Is It Legal to Repackage and Sell a Branded Product?

When Can a Reseller Repackage a Genuine Branded Product?

A reseller can repackage genuine branded goods and name the brand on its own label when the label does not deceive buyers about who packed the product and no contract with the brand owner forbids it. The U.S. Supreme Court set that rule in 1924, and federal appeals courts, including the Eighth Circuit, have applied it since.

In Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924), a company bought genuine Coty face powder and perfume. It pressed the powder into compacts with a binder and poured the perfume into smaller bottles. Coty sued on its registered trademarks. The Court held that the buyer, by owning the goods, “had a right to compound or change what it bought, to divide either the original or the modified product, and to sell it so divided.” It explained the limit of a trademark this way: “A trade mark only gives the right to prohibit the use of it so far as to protect the owner’s good will against the sale of another’s product as his.” The Court added: “When the mark is used in a way that does not deceive the public we see no such sanctity in the word as to prevent its being used to tell the truth.” It reinstated a trial-court decree that let the company sell the repacked goods with a disclosure label.

A trademark tells buyers who stands behind a product. When the product inside is genuine and the label is honest about who repacked it, the brand’s promise about the product is still true. Courts call the related resale rule the “first sale” doctrine. In the Ninth Circuit’s words in Enesco Corp. v. Price/Costco Inc., 146 F.3d 1083 (9th Cir. 1998), “resale by the first purchaser of the original article under the producer’s trademark is generally neither trademark infringement nor unfair competition.” The same principle lets a seller name the brand when advertising the genuine goods it sells, as covered in how an online retailer may use a manufacturer’s brand name.

What Should a Repackaging Label Say?

A repackaging label should name your business as the repacker, say that your business is not connected with the brand owner, and say what you did to the product. The brand’s name should appear in the same type as the words around it, not in the brand’s logo or larger lettering.

The label the Supreme Court approved in Prestonettes shows the pattern. For the perfume, it named Prestonettes, said Prestonettes was not connected with Coty, identified the contents as Coty’s perfume, and said the perfume was independently rebottled in New York. The decree required “every word to be in letters of the same size, color, type and general distinctiveness.” The Court explained that if the Coty name stood out from the rest of the statement, a casual buyer might read no further and be deceived.

The Eighth Circuit applied the same idea to a private label in Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir. 1987). A battery wholesaler bought unbranded batteries from the manufacturer and sold them under its own name. “The label stated in large letters covering half the available space that the product was from “MIDWEST BATTERIES.”” The words “BATTERIES BY CHLORIDE” sat in smaller letters in a corner. The court affirmed judgment for the wholesaler on the manufacturer’s Lanham Act claim, concluding that “the principle of disclaimer was sufficiently served in this case.” It set a limit too: “This is not to say that Midwest was entitled to replicate the Chloride label in toto and place it on the unbranded battery.”

A label that says nothing about the repacking invites a claim. In Enesco Corp. v. Price/Costco Inc., 146 F.3d 1083 (9th Cir. 1998), a warehouse retailer moved collectible figurines from the maker’s cartons into clear plastic blister packs. The court wrote: “Here, Price/Costco does not disclose to the public that it has repackaged Enesco’s original product.” It reversed the dismissal of the maker’s suit because the maker “may be entitled to an injunction prohibiting the sale of the figurines without an appropriate repackaging notice.” That Ninth Circuit decision does not bind courts in Minnesota, but it shows what a missing notice can cost.

Drawing on those decisions, a repackaging label should include:

1. Your business name as the repacker, displayed at least as prominently as the brand’s name, as the label in Henry did.
2. A statement that your business is not connected with the brand owner, as in the Prestonettes decree.
3. What you did to the product, such as divided, rebottled, bundled, or combined with other ingredients.
4. The brand’s name in plain text in the same type as the surrounding words, rather than the brand’s logo, colors, or package design.

For any packaged consumer commodity, 15 U.S.C. § 1453(a) calls for “regulations which shall be established by the promulgating authority” requiring a label “specifying the identity of the commodity and the name and place of business of the manufacturer, packer, or distributor,” with the net quantity of contents “separately and accurately stated in a uniform location upon the principal display panel of that label.”

Food labels also carry a federal regulation on the name statement. Under 21 C.F.R. § 101.5(a), “The label of a food in packaged form shall specify conspicuously the name and place of business of the manufacturer, packer, or distributor.” When the business named on the label did not make the food, section 101.5(c) provides that “the name shall be qualified by a phrase that reveals the connection such person has with such food,” such as a “Distributed by” statement.

