Delhi High Court Delineates First Sale Doctrine in the Hershey’s Case

Recently, the Delhi High Court, in the case of the Hershey Company v. Atul Jalan Trading as Akshat Online[1], addressed the allegations on trademark infringement which included acts of counterfeiting and sale of re-packaged expired chocolates under the Plaintiff’s trademarks, “Hershey’s”. The Court further elaborated on the ‘first sale’ doctrine and defined its scope.

BACKGROUND

The Hershey Company, the Plaintiff in this case, is a well-known chocolate company.[2] The Plaintiff filed a lawsuit seeking an injunction against the Defendant, Atul Jalan, to prevent him from counterfeiting and re-selling expired Hershey’s products by repackaging them.

Parties Contentions: The Plaintiff argued that the Defendants’ actions constituted a blatant infringement of their trademark rights and violations of the Food Safety and Standards Authority of India (FSSAI) Act, 2006. The Plaintiff presented evidence demonstrating the Defendants’ deliberate efforts to mislead consumers by selling expired products under the Hershey's brand and emphasized the associated risks to public health. Conversely, the Defendants contended that the allegations were exaggerated and that they had implemented measures to ensure product quality and safety. They asserted that the Plaintiff's claims were motivated by competitive interests rather than genuine public health concerns. The Defendants maintained that the products in question were legitimately purchased from a third party, supporting their position with invoices, and argued that any deficiencies should be attributed to the supplier rather than themselves.

Procedural History: Finding merit in the Plaintiff’s arguments, the Court in the previous order, ruled in favour of the Plaintiff and issued an ex parte ad-interim injunction prohibiting the Defendants from selling any Hershey’s products. Additionally, the Court appointed two Local Commissioners (LCs) to oversee the seizure of expired products and directed the FSSAI inspectors to assist in inspecting and testing the products.

The findings of the LCs’ reports revealed concerning conditions at the Defendants’ premises. A substantial quantity of expired Hershey’s products was discovered, accompanied by chemicals used to erase expiry dates from the original packaging. The reports also indicated that the Defendants lacked a valid FSSAI license, which raised significant public health concerns. The premises were found to be unsanitary, with expired food products with packaging that was worn, torn, and damaged. Manufacturing and expiry dates were found to be covered or altered, and some packs showed conflicting manufacturing and expiry dates.

DECISION

The Court reiterated the ‘first sale’ doctrine, stating that ‘once a trademarked product is sold legitimately by the trademark owner, or with their permission, the trademark owner's rights to control the resale of that product are exhausted,’[3] and also clarified its scope. It emphasized that this doctrine does not extend to goods that have been materially altered, as such changes can mislead consumers and harm the Plaintiff’s brand. The principle applies only to the resale of genuine, unaltered products, whose authenticity remains intact and does not confuse consumers about the origin of the goods. Therefore, using the Hershey’s trademark in a way that deceives consumers about the product’s nature or quality is not covered by the doctrine. The Court highlighted that this kind of misrepresentation undermines the original manufacturer’s reputation, deceives consumers, and poses risks to public health, thereby justifying the need for an injunction to prevent further misuse of the trademark and ensure consumer safety. Therefore, the Court ruled in favour of the Plaintiff, upholding the interim injunction against the Defendants.

Further, the Local Commissioners’ evidence demonstrated deliberate manipulation of product information, which confirmed the Defendant’s involvement in infringing activities. Despite the Defendant’s claims of legitimate sourcing and their presentation of invoices, the Court held that the evidence of tampering and misrepresentation outweighed these claims. The Defendants are required to establish the legitimacy of their supply chain and prove due diligence in their operations. The Court found mere possession of invoices insufficient in light of the compelling evidence of product tampering.

CONCLUSION

The Court’s analysis clarified the scope of the ‘first sale’ doctrine, limiting it to only genuine and unaltered or tampered with goods. Evidence, including Local Commissioners’ reports, revealed significant manipulation on part of the Defendant. In order to refute the evidence of tampering and deception, the Defendant’s attempts to place the responsibility on their suppliers and their reliance on invoices were found to be insufficient. The decision emphasizes how businesses must ensure proper due diligence and transparency in their supply chain. It reaffirms that protecting trademark rights and ensuring product authenticity are crucial for maintaining consumer trust and public health.

References:

[1] The Hershey Company vs Atul Jalan Trading as Akshat Online Traders CS(COMM) 780/2023, I.A. 21399/2023, I.A. 21401/2023, I.A. 24575/2023

[2] Ibid

[3] Ibid