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Focus Area: Coronavirus/COVID-19

Un-Masking Deceit: Trademark Law as a Weapon against Fraudulent Distributors

As the novel coronavirus (Covid-19) continues to ravage the United States, ensuring that frontline healthcare workers are adequately protected is of utmost importance. Among various types of proper protective equipment (PPE), none has become more synonymous with safety and protection than the N95 Respirator. Given the superior effectiveness of the N95 respirator over other prophylactic measures, demand is understandably high. Basic principles of economics suggest that increased demand for respirators will similarly increase the price paid by consumers. However, the dire need for PPE is motivating companies to forego increased profits to ensure that frontline personnel are adequately protected.

One of the largest manufacturers of PPE in the United States is the 3M Company. Originally founded in 1902 with a focus on mining equipment, 3M currently stands as an industry titan in the health care and consumer goods landscape. The longstanding tradition of scientific ingenuity and manufacturing quality suggests that when consumers see the red block “3M” mark on goods or equipment, they can rest assured of that good’s quality, safety, and effectiveness.

Given that 3M’s level of international recognition and respect took more than 100 years to develop, it is understandable that the company would aggressively protect its intellectual property rights, lest an imitator hijack 3M’s reputation for its own personal gain. Despite these protections, potential imitators and fraudsters still risk legal liability for a quick profit. In regard to fraudulent commercial listings for its N95 respirators, 3M has: created hotlines and websites to report suspected fraud; investigated 4000+ consumer fraud reports; filed 18 lawsuits throughout the US and Canada; and secured the removal of 7000+ fraudulent e-commerce listings.

One of the first successful legal assaults on a fraudulent N95 distributor stemmed from the actions of a company named Performance Supply, LLC. Performance Supply is primarily in the business of selling vans and other vehicles; the company has never been a licensed or authorized 3M distributor. However, the complete lack of authorization to associate itself with 3M did not stop Performance Supply from creating order forms, invoices, and solicitation materials adorned with the incontestable 3M logo. While reselling products for a profit is nothing new, 3M found issue with Performance Supply’s combination of: 1) using 3M’s trademarks to insinuate either a professional relationship or corporate approval; and 2) charging 500% more per N95 respirator than what 3M has charged throughout the duration of the pandemic.

Performance Supply’s price-gouging scheme only came to light after the New York Citywide Procurement Office engaged with the company to purchase millions of respirators at an exorbitant rate. Subsequent conversations with actual 3M representatives revealed the scheme, prompting the Procurement Office to immediately cease discussions with Performance Supply. However, Performance Supply’s problems did not end there; 3M subsequently filed suit against the company for trademark infringement and pursued a temporary restraining order preventing Performance Supply from continuing any respirator-related business.

3M’s lawsuit was not typical of trademark battles. There was no “other” trademark which may have confused consumers in the marketplace. Instead, 3M alleged that Performance Supply’s unlicensed co-opting of 3M’s own trademarks in business negotiations, coupled with their exorbitant prices, would cause irreversible damage to 3M’s reputation. By marking up 3M respirators by over 500%, Performance Supply allegedly created an association between 3M and opportunistic price-gouging during a global pandemic. Such an association would be detrimental to any company, but would be especially disastrous for 3M since the company has been adamant that they would never opportunistically raise respirator prices during the ongoing pandemic.

The Southern District of New York’s reasoning for granting 3M’s temporary restraining order provides an excellent framework for companies who are at risk of potential fraud — especially those engaged in the healthcare sector and who manufacture protective equipment. The Southern District granted 3M’s motion because:

  1. The negative association between 3M and price gouging, however false, would cause 3M irreparable harm;
  2. 3M would likely succeed on the merits due to its incontestable trademark status and Performance Supply’s blatant reproduction;
  3. The balance of equities favored issuance of the restraining order since Performance Supply used 3M’s marks in bad faith; and
  4. Entering the restraining order would serve the public interest by conserving public resources which would otherwise be spent verifying the authenticity of various vendors.

In granting 3M’s petition for a temporary restraining order, the Southern District affirmed a strategy for trademark owners to utilize when defending against would-be imitators and fraudsters. Should you become aware that individuals are co-opting your marks and reputation for illicit personal gain, know that trademark law can be wielded as a practical weapon to protect your intellectual property interests and to un-mask deceit.

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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