How Do the Lanham Act and Minnesota Law Apply to Misleading Repackaging?

Federal and Minnesota law both make a repackager liable when its package is likely to confuse buyers about who made, sponsored, or approved the product. Under Minnesota’s Deceptive Trade Practices Act, a brand owner does not have to prove that the two businesses compete or that any buyer was actually confused.

The federal Lanham Act gives two main claims. 15 U.S.C. § 1114(1) reaches “Any person who shall, without the consent of the registrant,” use a copy of a registered mark in a way likely to cause confusion. Its second clause reaches a business that copies a registered mark and applies the copy “to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce” where confusion is likely. For that second clause, “the registrant shall not be entitled to recover profits or damages unless the acts have been committed with knowledge that such imitation is intended to be used to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. § 1125(a)(1)(A) reaches use of a word or symbol that “is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person.” Courts decide whether confusion is likely with a set of factors explained in likelihood of confusion.

Minnesota’s statute adds a proof rule that helps the brand owner. Under Minn. Stat. § 325D.44 subd. 1, a business engages in a deceptive trade practice when it “passes off goods or services as those of another,” or “causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services.” Under subdivision 2, “a complainant need not prove competition between the parties or actual confusion or misunderstanding.” More on how that statute works is in Minnesota’s Deceptive Trade Practices Act, and the older common-law claim is explained in passing off.

For a mark registered with the Minnesota Secretary of State, Minn. Stat. § 333.28 tracks the federal statute. It reaches use “without the consent of the registrant” that is likely to cause confusion. It also reaches a business that applies a copy of the mark “to labels, signs, prints, packages, wrappers, receptacles, or advertisements” for use in selling the goods. The statute limits money remedies for that second kind of violation. In its words, “the registrant shall not be entitled to recover profits or damages unless the acts have been committed with knowledge that such mark is intended to be used to cause confusion or mistake or to deceive.” The federal label clause in § 1114(1)(b) and the first clause of § 333.28 turn on whether the use is likely to cause confusion. Prestonettes also warned that if the brand’s name stood out from the rest of the label, “a casual purchaser might look no further and might be deceived.” I suggest naming the brand in plain text in the same type as the rest of your label, the form of label the Supreme Court approved in Prestonettes.

What Makes a Repackaged Product Materially Different?

A repackaged product can stop counting as the brand’s genuine product when it differs from what the brand sells in a way a buyer would weigh in deciding to purchase. Several federal appeals courts treat the resale of a materially different product as infringement, even when the product started out genuine.

The leading example is Davidoff & Cie, S.A. v. PLD International Corp., 263 F.3d 1297 (11th Cir. 2001). A distributor sold genuine Davidoff Cool Water fragrance whose batch codes had been etched off the bottles. Following decisions of the First, Second, Third, and Fifth Circuits, the court held “that the resale of a trademarked product that is materially different can constitute a trademark infringement.” It defined the test this way: “A material difference is one that consumers consider relevant to a decision about whether to purchase a product.” It concluded: “Because the etching degrades the appearance of the bottles, the DAVIDOFF fragrance that PLD distributes is materially different from that originally sold by Davidoff.” The court affirmed a preliminary injunction. The Eleventh Circuit’s decisions do not bind courts in Minnesota.

Some brand owners argue a second theory: that a reseller who skips the brand’s quality-control steps sells something other than the genuine product. Enesco rejected that theory on its facts. The court said “The critical issue is whether the public is likely to be confused as a result of the lack of quality control,” and it noted that the cases finding infringement on this theory “all involved some defect (or potential defect) in the product itself that the customer would not be readily able to detect.” A chipped figurine in a clear package, with the repacking disclosed, did not meet that description.

The Supreme Court has also marked an outer limit. In Champion Spark Plug, discussed in the next section, it said: “Cases may be imagined where the reconditioning or repair would be so extensive or so basic that it would be a misnomer to call the article by its original name, even though the words “used” or “repaired” were added.” I suggest leaving manufacturer codes, inserts, seals, and warranty materials in place, because a change a buyer would weigh in deciding to purchase is what turns a genuine product into a materially different one.

How Does the Law Treat Used, Refurbished, or Reconditioned Goods?

Used, refurbished, and reconditioned goods may keep the original brand name when they are clearly sold as used or repaired, unless the work is so extensive or so basic that it would be a misnomer to call the article by its original name. Minnesota law separately makes it a deceptive trade practice to represent such goods as new.

