by Mirjam Sommerfeld, LL.M. – Legal Counsel ad-shot –
- What is Retail Arbitrage
Retail arbitrage is a business model that e-commerce sites use. A website resells products that are not their own by buying inventory at a discount from retailers and then reselling it online for a profit.
- What can I resell?
You cannot resell any counterfeits. There might be specific requirements for reselling branded products.
You have to make sure that products sourced from manufacturers, especially overseas, e.g. in China do not infringe U.S. Copyrights, Trademarks, or Patents.
Understanding U.S. Copyrights, Trademarks, and Patents
The U.S. Copyright Office uses the following definitions to distinguish between Copyrights, Patents, and Trademarks. “Copyright protects original works of authorship, while a patent protects inventions or discoveries. Ideas and discoveries are not protected by copyright law, although the way in which they are expressed may be. A trademark protects words, phrases, symbols, or designs identifying the source of the goods or services of one party and distinguishing them from those of others.”
The USPTO (the United States Patent and Trademark Office) allows you to research Trademarks and Patents.
What is a trademark?
According to the USPTO “A trademark can be any word, phrase, symbol, design, or a combination of these things that identifies your goods or services. It’s how customers recognize you in the marketplace and distinguish you from your competitors.”
Which trademarks exist?
You will have to do a Trademark research if your product contains one of the following:
- Words, a single word like a brand name, e.g. Nike ®
- Slogans, e.g. I’m lovin’ it by McDonald’s ®
- Logo, e.g. The Nike ® Swoosh
- Specific packaging, the way a packaging looks or the way it operates (e.g. how a box opens)
- Specific layouts, forms, and designs, e.g. The golden arches of McDonald’s®
- Specific Shapes, e.g. the Coca-Cola ® bottle
- Sounds, e.g. the Nokia® tune
- Colors, e.g. Tiffany ® blue, or T-Mobile ® Magenta
- Scent, e.g. “flowery musk scent” in Verizon stores
- Service marks, e.g. Google® is a registered trademark for many goods and services by Google
The USPTO has a list of Trademark examples that is worth reading through.
Take into consideration that not all trademarks are registered with the USPTO. Someone can own a trademark even though he/she never registered it. An unregistered trademark does not have the same protections as a registered trademark. Only a registered trademark has nationwide protection. However, an unregistered trademark gives protection for the geographic area in which the goods or services associated with the trademark are provided. If you are contacted by someone claiming IP rights in the same geographic area that you offer your goods or services in, you will have to ask the person for documentation and get legal advice as to what to do. A quick google search can help you find out if other sellers are offering your product in your area.
Trademark Research – USPTO
It is not enough to ask your supplier and trust his word. Suppliers from overseas might not be familiar with your Intellectual Property Laws. You are responsible as a reseller for any IP infringement. Make sure you review the laws in the country you want to resell your products. If you resell in the US, review US law and registrations. If you resell in Europe, review European law and registrations. A trademark that is registered in the U.S. might not be registered in Europe or elsewhere.
You can do a USPTO Trademark search here.
In addition to that, a quick Google search might help too. Type in “Trademark” and a keyword that describes your product, shape, color, function, packaging, etc.
What is a Patent?
There are three types of patents:
Utility patents: any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof in the categories of Electrical, Chemical, or Mechanical.
- Machines: e.g. something composed of moving parts, such as engines or computers
- Articles of manufacture: e.g. brooms, candleholders
- Processes: e.g. business processes, software
- Compositions of matter: e.g. pharmaceuticals
Design patents: a new, original, and ornamental design for an article of manufacture.
- Statue of Liberty
- Coca-Cola ® bottle
- Fonts and computer icons: e.g. emojis
- Furniture: e.g. IKEA chair
- Ornamental designs on jewelry
- Manolo Blahnik shoe
- Keith Haring wallpaper
Plant patents: any distinct and new variety of plant
Example: genetically modified seeds, hybrids, plant mutants, and newly discovered seeds
Patent Research – USPTO
If you see other sellers adding the phrase “Patent Pending”, this does not have any legal effect. It gives information that someone might have filed a patent for this product. However, many resellers are using this phrase to scare competitors away by pretending they have applied for a patent when, in fact, they have not. The protection afforded by a patent does not start until the actual grant of the patent. The USPTO states explicitly that false use of these phrases or their equivalent is prohibited.
This being said, as long as a competitor only uses the phrase “patent pending” you can sell your products. However, if a competitor is granted a patent, you have to stop selling your products.
What is a copyright?
The U.S. Copyright Office defines Copyright as “original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.” See also Circular 1, Copyright Basics, section “What Works Are Protected.”
Examples of Copyrights
Examples of copyrightable works include (Source: Circular 1, Copyright Basics, section “What Works Are Protected.”:
- Literary works
- Musical works, including any accompanying words
- Dramatic works, including any accompanying music
- Pantomimes and choreographic works
- Pictorial, graphic, and sculptural works
- Motion pictures and other audiovisual works
- Sound recordings, which are works that result from the fixation of a series of musical, spoken, or other sounds
- Architectural works
Copyright Protection without registration
Copyrights exist from the moment the work is created and not just with registration. Research not only registered copyright. Research for other sellers in your category and see if they have similar products that could fall under protected copyright.
The U.S. Copyright Office allows you to research Copyrights. Also, a quick Google research can help to find out about pending lawsuits about Copyrights. Stay away from products that are part of pending lawsuits until there is a decision.
b) Branded products
If you want to resell branded products you need to research if the brand requires you to apply as an authorized reseller. Make sure to get proper documentation including a Letter of Authorization that allows you to resell a protected branded product. Some brands do not want to be resold.
You cannot claim a branded product as your own. You have to state that you are reselling the product and that you are not the manufacturer. You cannot alter branded products. Logos, slogans, and anything else that is protected by either trademarks, patents, or copyright cannot be changed.
- Products with different components
If you are selling products with different components or sets of different products, make sure that you double-check each component for potential IP rights.
Example: If you resell a party decoration set including balloons, table cloths, props, napkins, etc., look at each product independently.
Look at the balloons: Do they have a shape that is protected? Do they contain a word or slogan that is protected? Do they have a color that is protected?
Same for the napkins, table cloths, and props. If let’s say the napkins contain a trademarked slogan, remove the napkins from the set. If the other components do not infringe on IP rights, you can still sell those.
- Rebranding products as your own
You cannot just take off someone’s branding and put on your own. This can be a trademark infringement. If you source your products from overseas, especially from China, manufacturers intend for their products to be rebranded. However, always get permission in writing. Get a so-called White-Label Agreement that allows you to sell the products under your own name and brand. Do not just assume that manufacturers are okay with that if they offer customization and logo attaching. Also, ask the manufacturer if he/she has registered any rights for the product. You will need proper documentation in case a competitor tries to shut you down anyways.
- Using manufacturers photos
Ask your manufacturer for written permission if you want to use his/her product images, videos, keywords, or descriptions.
- What happens if I do not follow the rules?
You risk being sued for relief by the rights owner. A lawsuit can not only shut down your website, it can also be a financial burden. You will have to pay attorney fees. The rights owner can ask the court for an injunction to prevent you from selling your products and for an award of damages because of the infringement.
Disclaimer: This is an overview of Retail Arbitrage and does not replace the consultation of an attorney. If you plan to resell products in your e-commerce store make sure to get proper legal advice.