online.

    No, stating that it is "used" would not circumvent this ... online ... if they get their way.

    The online part is important. It is the online part that is hitting their sales. People can quickly search for lower prices. Certain vendors do NOT like that.

    So they hit back with every legal weirdness they can find. You can't use their trademarked names. You can't use photographs of their products. Etc.

    It's stupid and it should be shot down. But we'll see how it eventually works out. Right now it's easy for them to win under the DMCA.
  • Re:Fair Use? (Score:5, Informative)

    by belmolis (702863) <billposer@@@alum...mit...edu> on Wednesday July 18, 2007 @06:11PM (#19907523) Homepage

    No, this is wrong. The agreements that the Supreme Court ruling allows are agreements between manufacturers and retailers that prevent the retailer from selling the goods at less than a certain minimum price. If you are a wholesaler who has been selling at a discount on eBay, this decision affects you because you enter, directly or indirectly, into a contract with the manufacturer to observe the minimum price.

    However, if you are Joe consumer and you buy a hammer at a hardware store, or any other retail outlet, the contractual chain ends with the retailer who sells it to you. The retailer fulfills his obligation by selling the hammer to you at no less than the minimum price set by the manufacturer. You do not enter into any contract concerning resale of the hammer when you buy it at retail. The doctrine of First Sale applies and you may now do whatever you like with the hammer, including reselling it for less than the manufacturer's minimum. What this decision does is it allows manufacturers to prevent discounting of the initial retail sale. That is probably a bad thing, though some economists argue otherwise. This decision has no effect on the sale of used goods.

  • by Bomarc (306716) on Wednesday July 18, 2007 @06:20PM (#19907615) Homepage
    After reading the comments thus far (about 30), many /. readers don't seem to get this story.
    First, this is not about the buyer and the seller, this is about the company that makes the product and the person(s) selling the product new on eBay.
    The case has already been to the Supreme Court, and "we" (aka the people) lost, the business have won. The test case was for a first (retail) sale, not an owner of the product trying to resell it. But that issue is being abused as well (again, what the article is trying to say).
    Also incase you were wondering -- the decisions were split along party lines: Democratic and Republican representatives. The Republican representatives had the majority. (Yes, I know that the justices are not Democrats or Republicans, but the justices were appointed by them).
  • by Stu101 (1031686) on Wednesday July 18, 2007 @06:24PM (#19907669) Homepage
    Well this can happen a number of ways, for example, on a consumer buy 2 get 3rd free for example, the customer probabily doesnt get the free 3rd item (that we gave away, so our margins are lower) or they buy up grey market destined for example, eastern europe, at lower prices. Also if people buy in big quantities, you get large (HUGE) discounts. so if you were to buy 2000 widgets, you would get 1000 widgets for free, so you can sell at a lower price and still make a profit. Then there are people authorised to buy our surplus, for export or similar, but they dump it in the local market, and if they pay 10% of retail, and sell it for 30% of retail, thats a good margin, for just listing them! Obviously as I said, when we find em, we dump em, but gotta find em first.
  • by timmarhy (659436) on Wednesday July 18, 2007 @06:27PM (#19907699)
    so what? as long as you are selling it at a profit yourself to retail, you aren't losing out.

    If retail stores are losing ground to ebay, it's time to rethink how they do business.

    "However a lot of other people who were not selling too cheaply were just "cautioned""

    Sounds like intimidation and price fixing to me, i'd suggest they stop. the market along with government regulation is the only thing allowed to set prices, anything else is called price rigging.

    besides, are you honestly suggesting that some guy selling a few items on ebay, lets say 20 at best, is going to bring down a $60,000,000 retail chain? ebay is a place you can sometimes snag a bargin, not somewhere that replaces a retail store.

  • by Stu101 (1031686) on Wednesday July 18, 2007 @06:27PM (#19907707) Homepage
    The difference is Van guy prolly doesnt declare his income, or have any taxes to pay (we all know this happens on ebay) or more importantly doesnt have a prime retail location to rent, heat and staff.

