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COVID-19 UPDATE: 3M FILES NUMEROUS LAWSUITS UNDER TRADEMARK LAWS TO FIGHT PRICE GOUGING AND DECEPTIVE ACTS DURING CORONAVIRUS PANDEMIC

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COVID-19 UPDATE: 3M FILES NUMEROUS LAWSUITS UNDER TRADEMARK LAWS TO FIGHT PRICE GOUGING AND DECEPTIVE ACTS DURING CORONAVIRUS PANDEMIC

By: Julie Tolek

In early April, the industry, healthcare, and consumer goods company 3M, based in Minnesota, filed a lawsuit alleging N95 mask price gouging in New York City. 3M’s lawsuit is just the first of many similar lawsuits in the fight against price gouging and deceptive acts during the coronavirus pandemic.

According to a press release from 3M, this “[l]awsuit is part of 3M’s national and global efforts to fight price gouging and counterfeiting of N95 respirators used on the front lines of the fight against COVID-19.”[1]

Filing the lawsuit against Performance Supply, LLC, 3M alleged that Performance Supply participated in illegal price gouging and deceptive trade practices concerning the sale of N95 masks, thus violating the Lanham Act which governs federal trademark law.[2]

The cornerstone of trademark law is whether consumers would be confused or deceived as to the origin of a good or service. In this case, 3M may be able to demonstrate infringement of its trademark by showing that Performance Supply deceived consumers (in this case, government officials). 3M may allege that its brand-name was used in an unauthorized price-gouging scheme that used the goodwill of 3M’s brand and reputation in an attempt to sell their masks for over 500% to 600% above the price of the masks from before the pandemic.[3]

However, no provision of the Lanham Act currently prohibits the practice of price gouging. In fact, under the “first sale” doctrine, an owner of a trademarked product that was lawfully acquired has the right to resell and advertise that trademarked product without consent of the trademark holder. So as long as the goods have not been altered, including by the making of counterfeit goods, and the goods were lawfully acquired, for example by an authorized reseller, the lawfully acquired, non-counterfeit goods may be resold at any price. The authorized seller may also use a company’s trademark and brand to advertise the goods for sale. Grocery stores do this in their weekly circulars all the time.

Thus, it is not whether the goods in this particular case are materially different than 3M’s actual goods, but whether consumers (such government officials) are being deceived by a seller’s alleged or apparent distributor relationship with 3M and if this deception damages 3M’s brand. Additionally, trademark dilution by tarnishment is a relevant argument here. See our previous post about trademark dilution.

In the above case, New York City officials, at a time when supplies like N95 respirators were scarce, prepared a letter of intent to purchase the masks at the allegedly exorbitant amount offered by Performance Supply. Whether these officials were deceived or acting out of desperation for the supplies is an argument for the court.

On May 4, the court granted 3M’s application for a preliminary injunction against Performance Supply in its entirety. The court ordered the preliminary injunction to issue, such that the defendant is enjoined from using any of 3M’s marks, slogans, brand names or any names that are confusingly similar to 3M’s marks and brand names, or with the connection to manufacturing, supplying, advertising, offering to sell, or selling any of 3M’s goods, including N95 respirators.[1]

3M later filed suit against Orlando-based defendant Geftico, LLC, alleging Geftico falsely affiliated itself with 3M and attempted to fraudulently sell tens of millions of likely nonexistent N95 respirators at grossly inflated prices to the federal Division of Strategic National Stock Pile.[2]

In response, Geftico blamed 3M for the excessive prices alleging that 3M had changed its prices of N95 masks several times. However, 3M states that it has not changed the price it charges for its N95 masks during this pandemic. The complaint seeks injunctive relief to require Geftico to cease its allegedly illegal activities.[3]

Denise Rutherford, 3M Senior Vice President, Corporate Affairs has stated, “[the company] will continue to work with state, federal and international law enforcement to root out illegal behavior and put a stop to it.”[4]

In this vein, 3M has also filed a lawsuit in federal court in California against RX2Live, LLC, alleging that the company falsely claimed a distributor affiliation with 3M and offered millions of N95 masks at inflated prices to California-based Community Medical Centers Inc.[5]

