Who Controls Marketing Materials?

by Jeffrey A. Babener
MLM Legal Attorney
©2011

What's in a name? Ask Marlboro, Nestle or Coca-Cola. Those names are worth billions of dollars. And, so it is also with brand names in the direct selling industry like Amway, Tupperware and Mary Kay.

At the beginning of an MLM company's history, its trademark is perhaps its least valuable asset. Its most valuable assets are its inventory, equipment, formulas and other tangible items. Something happens, however, to an MLM company as it grows more and more successful and is recognized in the public marketplace. After achieving a level of success and acceptance, its name, trademark and good will become its most valuable assets. Nobody will dispute that names such as Amway, Mary Kay or Fuller Brush have become some of the most prized possessions of those companies.

It is understandable that attaching such names to any merchandise whether it be product, sales aids or sales tools will add real value to those items. No one disputes that distributors may distribute company merchandise carrying company trademarks and disseminate authorized company literature. A growing phenomenon in recent years, however, particularly with the advent of desktop publishing and low cost printing, has been the creation of sales aids and sales tools by distributors and third parties which carry company trademarks. In fact, the sales tools business has become a very lucrative business as armies of distributors devour printed literature, videotapes and audio cassettes which may help in both recruitment and sales.

Many companies have adopted formal language in their distributor agreements which prohibits the unauthorized use of their name in literature and other materials not produced by the company. Some companies control this issue and others do not. With the explosion occurring in the MLM market for both product advertising and sales tools, more and more disputes will be observed. How far can companies go in prohibiting the use of their name or trademark in noncompany-produced materials? Can companies only prohibit the use of their trademark when it is accompanied by fraudulent representations? Millions of dollars and reputations are at stake on this issue.

As a starting point, it is settled that a distributor who resells trademarked goods without change is not an infringer and needs no trademark license. One authority has noted: "It would be absurd to hold that a manufacturer could sell a branded product to a distributor without restriction and then tell the distributor that it could not resell the branded goods without either paying for a trademark license or removing the trademark."

An independent dealer of a manufacturer's trademarked goods may also use the mark in advertising their availability. However, the independent dealer cannot use the manufacturer's trademarks in a manner which falsely suggests that the independent dealer is part of the manufacturer's authorized dealer network.

It is also possible for anyone to use a trademark in a collateral or nontrademark sense. For example, one is allowed to use the word McDonald's in an article referring to the successful hamburger franchise. A person may even write a book on the successful operation of a McDonald's franchise. What is not permissible is, as mentioned above, leaving the consumer with the impression that the publisher is authorized by or somehow connected with the trademark owner.

The test is: have the defendants used the mark in a manner that is likely to cause confusion, mistake, or deception, as to the source of defendant's products? A likelihood of confusion also exists where a consumer could be expected to assume there was some association or affiliation between the providers of goods or services or when a consumer would be likely to purchase goods from one source mistakenly believing them to originate from another.

A famous case involving Amway illustrates this point. In the case, Amway Corporation sued individuals for trademark infringement and unfair competition based upon their publication and distribution of literature concerning Amway products and marketing plan. The publication contained numerous reproductions of Amway trademarks.

The court stated that defendants did not use the marks as labels for their goods as trademarks are generally used to identify source. Nevertheless, the use in textual material constituted an infringement where the idea was conveyed that the literature originated with Amway or that use of the mark was authorized by the company. The court reasoned that while distributors who ordered the literature from defendants knew where the material was coming from, there was no guarantee that this knowledge would be passed on to distributors further along the line. It also did not matter to the court that some of the literature identified defendant as the source, as this disclaimer did not negate the idea that an unsophisticated distributor or consumer would believe the material was being disseminated by Amway or with its acquiescence.

The court also held that regardless of whether or not there was confusion as to source, Amway was entitled to relief based upon the possibility of dilution of their mark and unfair competition. As to dilution, defendant's publication would create the impression that Amway marks were in the public domain and could be used by anyone. Defendants were unfairly competing by selling the literature for profit, thereby cashing in on Amway's good will and undermining Amway's sales of its own company literature. The court held that Amway was entitled to a permanent injunction to prevent the possibility of defendants causing substantial harm through the publications. Due to the nature of some of Amway's chemical products, the company needed strict control over its product literature. The court also found that Amway needed to control the dissemination of literature concerning its marketing plan:

"... While Amway denies emphatically that it is engaged in unethical or unlawful pyramid selling, it is obvious that its sales program possesses some features of that kind of selling although it may have adequate off-setting safeguards.

In such circumstances the court feels that Amway's apprehensions ... are fully justified."

In another case, the owners of the trademark for the game "Trivial Pursuit" enjoined the distribution and sale of a book entitled In Further Pursuit of Trivial Pursuit. The book was termed a reference book for the game, and all six thousand questions and answers of the original Trivial Pursuit game were reproduced in the book. In addition, publishers of the book copied plaintiff's trade dress for the book's cover. The court held that consumers were likely to be confused as to the source of the book and its sale would be enjoined.

The court also held that defendant's fine print disclaimer on the book's cover disclaiming rights to plaintiff's trademark or any relationship with plaintiff provided no defense. The court felt that with the small print of the disclaimer and the similarity of the goods, consumers were still likely to be confused.

The court in the Trivial Pursuit case implied that it was acceptable for one to publish a book on how to excel at playing Trivial Pursuit. However, it is trademark infringement to appropriate the trade dress and "take the guts of the game and make it possible for people to, in effect, play it without using the game itself."

Although an independent or authorized dealer needs no trademark license in order to inform the public that the dealer has the trademark owner's goods available, the owner can place restrictions on the nature of the use of the marks. Use of the marks in a manner that exceeds the rights belonging to a dealer constitutes trademark infringement and breach of contract.

Therefore, a company cannot prevent the use of its trademarks in a nontrademark sense, as in the publication of an informative article concerning the company. It is only where the use of the trademarks leaves the impression that the product is associated with, or authorized by the company or where a threat of trademark dilution exists, that such a use would constitute trademark infringement or unfair competition.

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About the Author:

Jeffrey A. Babener, the principal attorney in the Portland, Oregon law firm of Babener & Associates, represents many of the leading direct selling companies in the United States and abroad. His firm has focus on startup and emerging MLM companies. He has been adviser to such companies as Avon, Nikken, Discover Toys, NuSkin, Excel, Fuller Brush, Cell Tech, Kaire, Sunrider, Melaleuca, etc. He is editor of the industry resource internet site www.mlmlegal.com.  He is a frequent lecturer and has been interviewed on the industry, and published, in many publications. Babener & Associates, 121 SW Morrison, Suite 1020 Portland, OR 97204, www.mlmlegal.com.

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