Can you effectively recreate a supermarket by buying a bunch of that store’s products, shipping them across the border and selling them in a store with a deliberately similar name? That’s the question at the center of a years-long legal battle between Trader Joe’s and its Canadian lookalike Pirate Joe’s.
We first wrote about this dispute back in Aug. 2013, when Trader Joe’s filed a lawsuit against Pirate Joe’s, a small Vancouver retailer that re-sold TJ products bought in the U.S. and shipped across the border.
Trader Joe’s argued that this was a case of trademark infringement and dilution that could cause possible confusion and harm to the brand. The Canadian store sells TJ-branded products, but at a substantial markup. Additionally, the U.S.-based chain said its reputation could be indirectly hurt if someone were to fall ill from eating frozen food that was improperly transported.
But the court disagreed, dismissing the lawsuit and ruling that the Lanham Act — the U.S. law that bars abuse of trademarks — does not apply to Pirate Joe’s conduct in Canada because the potential for harm posed by one small Vancouver shop does not merit extraterritorial application of the law.
However, last week the Ninth Circuit Court of Appeals overturned the lower court’s decision, ruling that TJ’s had indeed met the standard for allowing the company to bring a Lanham Act complaint against the Canadian owner of Pirate Joe’s, and that it didn’t matter that the alleged trademark infringement occurred in another country.
The appeals panel says that the effect on Trader Joe’s need not be substantial for the case to move forward, just “some effect.” This is important here because this effect usually involves foreign goods coming into the U.S. and allegedly harming a trademark. In this case, TJ’s makes no claim that the items sold at Pirate Joe’s are working their way back south of the border.
Nevertheless, argues the retailer, the fact that PJ’s is selling Trader Joe’s branded food at a significantly higher price to people who are familiar with — and may even drive to the U.S. to shop at — Trader Joe’s is sufficient to make the “some effect” claim.
What about the doctrine of “first sale,” which holds that after you buy something you’re pretty much free to do with it as you please? This is why there are used book stores, yard sales, eBay, Craigslist, etc. Why shouldn’t you be able to just resell Trader Joe’s brand food at whatever price you want to charge?
Trader Joe’s contends that unfettered reselling of its products may result in harm to its reputation and reduce the value of its trademarks if, for example, people get sick after eating a resold item, or obtain a substandard product that was harmed during the shipping process.
“There is nothing implausible about the concern that Trader Joe’s will suffer a tarnished reputation and resultant monetary harm in the United States from contaminated goods sold in Canada,” writes the Ninth Circuit. “Incidents of food-born illness regularly make international news, and Trader Joe’s alleges that it is aware of at least one customer who became sick after consuming food sold by Pirate Joe’s. Courts have held that reputational harm to an American plaintiff may constitute ‘some effect’ on American commerce.”
Additionally, there is the similarity of the names of the two stores and Trader Joe’s contention that Pirate Joe’s is attempting to pass itself off as an authorized partner of TJ’s.
If Pirate Joe’s customers mistakenly believe the two retailer’s are linked, the shoppers may incorrectly assume that Trader Joe’s is okay with the higher prices being charged at Pirate Joe’s, notes the ruling. TJ’s also contends that Pirate Joe’s provides a lower quality of customer service, which it says could harm the U.S. retailer’s reputation if shoppers believe the two stores have an official relationship.
“False endorsement gives rise to an actionable harm under the Lanham Act,” notes the court, “and Trader Joe’s contends it will suffer this harm in the United States because it draws international shoppers to its northern-Washington stores, and its trademarks stand to lose value in the United States.”
Finally, while Pirate Joe’s only resells the TJ’s items in Canada, Trader Joe’s alleges that the smaller store is nonetheless doing business in the U.S., by purchasing the food for resale in Washington and also allegedly hiring U.S. citizens to buy food on PJ’s behalf.
“This domestic economic activity weighs in favor of applying the Lanham Act” to Pirate Joe’s, says the court, which overturned the District Court’s 2013 dismissal of the case.
None of this means that Trader Joe’s has won the dispute or will ultimately prevail. The Ninth Circuit ruling only means that the Trader Joe’s lawsuit against Pirate Joe’s has been given new life and can continue to move forward.
A lawyer representing Pirate Joe’s tells the WSJ Law Blog that “We are obviously disagree with, and are disappointed in, the Court’s ruling. We are evaluating the opinion and our options going forward.”