Hershey’s v. Atul Jalan: Scope of ‘first sale’ doctrine in TM infringement

Chocolate maker has day in court over damage to brand from party selling its expired products

An injunction was filed before Delhi High Court by the US multinational confectioner Hershey’s Corporation alleging Atul Jalan, trading as Akshat Online Traders, had been selling expired, repackaged Hershey’s chocolates, presenting considerable risk to public health and safety.

Hershey’s complained that Atul Jalan was aware of the brand trademarks and packaging, but still blatantly copied and misrepresented the chocolates as their own. Finding the nature of the allegation serious, the court granted an interim order in favour of the plaintiffs, and appointed local commissioners to seize the expired goods.

Via the interim order, they also directed the Food Safety and Standards Authority of India (FSSAI) to conduct a thorough inspection of perishable goods and ensure they were not sold further. The court noted that had the goods been sold, they would cause irreparable damage to the company’s prestige, and the public at large.

After inspecting the defendant’s premises, the local commissioner’s report revealed a despicable situation; they found various expired products of Hershey’s chocolates and confectionaries that had not been returned. Neither did the defendant have a licence issued by the FSSAI to sell or resell Hershey’s products.

The defendant was hesitant and unco-operative, and did not share crucial information like the source of products and financial transactions. Discrepancies were also found in the history and scope of their business, especially concerning selling food items.

The condition of the products found was worn and torn, and their manufacture and expiry dates had either been altered or covered. The commissioners found several discrepancies in the pricing of the packages, including some that had their prices altered.

In some packages, only the manufacturing dates were present. The packaging had been retaped, and many had the same lot numbers for different batches of Hershey’s chocolates. The stock of expired products was egregious, and chemicals had been used to wipe-off details of the products.

On asking the defendants, Atul and Mridul Jalan, if they knew these labels were false and affixed on top of the original labels, they maintained they had no idea, saying they sold whatever they received from an unidentified supplier “as is”.

The FSSAI’s deputy director and the Central Licensing Authority took action to seal the defendants’ premises due to the large quantity of expired stock and unlicensed operation. Under the Food Safety and Standards Act, an order was made to ensure none of the products left the unlicensed premises.

Several boxes were also found at a second premises, all expired. Some of these boxes were on display, and others remained unopened. It was also found that the products had new information labelled, including MRP, expiration date and manufacturing date.

The premises was also being operated without a licence and a show-cause notice was served on the store manager. A discrepancy with respect to invoices was also found, which indicated that some products had already been sold or were missing.

The local commissioner’s summary report disclosed that the stock of expired products was not limited to Hershey’s, but included other brands as well.

The court, via another order on 10 November 2023, provided a special mandate to the officers of the Department of Food Safety, the GNCTD and the FSSAI, authorising them to seize all expired products and seal the premises in case a large quantity of expired products was found. They were directed to furnish a report within a week of visiting the premises.

The court further registered a complaint with the local police station and issued a non-bailable warrant, which was suspended after counsel for the defendant undertook that his client, Atul Jalan, would be present for all the hearings. The court directed Atul Jalan to provide details of the source from where they procured these expired products so that any third party involved in similar practices could be investigated and booked.

The court found that while the present suit was only related to Hershey’s, it unveiled a bigger problem involving the sale of expired products with new and fake expiry dates running systematically and rampantly.

It also emerged that many of the sales and purchases of such expired products were happening on e-commerce platforms, and the FSSAI could not file cases and take them up urgently. This was beyond the scope of the present commercial suit but required urgent consideration. Hence, the court also directed the crime branch of Delhi police to conduct a detailed investigation into the matter and disclose their findings to the court.

What remained shocking amid all this was the stance of the defendants. They opposed the injunction, claiming that the seized goods were legitimately purchased from a third party. To support this, they submitted invoices as evidence of such purchases.

Moreover, they argued that any compliance issues, such as the presence of expired or relabelled products, should be attributed to the supplier rather than to the defendants themselves.

Court verdict

While confirming the ad interim injunction, the court made scathing remarks regarding the defendants’ conduct. From the outset, the defendants’ defence of unknowingly purchasing infringing goods from a third party did not absolve them of liability and legal consequences arising from the fact that counterfeit goods were found at their premises.

To defend their position effectively and mitigate their liability, they needed to establish the legitimacy of their sources and demonstrate that they conducted due diligence both before and after acquiring the goods. The burden of proof rests squarely with the defendants to ensure their supply chain is transparent and accountable. Simply possessing an invoice is insufficient, especially when confronted with compelling evidence of product tampering and expiry date falsification.

The court went on to state that their attempt to redirect liability to the third-party supplier from whom they allegedly purchased the products would be of no avail, as use of the plaintiff’s trademark on altered products would prima facie constitute infringement, just as it falsely suggests that the expired product was produced and sold by the plaintiff.

The court further elucidated the “first sale” doctrine, which holds 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.

Under this doctrine, subsequent sales of the unaltered, genuine articles typically do not constitute trademark infringement because they do not introduce any confusion regarding the origin of the product.

However, if a reseller alters a genuine article in a way that could mislead consumers – such as by changing expiration dates – then this would undeniably create confusion about the source and quality of the goods.

Such actions can be seen as creating a “materially different” product, which can fall outside the protection of the “first sale” doctrine and infringe on the trademark.

In these cases, consumers might believe they are buying a product that is backed by the original manufacturer’s reputation and assurances when, in fact, they are not. Such misrepresentation has the potential to damage the plaintiff’s brand reputation while also deceiving consumers and endangering public health.

Such circumstances justify the granting of an injunction to prevent further misuse of the plaintiff’s trademark and protect consumer safety.

The multi-faceted approach taken by the court in this particular case is remarkable, to say the least.

As the suit progressed and shocking details regarding the misconduct of the defendants came to light, the court did not shy away from taking suo moto action and involving the relevant agencies – along with enforcement authorities – to ensure the perpetrators were reprimanded for their wrongdoings, especially since their acts could have an effect on the health and safety of the consumers at large.