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.

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Comments on “Why Trader Joe's Suing Pirate Joe's May Be Bad News For Ownership”

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mcinsand (profile) says:

more of a problem with trademark law

I don’t think this is so much a problem with Trader Joe’s but of the way our trademark law works. If you don’t enforce it, if you don’t use attorneys to keep companies with very similar names from entering your business line, then you can lose the trademark. So, as much as we don’t like the way Trader Joe’s is going after Pirate Joe’s, they could lose their trademark if they don’t establish a pattern of going after those that get too close to their name.

James Burkhardt (profile) says:

Re: more of a problem with trademark law

Bullshit. People like to throw that line around, but there is no likelyhood of confusion between Pirate Joe’s and Trader Joe’s. The use it or lose it doctrine is about when you name become synonymous with a product. That will only happen if Trader Joes spends another decade before getting into a market that wants it and Pirate Joe’s moves on to far more then going across the border with a truck.

There is a clear distiction between the two, and he is open about what is going on. The only way for Pirate Joe’s to become synonymous with Trader Joe’s is for Pirate Joe’s to expand and then it is only a problem if and when Trader Joe’s attempts to enter the Canadian market, because until then, no consumer confusion CAN exist. Remember, he is actively admitting that he is not a licenced branch of the Trader Joe’s name. In fact, the name suggests it.

Finally, if they wanted to preserve their trademark, they should be suing in Canada. Because the “Pirate Joe’s” name is in use in CANADA, a US-based court can not remedy the situation. They aren’t looking to protect their mark, they are looking for a defaul judgement so they can claim they have the moral high ground, or try to push the decision on the Canadian courts, which have been far less supportive of Trademark and Patent Lawsuits.

Also, Several legal scholars have pointed out there is NO CASE. Suggesting the use it or lose it doctrine does not apply

Bergman (profile) says:

Re: Re: Re: more of a problem with trademark law

If the trademarked logo printed on Trader Joe’s merchandise makes a customer guilty of trademark violation, then the litigate or lose it doctrine would cause Trader Joe’s to be out of business over night, since nobody would be able to buy their goods without being sued or negating the trademark.

Obviously, that’s not the case.

G Thompson (profile) says:

Re: Re: more of a problem with trademark law

Trademark treaties do NOT exist.. Trademarks are jurisdictional marks worldwide which pisses off a lot of US-centric organisations no end.

If there is was both a Trademark registration of “Trader Joe’s” in Canada and the organisation were using it FULLY in trade at the time then yes there is a case, but otherwise there is none whatsoever and in fact “Pirate Joe” might have a case under a few Canadian torts against “Trader Joe”. False and misleading statements to name one actionable situation.

JoeCool (profile) says:

Re: Re: Re:

The issues with customs starts when you use a postal service, where the carrier could care less if the customs officials “confiscate” the items. If they were to try that on an individual, they’d protest and haul the customs officials into court. We learned that the hard way – 100% of products we mailed to Canadian dealers “disappeared” in customs (and yes, they had all the proper forms); so we had dealers come to the US and pick up the product in person, then drive it back to Canada… no problems at all with customs.

Dirk Belligerent (profile) says:

Re: Re:

I live within sight of a Trader Joe’s. I am looking out my window at it now. So convenient to get Simple Times Lager/Pilsner which are 5.7% and 6.2% ABV (don’t recall which is which) and sells for $3.50 per six-pack. Their Name Tag beer was $3 and Simple Times was $4 until some time ago when they went up/down to the same midway point, so obviously go for the higher octane hooch.

I’m also lucky to live 11 minutes away from a Micro Center; the next-closest one is three HOURS away.

out_of_the_blue says:

Should have used Customs to do it subtle-like.

As AC #2 asked, how the hell does this guy routinely get a truckful past Canadian customs? Surely all that had to be done was — as TJ clearly knows IJ –wait for him to buy then tip off the Gestapo.

By the way, Mike: have you ever noticed how often the people and corporations you like become stories here by betraying your notions? You’re either remarkably bad at picking, or don’t grasp that corporations are amoral.

James Burkhardt (profile) says:

Re: Re: Should have used Customs to do it subtle-like.

A follow up, you have to realize that if goods aren’t regulated or tarriffed, Customs rarely ‘holds them up’. (Known gangs importing ‘artwork’ aside) And Canadian Customs might not respond well to an american Corporation telling them that these clearly non-perishable, unregulated foodstuffs that they see every week being imported by various canadian citizens need to be ‘held’.

