No Free Rides: The "First Sale" Doctrine Is No Defense To Infringement of Volkswagen and Audi Trademarks

On May 6, the Ninth Circuit affirmed a district court's grant of summary judgment and issuance of a permanent injunction against Au-Tomotive Gold ("Auto Gold") in a case involving the sale of automobile accessories bearing Volkswagen and Audi trademarks.

After nine years of litigation and two trips to the Federal appellate court, the Ninth Circuit found that the "first sale" doctrine did not provide a defense to Auto Gold's trademark infringement of the subject marks because of the likelihood of confusion among observers who see the infringing license plates on purchasers' cars.

The court distinguished between pre-purchase confusion of consumers buying the license plates, and post-purchase confusion by observers who see the plates, and explained that under the circumstances, the post-purchase observers would be confused in a manner that creates a "free-rider" problem. The court explained:

When a producer purchases a trademarked product, that producer is not purchasing the trademark. Rather, the producer is purchasing a product that has been trademarked. If a producer profits from a trademark because of post-purchase confusion about the product’s origin, the producer is, to that degree, a free-rider.

For example, a producer may purchase non-functioning Rolex watches and refurbish them with non-Rolex parts, leaving only the original casing. Even if the producer adequately explains the nature of the refurbished watches to purchasers, the producer nonetheless infringes on Rolex’s trademarks by profiting from the Rolex name. In such a case, the purchasers buy the watches in order to make others think that they have bought a true Rolex watch. See Rolex Watch, 179 F.3d at 707-10. The same holds true for new but relatively cheap products that prominently display a well-known trademark. If the producer purchases such a trademarked product and uses that product to create post-purchase confusion as to the source of a new product, the producer is free-riding even though it has paid for the trademarked product.

The court went on to reject Auto Gold's other arguments and found that, because its products resulted in a likelihood of confusion, it was liable for trademark infringement.

The Ninth Circuit's opinion in Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc. et al. (9th Cir. 2010) is available here.