In Champion Spark Plug Co. v. Sanders, 331 U.S. 125 (1947), a business collected used Champion spark plugs, reconditioned them, and resold them with the Champion name still on them. The lower courts found infringement and unfair competition, and those findings were not challenged in the Supreme Court. The question was the remedy. The Court affirmed a decree that let the business keep the Champion name on the plugs if the plugs were marked “repaired” or “used” in a contrasting color. It said: “Inferiority is immaterial so long as the article is clearly and distinctly sold as repaired or reconditioned rather than as new.” It added: “Full disclosure gives the manufacturer all the protection to which he is entitled.”

Minnesota’s Deceptive Trade Practices Act addresses the same conduct directly. Under Minn. Stat. § 325D.44 subd. 1, a business engages in a deceptive trade practice when it “represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used, or secondhand,” or “represents that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.” For a reseller of returns, open-box items, or refurbished equipment, the condition statement on the listing and the package carries the weight.

A Minnesota case shows how a court can handle the disclosure. In Minnesota Mining & Manufacturing Co. v. Rauh Rubber, Inc., 130 F.3d 1305 (8th Cir. 1997), 3M had sold surplus and rejected reflective material to a scrap buyer, which resold it to 3M’s customers. After a four-day hearing, the U.S. District Court for the District of Minnesota denied 3M’s request to stop all resales and instead required a disclosure statement on the sales documents. That statement began: “Please take notice that this product may not be first-quality goods.” The court also required 3M to post a $100,000 bond. The Eighth Circuit affirmed, reasoning that “Because sales contracts will feature prominently the court-ordered disclosure statement, there is little likelihood that a consumer would confuse scrap reflective materials sold by the Rauh defendants with high-quality reflective materials sold by 3M.” It said the injunction also addressed the Lanham Act and Minnesota deceptive-practices claims, because “Both of these statutes prohibit false or misleading representations or representations which have a tendency to deceive.” The court stressed that its ruling was preliminary: “In affirming the District Court’s order, we emphasize the preliminary nature of our holding.”

Why Do Counterfeit Goods Change a Reseller’s Exposure?

Repackaging rules protect a reseller only when the goods are genuine. Counterfeit goods expose a reseller to treble or statutory damages under federal law. Minnesota’s counterfeiting crime, which requires knowing or having reason to know an item is counterfeit, defines a counterfeit mark to include a trademark affixed to any item without the authority of its owner.

Federal law defines the term in 15 U.S.C. § 1127: “A “counterfeit” is a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.” The counterfeit-mark definition used for the federal counterfeiting remedies, in 15 U.S.C. § 1116(d)(1)(B), excludes a mark on goods whose manufacturer, at the time of manufacture, was “authorized to use the mark or designation for the type of goods or services so manufactured or produced, by the holder of the right to use such mark or designation.”

When the goods are counterfeit, the numbers change. For intentional use of a mark known to be counterfeit, 15 U.S.C. § 1117(b) directs the court, unless it finds extenuating circumstances, to “enter judgment for three times such profits or damages, whichever amount is greater,” with a reasonable attorney’s fee. Under § 1117(c), a brand owner may instead elect statutory damages of “not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just,” and, for willful use, “not more than $2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.”

Minnesota adds a crime. Minn. Stat. § 609.895 subd. 1 defines a counterfeit mark. The definition includes “intellectual property affixed to any item without the authority of the owner of the intellectual property,” and the same subdivision defines “intellectual property” to mean “any trademark, service mark, or trade name.” Under subdivision 2, the crime covers a person who “intentionally manufactures, produces, distributes, offers for sale, sells, or possesses with intent to sell or distribute any counterfeited item or service, knowing or having reason to know that the item or service is counterfeit.”

I suggest buying from the manufacturer or its authorized distributors, or from suppliers that document where the goods came from, and keeping those invoices, because the crime turns on what you knew or had reason to know.

What Remedies Can a Brand Owner Seek Against a Repackager?

A brand owner can ask a court to stop the repackaging, and federal law gives the owner a rebuttable presumption of irreparable harm once it shows a violation or a likely one. Depending on the claim, the owner can also seek the repackager’s profits, its own damages, destruction of infringing goods, and attorney fees in limited cases.