Anonymous Coward says:

It's about consumer confusion

I’m not a fan of trademark bullies, either. But TJ’s does indeed have a case under trademark law. Not for just reselling of goods the defendant here legally purchased, but for selling them through a store with a name that’s confusingly similar to Trader Joe’s. If Hallatt had named his store “Hallatt’s” and then stocked it with stuff he bought from TJ’s, I’d agree he wouldn’t have a good trademark case. But when you name your store Pirate Joe’s, some people might understand the joke, but a typical consumer may well be confused into thinking that that “Pirate Joe’s” is affiliated with Trader Joe’s, especially given Trader Joe’s associated pirated-themed trade dress.

The strongest argument against TJ’s isn’t that confusion is unlikely – confusion is clearly a possibility in this cast – it’s that the case should be decided by a BC court instead of a Washington one. But those arguments aren’t the same ones Mike seems to be asserting, and they don’t mean that TJ’s “has no case.”

radix (profile) says:

Re: It's about consumer confusion

Agree with this.
I’m certainly no fan of trademark bullies, but this is almost EXACTLY the sort of case trademark law is actually useful for.
Similar name, chosen specifically to evoke the good reputation of the larger company.
If somebody were to have a bad experience, or get sick from poor quality control (expired goods), it poses a risk of coming back on TJs.
Obviously the venue is a problem, and this could be handled more simply by refusing to sell to the guy, but brand confusion is the whole point of TM.

G Thompson (profile) says:

Re: It's about consumer confusion

It’s about consumer confusion

What consumers are being confused? Certainly not the American consumers that the Trademark of “Trader Joe’s” is SOLELY concerned with since “Pirate Joe” does not sell to US consumers within the jurisdiction of the USA.

Instead Trader JOe is trying to confuse consumers within the USA and Canada that they somehow have worldwide rights to the mark which unless it’s registered SEPARATELY in all countries they don’t.

Apple found this out with iPod, iView, and a fair few companies find this out the hard way too.. Why just recently Microsoft themselves hve had to rename the SkyDrive because they were too stupid to search the name in all places they were trying to sell into.

Trademarks are specifically jurisdictional ONLY! They are NOT the same as Copyrights nor patents either.

G Thompson (profile) says:

Re: here is an idea...

If I was advising Pirate Joe at the moment my advice might be to refuse TJ’s application of trademark & subsequent trade within Canada based on his currently ‘in use’ mark. He would actually have huge standing to refuse them trade due a lot to the currently publicly available legal briefs between parties.

TJ might of bit themselves in the foot here if they ever wanted to start operations in Canada.

DB (profile) says:

One detail that I didn’t understand was the comment about perishable good having stronger or different trademark protection.

Is there a cite to this?

If ‘Trader Joes’ can exist in the same region as ‘Farmer Joes’, I don’t see how ‘Pirate Joe’ can create any confusion. The standard is ‘reasonable person’, not ‘easily confused (it’s my job) lawyer’.

Anonymous Coward says:

Another example....

Yet another example of individuals attempting to resort to State force/aggression/violence as their means to an end, which always ends in people being worse of.

What makes this even more absurd is that everyone is benefiting from the current voluntary arrangement.

I prefer consensual relationships and voluntary exchange.

Jim D (profile) says:

I’m usually with you on these types of cases, but not so much on this one: If I, traveling through Canada, came upon this store called Pirate Joe’s, selling all Trader Joe’s items, there is a good chance I would think they were affiliated– perhaps this being the Canadian off-shoot.

Perhaps TJ’s lack of a presence in Canada means their Trademark is unenforceable there, but I think they still have very valid reasons to fear brand confusion.

ernernermis cerwerd says:

I don’t get it. If somebody buys stuff from you at full price, and sells it somewhere else marked up, aren’t they just doing market research for you? He is clearly showing that the Canadian market is profitable. Instead of suing Hallat, Trader Joe’s should set up shop in Canada and undercut his prices. They will make more money, and their “problem” will solve itself.

Anonymous Coward says:

Screw Trader Joe’s. Pirate Joe’s is Canadian.
If Trader Joe’s is not registered in Canada then to bad. Priate Joe’s should by-pass his trips to the US and go directly to the Trader Joe’s supplies to get a better price. Most likely Trader Joe’s just buy it off some overseas manufacture and Pirate Joe’s could do the same. Then roll head a few years in the Canadian market when Trader Joe’s wants to enter the Canadian market and Pirate Joe’s can SUE them.

Unless Trader Joe’s is a registered business in Canada then they have no authority.

John William Nelson (profile) says:

All about the Billable Hours

O’Melveney & Myers LLP may be hurting and needs some billable hours. What’s a BigLaw law firm to do?

Why, convince a client on a nice retainer to engage in a bad lawsuit! Trademarks! Copyrights! Patents! Use them or lose them!

