Who
Controls Marketing Materials?
by
Jeffrey A. Babener
MLM Legal Attorney
©1996
What's
in a name? Ask Marlboro, Nestle or Coca-Cola. Those names are worth billions
of dollars. And, so it is also with brand names in the direct selling industry
like Amway, Tupperware and Mary Kay.
At the beginning of an MLM company's history, its trademark is perhaps its
least valuable asset. Its most valuable assets are its inventory, equipment,
formulas and other tangible items. Something happens, however, to an MLM company
as it grows more and more successful and is recognized in the public marketplace.
After achieving a level of success and acceptance, its name, trademark and
good will become its most valuable assets. Nobody will dispute that names
such as Amway, Mary Kay or Fuller Brush have become some of the most prized
possessions of those companies.
It is understandable that attaching such names to any merchandise whether
it be product, sales aids or sales tools will add real value to those items.
No one disputes that distributors may distribute company merchandise carrying
company trademarks and disseminate authorized company literature. A growing
phenomenon in recent years, however, particularly with the advent of desktop
publishing and low cost printing, has been the creation of sales aids and
sales tools by distributors and third parties which carry company trademarks.
In fact, the sales tools business has become a very lucrative business as
armies of distributors devour printed literature, videotapes and audio cassettes
which may help in both recruitment and sales.
Many companies have adopted formal language in their distributor agreements
which prohibits the unauthorized use of their name in literature and other
materials not produced by the company. Some companies control this issue and
others do not. With the explosion occurring in the MLM market for both product
advertising and sales tools, more and more disputes will be observed. How
far can companies go in prohibiting the use of their name or trademark in
noncompany-produced materials? Can companies only prohibit the use of their
trademark when it is accompanied by fraudulent representations? Millions of
dollars and reputations are at stake on this issue.
As a starting point, it is settled that a distributor who resells trademarked
goods without change is not an infringer and needs no trademark license. One
authority has noted: "It would be absurd to hold that a manufacturer
could sell a branded product to a distributor without restriction and then
tell the distributor that it could not resell the branded goods without either
paying for a trademark license or removing the trademark."
An independent dealer of a manufacturer's trademarked goods may also use the
mark in advertising their availability. However, the independent dealer cannot
use the manufacturer's trademarks in a manner which falsely suggests that
the independent dealer is part of the manufacturer's authorized dealer network.
It is also possible for anyone to use a trademark in a collateral or nontrademark
sense. For example, one is allowed to use the word McDonald's in an article
referring to the successful hamburger franchise. A person may even write a
book on the successful operation of a McDonald's franchise. What is not permissible
is, as mentioned above, leaving the consumer with the impression that the
publisher is authorized by or somehow connected with the trademark owner.
The test is: have the defendants used the mark in a manner that is likely
to cause confusion, mistake, or deception, as to the source of defendant's
products? A likelihood of confusion also exists where a consumer could be
expected to assume there was some association or affiliation between the providers
of goods or services or when a consumer would be likely to purchase goods
from one source mistakenly believing them to originate from another.
A famous case involving Amway illustrates this point. In the case, Amway Corporation
sued individuals for trademark infringement and unfair competition based upon
their publication and distribution of literature concerning Amway products
and marketing plan. The publication contained numerous reproductions of Amway
trademarks.
The court stated that defendants did not use the marks as labels for their
goods as trademarks are generally used to identify source. Nevertheless, the
use in textual material constituted an infringement where the idea was conveyed
that the literature originated with Amway or that use of the mark was authorized
by the company. The court reasoned that while distributors who ordered the
literature from defendants knew where the material was coming from, there
was no guarantee that this knowledge would be passed on to distributors further
along the line. It also did not matter to the court that some of the literature
identified defendant as the source, as this disclaimer did not negate the
idea that an unsophisticated distributor or consumer would believe the material
was being disseminated by Amway or with its acquiescence.
The court also held that regardless of whether or not there was confusion
as to source, Amway was entitled to relief based upon the possibility of dilution
of their mark and unfair competition. As to dilution, defendant's publication
would create the impression that Amway marks were in the public domain and
could be used by anyone. Defendants were unfairly competing by selling the
literature for profit, thereby cashing in on Amway's good will and undermining
Amway's sales of its own company literature. The court held that Amway was
entitled to a permanent injunction to prevent the possibility of defendants
causing substantial harm through the publications. Due to the nature of some
of Amway's chemical products, the company needed strict control over its product
literature. The court also found that Amway needed to control the dissemination
of literature concerning its marketing plan:
"... While Amway denies emphatically that it is engaged in unethical or unlawful pyramid selling, it is obvious that its sales program possesses some features of that kind of selling although it may have adequate off-setting safeguards.
In such circumstances the court feels that Amway's apprehensions...are fully justified."
In another case, the owners of the trademark for the game
"Trivial Pursuit" enjoined the distribution and sale of a book entitled
In Further Pursuit of Trivial Pursuit. The book was termed a reference book
for the game, and all six thousand questions and answers of the original Trivial
Pursuit game were reproduced in the book. In addition, publishers of the book
copied plaintiff's trade dress for the book's cover. The court held that consumers
were likely to be confused as to the source of the book and its sale would
be enjoined.
The court also held that defendant's fine print disclaimer on the book's cover
disclaiming rights to plaintiff's trademark or any relationship with plaintiff
provided no defense. The court felt that with the small print of the disclaimer
and the similarity of the goods, consumers were still likely to be confused.
The court in the Trivial Pursuit case implied that it was acceptable for one
to publish a book on how to excel at playing Trivial Pursuit. However, it
is trademark infringement to appropriate the trade dress and "take the
guts of the game and make it possible for people to, in effect, play it without
using the game itself."
Although an independent or authorized dealer needs no trademark license in
order to inform the public that the dealer has the trademark owner's goods
available, the owner can place restrictions on the nature of the use of the
marks. Use of the marks in a manner that exceeds the rights belonging to a
dealer constitutes trademark infringement and breach of contract.
Therefore, a company cannot prevent the use of its trademarks in a nontrademark
sense, as in the publication of an informative article concerning the company.
It is only where the use of the trademarks leaves the impression that the
product is associated with, or authorized by the company or where a threat
of trademark dilution exists, that such a use would constitute trademark infringement
or unfair competition.
Jeffrey A. Babener, the principal attorney in the Portland, Oregon law firm of Babener & Associates, represents many of the leading direct selling companies in the United States and abroad. His firm has focus on startup and emerging MLM companies. He has been adviser to such companies as Avon, Nikken, Discover Toys, NuSkin, Excel, Fuller Brush, Cell Tech, Kaire, Sunrider, Melaleuca, etc. He is editor of the industry resource internet site www.mlmlegal.com. He is a frequent lecturer and has been interviewed on the industry, and published, in many publications. Babener & Associates, 121 SW Morrison, Suite 1020 Portland, OR 97204, www.mlmlegal.com
