Why Trader Joe's Suing Pirate Joe's May Be Bad News For Ownership

from the secondary-markets-are-important dept

If you live near a Trader Joe's, you're probably well aware of the cult-like following these stores have. Hell, I'll admit that probably 50% of the stuff in our pantry comes from Trader Joe's and I could probably drive to either of the two near my house (we're almost exactly halfway between them) blindfolded. But now it looks like Trader Joe's is being something of a trademark bully, suing the interestingly named "Pirate Joe's" store in Vancouver, British Columbia. There are no Trader Joe's stores in Canada, and entrepreneur Michael Hallatt realized that this was a market opportunity. He regularly drives across the border, fills up his panel truck with goodies from Trader Joe's in the US, drives back across the border and sells it at a decent markup in his shop. He suggests he's spent somewhere around $350,000 at Trader Joe's over the past two years, making him one of their best customers (and possibly their best overall customer). And they sued him, claiming trademark infringement.

Now, some are reacting emotionally to this, like Laura Heller from Forbes, who comes down on the side of Trader Joe's, but mainly because it's an emotional reaction. For example, part of the reason why she supports Trader Joe's is because of this:

And finally, there’s the problem of pirated goods in general. Luxury brands regularly police pirated goods and employ legal tactics to stem the tide of faux or illegally obtained goods. Comparing cookie butter to Louis Vuitton may seem silly, but it’s the company’s currency and carries value in the marketplace.

Except these aren't pirated goods. They're not counterfeits. They're legally purchased and resold. And that's legal. When you buy something, it means you own it, and you're supposed to be able to resell it on the secondary market. That's actually a rather important part of our economy.

Thankfully, it appears that many legal experts have been pointing out that Trader Joe's has no case. The SF Gate article linked above quotes a trademark lawyer who doesn't see much of a case for TJs:

"I don't think Trader Joe's really has a chance, suing here in the U.S.," said lawyer Greg Owen, a trademark, copyright and unfair competition expert with Owen, Wickersham & Erickson, an intellectual property firm in San Francisco.

If Trader Joe's had sued in Canada, or if Pirate Joe's were operating in the United States, the claim might be more viable, said Owen, who reviewed the lawsuit and motion to dismiss. He added, however, that the first-sale doctrine, which Hallatt is fond of citing and which lets people resell what they've bought, is more nebulous when perishable items are involved.

"On the flip side, Trader Joe's is certainly benefiting from Hallatt purchasing the products," Owen said. "They're making money off him."

Similarly, lawyer William Peacock, writing over at Findlaw explains why TJs has little chance of succeeding based on both venue (suing in the US) and the fact that you can resell what you've purchased. But, Peacock, like Owen, wonders why TJs would ever go after such a good customer:

The case presents a number of interesting questions, but here is the most important one: what is Trader Joe's problem? Hallatt buys their products at retail cost and sells them in a market that they haven't yet entered. They benefit financially from the arrangement. And if they do expand across the border, their normal retail prices, which are lower than his re-retail prices, would drive him out of business in a Vancouver minute.

Finally, law professors Kal Raustiala and Chris Sprigman, over at Freakonomics, have pointed out not just how ridiculous this lawsuit is, but how it could have a real impact on personal freedoms in terms of private property and the right to resell what you've purchased:

If TJ’s has the right to stop PJ’s from reselling their products, then any trademark owner might assert a similar right. Ford could sue Carmax for reselling Fords. Prince (the sports gear company, not the musician) could sue Play It Again Sports for reselling Prince tennis racquets. And if this were true, a trademark law that is aimed at preventing consumer confusion will be preventing something else entirely – competition.

Frankly, it's a ridiculous lawsuit on all sorts of levels, and one hopes that the court recognizes the legal arguments, rather than the half-baked emotional ones. Trademark law is supposed to be about preventing consumer confusion, but there isn't any here. Pirate Joe's (amusingly changed to Irate Joe's after the lawsuit started) isn't trying to fool or confuse anyone. They're totally upfront about the situation. There's a demand in the Vancouver market, and Trader Joe's isn't serving it. So, Hallatt's got a truck and he's willing to use it to help both Trader Joe's sell more, and the people of Vancouver get Trader Joe's goods. Where's the problem?

Some have argued about the potential "health and safety" aspect, but it sounds like Hallatt mostly avoids perishables or heavily regulated products like alcohol (sorry, no Two Buck Chuck). And, as Raustiala and Sprigman note, local regulators can handle any health and safety regulations. Trader Joe's, in its filings, really tries to bend over backwards to claim some sort of sales "harm." It argues that people from Canada travel down to stores in the US to buy their products, but that's meaningless since Hallatt is doing the same thing, and opening them up to a wider market by including those who aren't willing to make the trip. TJ's response is that other shoppers who travel across the border are likely to buy more at TJs because (1) they have more selection and (2) they traveled across the border, so of course they'll buy more. No joke:

Furthermore, it is reasonable to infer that a Canadian customer making the trip to the United States is likely to make a bigger purchase of goods to make the trip worthwhile.

Under that argument, TJ's should make sure to put all of its stores as far away from where people live as possible. After all, don't they want the few people who make the trip to buy more to make it "worthwhile." Sometimes the arguments that lawyers come up with baffle me.

TJs also argues that if people have a bad experience with the food from Pirate Joe's they may blame Trader Joe's, but that seems unlikely and highly speculative on multiple levels. The products are still the same, they're just being sold on the other side of the border.

Anyway, you can read some of the back and forth in the legal filings we've pasted below. The biggest legal issue they're fighting over right now is the jurisdiction issue which (as mentioned above) also seems to favor Pirate Joe's pretty strongly. Suing in the US makes almost no sense, and the hoops that TJs has to jump through to make it work seem like a huge stretch. But, in the end, as everyone else is asking, this seems like a really dumb lawsuit on multiple levels, and if it somehow comes out in TJ's favor, in the long run, everyone loses out.

Filed Under: canada, first sale, michael hallatt, ownership, private property, property rights, reselling, trademark, us
Companies: pirate joe's, trader joe's