Don’t worry client, we’ll put our top Patent partner on your Trademark case, and we’ll make sure he teams up with one of our Of Counsel lawyers because we make higher margins on those than on our associates!

And we know a local law firm who is willing to be local counsel on just about ANYTHING we file! Yarmuth Wilsdon, trial lawyers!

The problem here is the lawyers involved forgot the “counselor” portion of their job and went straight for the “attorney” bit.

This is poor service to their clients?they should have seen this coming.

It’s easy to imply this is all about the money. It’s not?these lawyers aren’t trying to shake down their clients. At least I don’t think they are.

However, their billable hour requirements, and their billable hour process, can lead to shortchanging solutions which may serve the client better in favor of litigation.

And, yea, they are so wrong on the law. But hey, what’s a little shakedown between businesses?

G Thompson (profile) says:

Re: All about the Billable Hours

Trademarks! Copyrights! Patents! Use them or lose them


The interesting thing is if you don’t use your Trademark in trade (ie: Commercially sell using that mark where the trademark is registered) you actually can, and should, lose that mark.

Strangely O’Melveney & Myers LLP haven’t probably mentioned that factoid to there clients if they are stating they have a TM registered in Canada and that if they haven’t used it (seems they haven’t.. if they have one at all) then so sad… loss of Tm is basically a given now.

Gotta love US attorneys who try to apply US laws to other sovereign states eyeroll

Andrew D. Todd (user link) says:

Retreat Deeper into Canada

Michael Hallatt, the “‘Pirate Joe” man, can easily “create facts.” He doesn’t have to go shopping in the United States, all the way down to the Bay Area– that’s just his Robin Hood and the Sheriff of Nottingham shtick. He doesn’t even have to cross the border and render himself liable to arrest on a contempt warrant. What he can more practically do is to get Canadians who go shopping at the Trader Joe’s in Bellingham, Washington (where the customers are 40% Canadian) to buy something in addition to their own groceries and sell him the excess, say a hundred dollars or so per grocery run. Bear in mind that the shoppers primarily want to buy fresh stuff, which they cannot stockpile. Maybe Hallatt could deliver fresh Canadian green groceries, and accept payment in Trader Joes canned and bottled goods. When he has special green groceries in limited quantities, he might reserve them for the people who pay in Trader Joes stuff. This would mean that it would be very difficult for Trader Joes to get at him, without attacking half the shoppers at the Bellingham store. Green groceries are one of those areas where big companies have a lot of difficulty competing. A plant is a living thing– it has its own individuality, and there is no substitute for individual attention. A line of green groceries might be something to fall back on, when Trader Joes does come to Canada. Hallatt is unlikely to find renewed employment in the Silicon Valley. The electronics/computer/internet industry is consolidating, contracting, and downsizing, and with each year, his experience, such as it is, will be that much more stale. There is very little economic downside for him in committing himself to remain in Canada. Trader Joes has no recourse– one way or another, they have to deal with him in Canada, under Canadian laws. They are wasting their time and money in the American courts.

Mark Gardiner (user link) says:

Why make a pirate irate?

As the author of “Build a Brand Like Trader Joe’s”, I spent a year working ‘undercover’ for this fiercely secretive company. Based on what I learned, I’m not at all surprised that they’re aggressively going after ‘Pirate Joe’s’. Those of us who watch TJ’s were surprised it took this long.

“Will Trader Joe’s ever come to Canada?” is one of the most common questions I get. If they did cross the border, it’s likely that the Lower Mainland of BC (where Pirate Joe’s is) would be the first beachhead. So in one sense, I understand their desire to protect their trademark up there, even though they don’t operate there. That said, few legal experts seem to feel that this suit will be the thing that drives Pirate Joe out of business.

Knowing the company as I do, I don’t think this is as much about trademark infringement as it is about sheer pique. Underneath the laid- (or should I say ‘lei-d’?) back image, there’s a control-freak style to the current senior management.

If the company’s senior management philosophy was true to the public perception of the brand, they would have contacted Pirate Joe and said, “OK. Here’s the deal: We’ll sell to you out of our Bellingham store as long as you promise to limit yourself to your one current store, and agree to immediately close your store as soon as we open a store anywhere in British Columbia. Then, we’ll make you our first Canadian store manager.”

Why make an enemy of a guy who is, effectively, softening the beachhead for the brand’s eventual expansion north?

texasbound (profile) says:

Trader Joe's is a Bully

Trader Joe’s is indeed a bully. I once had a blog about how great their products were. After receiving a notice from their lawyers that said my site might be confused as being from Trader Joe’s, I am no longer a customer. Do not be fooled by the quaint TJ’s in store attitude. Amazon is full of TJ’s products, but they are probably too big for TJ’s to sue.

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