    I can see your point though. Our margin is large. Its the illusion of quality that does it.
  • by hawk (1151) <hawk@eyry.org> on Wednesday July 18, 2007 @06:50PM (#19907985) Journal
    I'm an attorney, and a sometime economics professor. No, this isn't legal advice.

    In short: big deal.

    The new doctrine (which had been expected for years the next time this came up) applies to a very limited number of producers. It does *not* apply to those with market power.

    Previously, the court had held that minimum pricing was always anticompetitive. The new ruling finds that *in itself* it is not *necessarily* anticompetitive. It could still be found to be so, however, based on the facts of the case.

    A typical manufacturer will have no reason to try to hold up the prices of its product--it would rather sell more. For a very small set of them, however, the "exclusivity" or perceived quality is actually part of the appeal, and sales could go up.

    If, for example, microsoft tried this, it *would* be anticompetitive, as they already had market power. On the other hand, if "Joe's Linux" were to insist that its CDs only be sold for a price of $199 or more, it would not harm the markets. If Chevrolet tried it, sales would plummet. BMW, on the other hand, might be able to make their vehicle more desirable this way--it would fit in with their current high-end service sales campaign. Furthermore, it can be used to insure that distributors *of an upscale product* have sufficient margins for the service level the company wishes to project--Nordstrom's instead of WalMart.

    TFA gets it wrong, by the way, in indicating that this is about competitors stifling auctions. It's about manufacturers requiring their vendors to comply with their sales contracts. Assuming that the company is correct that she bought from a licensed dealer, she did this with knowledge of the contract terms. I doubt that it would be much of a stretch of privity to hold her to them in this case. The manufacturer could certainly take here deposition and find out the vendor, and then cut the supply that way. If she really bought them at a flea market, *that* vendor can be forced to reveal the dealer.

    The manufacturer thinks that its product is more desirable if sold only through beauticians at high prices. Fine. There are any number of other manufacturers that are happy to sell.

    hawk, phd, esq.

  • Re:Fair Use? (Score:4, Informative)

    by stinerman (812158) <nathan@stine.gmail@com> on Wednesday July 18, 2007 @07:01PM (#19908081) Homepage
    A more careful reading of the article gives a different picture.

    What Merle alleges is essentially this:

    X sells widgets to Y. Y signed a contract with X to not sell the widgets below a certain price. Y sells some widgets to Z. Z sells the widgets on eBay either at a loss or is more likely getting a deal in violation of Y's contract with X. X notices auctions of their products below the value stipulated in the contract and concludes one of their partners is selling below cost. Therefore, X sues Z for interference in contracts and civil conspiracy, probably using it as leverage in order to compel Z to divulge Y.

    In Colon:

    The same basic premise is true but ITI says that any sale below a certain price set by them is an infringement of copyright, patent, and trademark law. In this case, X issued DMCA takedown notices to eBay. Z is suing to get a judgment that he isn't actually infringing any IP.

    The fact that either of these cases are going to trial is something to be seriously worried about.
  • Re:Fair Use? (Score:5, Informative)

    by belmolis (702863) <billposer@@@alum...mit...edu> on Wednesday July 18, 2007 @07:06PM (#19908139) Homepage

    It is true that there is big trouble for sale of used goods IF these suits are successful, but that is a very big if. The point is, what the Supreme Court actually held in Leegin is not what these suits are claiming. They are trying to use a slogan that characterizes Leegin, namely the idea that companies may control the retail sale and distribution of their products, to justify further changes in existing law. This slogan, however, is NOT what the Supreme Court actually held and is not an established legal principle.

    In the makeup case, for example, the manufacturer's claim is that the person selling on eBay bought the makeup from a salon that was contractually obligated to sell only at retail, not for resale. The eBay seller denies this, and will win on the facts if the manufacturer fails to prove that the makeup came from the salon. Even if he did buy from the salon, in order to win the manufacturer is going to have to get the courts to override the long-settled doctrine of First Sale on the basis not of a holding but of a dictum in Leegin, one that, furthermore, was more in the line of a vague comment than a statement of legal principle. So, yes, it would be very unfortunate if the manufacturer won this case, but the case is quite a stretch, and the result desired by the manufacturer does not follow in any direct way from Leegin.