3M filed another lawsuit against a John Doe defendant in Texas who allegedly falsely claimed to be a “3M Company Trust Account”, giving the defendant the ability to sell millions of 3M-brand N95 respirators at inflated prices to New York City government officials.[6]

But, 3M’s price gouging and trademark issues are not limited to the United States. Last month the company filed a lawsuit in Canada in the Superior Court Ontario. The two defendants in this case, Zhiyu Pu and Harmen Mander, are directors of Caonic Systems, Inc., and like other defendants, have allegedly falsely affiliated themselves with 3M to sell N95 respirators at inflated prices. These defendants allegedly used the online shopping platform Shopify under their store name “3M – Health.com” to sell masks that were indicated to having originated from 3M suppliers in the UK and Singapore. Previously, 3M had requested Shopify close Caonic System’s store, but then defendant allegedly opened another Shopify store under the name www.tormenhealth.com. In response, Shopify shut down this new store but Caonic Systems again allegedly launched a new site, this time on another sales platform selling N95 masks for over 5 times 3M’s retail price.[1]

Most recently, 3M has sued five more vendors in three states. These vendors have allegedly targeted emergency officials offering nonexistent N95 masks. Three defendants in Florida include 1 Ignite Capital LLC, Institutional Financial Sales LLC, and Auta Lopes. 3M alleges that these defendants have falsely claimed that they were working with 3M to sell millions of N95 masks to the Florida Division of Emergency Management. Other defendants in Florida include TAC2 Global LLC and King Law Center, Chartered. TAC2 Global allegedly claimed to be affiliated with 3M and attempted to sell not only N95 masks, but hand sanitizer at exorbitant prices to the Florida Department of Management Services State Emergency Operations Center. King Law Center allegedly claimed to be a 3M vendor and escrow agent in order to sell 5 million respirators at over 400% of list price to Florida Department of Management Services State Emergency Operations Center.[2]

In Indiana, 3M has filed suit against Zachary Puznak of Zenger, LLC and ZeroAqua, after Puznak allegedly claimed to work with 3M in order to sell millions of respirators to the state.

Most recently in Wisconsin, 3M has sued Hulomil, LLC in Federal court for attempting to sell 250,000 N95 masks to state officials. Here, 3M alleges that Hulomil tried to force officials to sign a nondisclosure agreement about the deal, falsely claiming to have “direct access from 3M.”[3]

3M states in a press release that it has not changed the prices it charges for respirators as a result of the COVID-19 outbreak. 3M is working with national and international law enforcement agencies, state Attorneys General, and the largest online retail and tech companies in the world to identify illegal activity and help pursue and stop these schemes. The goal is to prevent fraud before it starts and stop it where it is happening.[4]

On their website, 3M has listed a hotline to call to help identify authorized distributors and authentic 3M products. The number is (800) 426-8688 in the US and Canada. The company also has a link on its website to report price-gouging, possible fraudulent activity, and counterfeit products.

 

 

[1] https://news.3m.com/English/press-releases/press-releases-details/2020/3M-Files-Lawsuit-in-Canada-Over-Deceptive-N95-Online-Retail-Sales-and-Price-Gouging/default.aspx

[2] https://news.3m.com/English/press-releases/press-releases-details/2020/3M-Has-Sued-5-Vendors-Who-Targeted-Emergency-Officials-in-3-States-Offering-Billions-of-Nonexistent-N95-Respirators/default.aspx

[3] Id.

[4] 3M Company v. Performance Supply, LLC, No. 1:20-cv-02949-LAP (Order On Plaintiff 3M Company’s Application For A Preliminary Injunction Against Defendant Performance Supply, LLC, #22, May 4, 2020)

[5] Id.

[6] https://news.3m.com/English/press-releases/press-releases-details/2020/3M-files-lawsuit-in-alleged-N95-price-gouging-attempt-of-the-Strategic-National-Stockpile/default.aspx

[7] Id.

[8] Id.

[9] Id.

[10] https://news.3m.com/English/press-releases/press-releases-details/2020/3M-Files-Lawsuit-Alleging-N95-Price-Gouging-in-New-York-City/default.aspx

[11] https://news.3m.com/English/press-releases/press-releases-details/2020/3M-Files-Lawsuit-in-Florida-in-Alleged-N95-Price-Gouging-Attempt-of-the-Strategic-National-Stockpile/default.aspx

[12] Id.

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