Under 15 U.S.C. § 1116(a), “A plaintiff seeking any such injunction shall be entitled to a rebuttable presumption of irreparable harm upon a finding of a violation identified in this subsection in the case of a motion for a permanent injunction or upon a finding of likelihood of success on the merits for a violation identified in this subsection in the case of a motion for a preliminary injunction or temporary restraining order.” Under 15 U.S.C. § 1117(a), a successful plaintiff may recover the defendant’s profits, its own damages, and costs, “subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity.” In assessing damages, the court may award “any sum above the amount found as actual damages, not exceeding three times such amount,” and “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Minnesota’s remedies run in both directions. Under Minn. Stat. § 325D.45 subd. 1, “A person likely to be damaged by a deceptive trade practice of another may be granted an injunction against it under the principles of equity and on terms that the court considers reasonable,” and “Proof of monetary damage, loss of profits, or intent to deceive is not required.” Under subdivision 2, the court may award fees against a business that “has willfully engaged in the trade practice knowing it to be deceptive,” and also against a complaining party that sued knowing the claim was groundless. For a Minnesota-registered mark, Minn. Stat. § 333.29 subd. 1 allows the court to order “that counterfeits or imitations in the possession or under the control of a defendant be delivered to an officer of the court, or to the complainant, to be destroyed.” The same subdivision provides: “The court, in its discretion, may enter judgment for an amount not to exceed three times the profits and damages and reasonable attorneys’ fees of the prevailing party if the court finds the other party committed the wrongful acts with knowledge or in bad faith or otherwise as according to the circumstances of the case.”

A dispute can start before any lawsuit, with a cease and desist letter from the brand owner. I suggest gathering your labels, listings, and supplier invoices before answering one, because the remedies above turn on what your package says and what you knew.

How Do Supply Contracts Affect the Right to Repackage?

A brand owner can restrict repackaging by contract with the businesses that buy from it, and a reseller’s supply contracts decide who bears an infringement claim that arises from the goods. I suggest reading the purchase terms before planning a repackaged product line, because they can override what trademark law would otherwise allow.

In Henry, the Eighth Circuit pointed to the contract as the brand owner’s tool: “But had Chloride wished to prevent the use of its name in any form on its unaltered, first-quality product, it could have contracted for that very arrangement.” A distribution or authorized-reseller agreement can therefore forbid repackaging that trademark law alone would allow. A claimed restriction still has to be proved. In 3M, the district court found 3M unlikely to prove a contract barring resale of the materials, and 3M did not contest that finding on appeal.

The Uniform Commercial Code adds a warranty that protects resellers. Under Minn. Stat. § 336.2-312, “Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.” A supplier’s terms can remove the warranty, so the purchase order or supply agreement controls. A buyer who furnishes specifications to the seller, such as a label design for goods the seller supplies, “must hold the seller harmless against any such claim which arises out of compliance with the specifications.” Once goods are accepted, “the buyer must within a reasonable time after the buyer discovers or should have discovered any breach notify the seller of breach or be barred from any remedy” under Minn. Stat. § 336.2-607 subsection (3)(a). If a brand owner sues you over goods covered by the warranty, you “must so notify the seller within a reasonable time after receiving notice of the litigation or be barred from any remedy over for liability established by the litigation” under subsection (3)(b). Under subsection (5)(b), the seller “may demand in writing that the original seller’s buyer turn over control of the litigation including settlement or else be barred from any remedy over” if the seller “also agrees to bear all expense and to satisfy any adverse judgment,” and then “unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.”

A supply contract may also limit remedies. Under Minn. Stat. § 336.2-719, “Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter,” and “Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.” I suggest negotiating an express indemnity for trademark claims, because a supplier’s standard terms may otherwise leave a reseller holding the cost of a brand owner’s claim. When your own brand goes on another company’s product, the issues in white-labeled products apply as well.

Next Steps for a Minnesota Business That Repackages Branded Goods

Before launching a repackaged product, four checks cover the main risks on this page. The first is whether the goods are genuine and came from a source you can document. The second is whether the label names your business as the repacker, says you are not connected with the brand, and uses the brand’s name in plain text. The third is whether anything you changed, such as removed codes, new packaging, or reconditioning, is something a buyer would weigh in deciding to purchase, and whether the label discloses it. The fourth is whether your purchase terms restrict repackaging or remove the supplier’s warranty against infringement claims.

More on trademark law for Minnesota businesses is on the practice page. If you are planning a repackaged product line, email [email protected] with a photo or draft of the label and a short description of where the goods come from. I can tell you whether the label, the changes to the product, and your purchase terms leave a gap a brand owner could use against you.