SAN FRANCISCO -The 9th District Court in Northern California has reversed a dismissal of Trader Joe’s trademark lawsuit and sent it back to a Washington district court.
In its ruling, the district court decided the Washington court has the authority to hear the claims filed by the U.S.-based grocery chain against Michael Hallatt, a Canadian man who buys Trader Joe’s groceries and resells them in Vancouver, Canada.
The district court in Washington State originally ruled it lacked authority to hear the claims because the defendant's alleged trademark violations occurred in Canada. However, the 9th District concluded Hallatt's conduct could harm Trader Joe's reputation and diminish the value of its American-held trademarks, stating, “This trademark infringement case turns on the extraterritorial reach of the Lanham Act… we conclude that Trader Joe’s alleges a nexus between Hallatt’s conduct and American commerce sufficient to warrant extraterritorial application of the Lanham Act.”
In its initial lawsuit filed in Washington, Trader Joe's accused Canadian Michael Hallatt of trademark infringement and false advertising. It argued Hallatt was operating a store named Pirate Joe’s in Vancouver and he was not authorized by Trader Joe’s to resell its products. Trader Joe’s contends Hallatt is confusing people by dressing up his store in a way that looks similar to the U.S. Trader Joe’s, which is harming its trademark. Hallatt denies the allegations.
Background
The events leading up to the lawsuit is published on Pirate Joe’s website on a page entitled “Lawsuits n’ such.” The page describes how Hallatt has been a designer, a baker, a programmer, a carpenter, a filmmaker and a “pirate” importing Trader Joe’s foods across the U.S./Canadian border.
Hallatt comes across as a worry-free guy taking the legal action lightly. Inside his store, he posts sardonic signs referencing the dispute with Trader Joe’s.
In one picture, it shows Hallatt’s storefront sign with the “P” removed from Pirate Joe’s leaving only “Irate Joe’s.” It also shows a picture of a sign at his cash registers reading, “We pay sneaky people to shop for us at TJ’s (Mike was banned).”
His site tells the genesis of the dispute stemming from his love for Trader Joe’s.
In 2000, Hallatt bought a fixer-upper home in Emeryville, ‘pinched pennies’ and lived off frozen tamales and enchiladas from Trader Joe’s. After falling in love, he became a father and moved back to his native Vancouver.
Longing for Trader Joe’s food, he drove to a Washington store and after observing how many Canadians drove for hours to also get their "fix," he came up with a plan to be both a provider for his family while satiating his desire for Trader Joe’s food. He bought an old Romanian bakery, adopting part of his new business name from the sign that still hung, “Transylvania Trading Company.” He allegedly had no issues until a senior manager at the Bellingham store noticed him and after speaking with Trader Joe’s corporate office, banned him. Hallatt drove to other stores to stock his new store.
In 2012, Hallatt received a cease and desist letter from Trader’s Joe’s. It demanded he stop promoting and selling Trader Joe’s brand and products. He ignored the notice and proceeded to buy products from Trader Joe’s and resell it over the course of nearly two years.
After receiving attention from some reporters, the page claims the name “Pirate Joe’s” was coined by a journalist who wrote an article about the dispute.
Hallatt continued his endeavors and hired Americans to make runs for him and they adjusted their destinations based on store response. It is estimated Hallatt had spent more than $350,000 on Trader Joes products before being served with the lawsuit.
Hallatt’s site says he continues to run the business out of his love for Trader Joe’s products and believes he is protected by U.S. Code Title Seventeen's "first sale doctrine"--which Hallatt’s site states it interprets as simply “once you buy a product, it is yours to do with as you please.”
Headed back to court?
Milord A. Keshishian, trademark attorney in Los Angeles with Milord & Associates, told the Northern California Record that the First Sale Doctrine does hold some water.
"The issue is the way products are being transported across country lines," he told the Northern California Record. "For example, you can buy authentic Rolex watches made for Europe but once you bring it back into the United States and try to sell it here, it’s considered a ‘gray market good.’ Costco and Omega had a major case where the court held it was infringement because even though they sold authentic goods, the goods were made for a different country’s market."
Keshishian said trademarks are territorial and protect the mark in countries or states where they use it.
“If Trader Joes doesn’t do any business in Canada, and never used the mark in Canada, [Hallatt] could argue that he is the first to use it and can register it there because trademarks are territorial," Keshishian said.
While that has been the law for a number of years, the internet has, “turned some of that on its head” when it comes to consumer familiarity, he said.
“Where Trader Joe’s can argue while they don’t sell goods in Canada, Canadian customers knows Trader Joe’s marks because they can come across the border and see its stores, so they are familiar with it, but they are also familiar with it on the internet," he said.
Keshishian said familiarity is important for Trader Joe’s because it can be used in trademark cases to establish harm. He said it gives Trader Joe’s more protection because the court has ruled the Lanham Act can be applied across country lines to protect marks that may be known in that country even though use hasn’t been made in commerce. This means that if Canadians were familiar with Trader Joe’s prior to Pirate Joe’s opening, harm may be established by Trader Joe’s.
“The plaintiff makes enough of an allegation in the claim to survive the dismissal test, now proving the case where they’ve actually been harmed because their trademark has been tarnished is the meat and bones. They would have to show it through surveys in Canada and the U.S. where the individuals would indicate whether they believe Pirate Joe’s products were authorized to be sold by Trader Joe’s in Canada. If so, they can demonstrate they’ve been damaged,” Keshishian said.
Keshishian said part of Trader Joe’s allegations surrounds Hallatt’s conduct and its inability to control quality at Pirate Joe’s.
“The problem isn’t that he is purchasing authorized goods, it’s that once they leave the U.S. and are sold at inflated prices at substandard stores, it is a negative reflection on Trader Joe’s brand," Keshishian said.
Even though Hallatt is not a citizen, he does have to respond to the allegations.
“Otherwise, the court could obtain a default judgment against Hallatt with a permanent injunction,” Keshishian said.
The injunction would apply to Hallatt and his agents, so if he continues to use agents to purchase Trader Joe’s goods on his behalf and they are caught, an injunction could be enforced because of treaties between countries that permit enforcement extra-territorially.
“The case depends on the evidence that can be gathered to show consumers were confused by the products and believed that Pirate Joe’s products were authorized by Trader Joe’s to sell its goods. If they can reach that nexus, they can prove they’ve been damaged to some extent. The proof is in the pudding at this point, no pun intended,” Keshishian said.