  • by Attila Dimedici (1036002) on Wednesday July 18, 2007 @07:30PM (#19908351)
    If I read the Supreme Court ruling correctly, these guys will lose their cases. The Supreme Court ruled that it is perfectly legal for you enter into a contract with a retailer that as a condition of them purchasing your product the retailer will not sell said product for less than a specified amount. This doesn't mean that you the manufacturer of said product can force people who get the product without signing such a contract to charge your the rpice you selected. I don't think any of these cases will hold up.
  • by Anonymous Coward on Wednesday July 18, 2007 @07:33PM (#19908385)
    ... but whats rediculous is the fact that these products were ALREADY PURCHASED. Therefore the company has already made its bucks off of its products ...

    Actually, there may be a perfectly legitimate reason to prevent the sales. The products were purchased under a contract where the seller offers a lower price in consideration of an agreement to only sell at the Salon to end users. A reseller who buys from the Salon may be interfering with a contract, which is an area of the law where a third party rightfully becomes involved.
  • by JarrettHere (250292) on Wednesday July 18, 2007 @07:35PM (#19908411)
    See also Exorbitant Shipping Costs. The business/profit is in the marked up shipping fees.

    1. Buy at cost.
    2. Charge 30% more for shipping.
    3. Profit!
  • by Grishnakh (216268) on Wednesday July 18, 2007 @08:05PM (#19908681)
    Fact: Ferrari's are garbage, having owned a 308 they are utter crap with a fancy name tag. Nice technology, but reliability is horrid they are designed for performance not reliability.

    Two points:

    1) The 308 is an old car. Would you bash Ford now for the Pinto? That was 35 years ago. New Ferraris are much more reliable, and use much more modern manufacturing methods. Older Ferraris were basically hand-built, tube-frame cars.

    2) Ferraris (esp. in the 308's time) weren't known to be reliable, just fast. Want reliable? Get a Toyota. Want fast? Get a Ferrari. Want to walk away from a crash at 160 mph? Get a Ferrari Enzo.
  • by adminstring (608310) on Wednesday July 18, 2007 @08:47PM (#19909031)
    While I agree with your conclusion that the creep should knock it off, I don't agree with your economic analysis.

    Those 200 extra zorkmids don't stay in your pocket once you get them. You spend them, the same way the customer would have spent them, on new clothes and home improvements, and they travel through the economy in exactly the same way. The only difference is that you get the new clothes and home improvements, and he doesn't.

    Maybe if you are rich and the customer is poor, you might invest the zorkmids instead of spending them, or if he is rich and you are poor, he would have invested them instead of spending them like you would, and depending on whether the economy "needs" spending or investment more at that particular moment in time, one or the other actions would be better for it. But if you are just as likely to spend or invest as he is, the net impact on the economy of you ripping him off is zero.

    That doesn't, of course, make it right. No one should ever rip anyone off. But if they do, it won't necessarily slow down the economy.
  • by Somnus (46089) on Wednesday July 18, 2007 @09:10PM (#19909219)
    http://www.consumerreports.org/ [consumerreports.org]
  • by mindstrm (20013) on Wednesday July 18, 2007 @09:33PM (#19909385)
    That's all fine and dandy, except in the modern west, there is the first-sale doctrine. Once you sell it to me, it's mine to do what I want with, including re-selling it.

    Now.. that said.. a salon trying to get out of their contractual obligations by selling on e-bay, fine, go after them, it's breach of contract... but you made your money when you sold the item the first time.. what happens after that isn't your problem.
  • by MMC Monster (602931) on Thursday July 19, 2007 @07:22AM (#19912343)
    Most salons I've been to sell bottles, under an agreement with the manufacturer. Some manufacturers even advertise to the public to buy their wares at the salon.

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