Reference no: EM133174025

Mini case study: Question down below!

Pirate Joe's vs. Trader Joe's: A gray market fight 

Introduction

Pirate Joe's, a small retail store in Vancouver, Canada was marking its fifth year in operation. Mike Hallatt, the founder of Pirate Joe's, had seen a strong demand for Trader Joe's branded products in Vancouver, so he opened his store in 2012 and sold Trader Joe's goods at inflated prices. Hallatt proudly declared that his store was "unaffiliated with, unauthorized by, and unafraid of" Trader Joe's (Holpuch, 2017). To get the groceries, he needed to shop in bulk at Trader Joe's stores almost three hours away across the border in Seattle, Washington. Trader Joe's, known for its low priced, high quality products, and billions in annual sales, was a privately owned grocery store chain based in California that owned and operated approximately 500 locations across the United States, but none in Canada. Trader Joe's executives did not approve of Hallatt's unauthorized importing of its products from the US, and within a few months, sent Hallatt a cease and desist letter. Undeterred, Hallatt defiantly hung the document in his store window and continued to import the goods (Cima, 2014).

In 2013, Trader Joe's filed a lawsuit in U.S. District Court seeking financial damages and a halt to Hallatt's importing activities. Citing a violation of the Lanham Act, a federal statute that broadly regulates the use of trademarks in commercial activity, the company accused Hallatt of trademark infringement, unfair competition, false designation of origin, and false advertising.

Hallatt received a dismissal of the case when the judge found that US courts had no jurisdiction over possible trademark infringement that occurred outside the US (Holpuch, 2016). Trader Joe's then turned to the U.S. Court of Appeals. In 2017, the three-judge panel overturned the lower court ruling and sent the case back to District Court for trial, and stated that the Lanham Act could apply to activity that occurred wholly or partly outside the country if connected to US commerce (Focarino, 2016). Hallatt had spent $75,000 securing the initial dismissal, and he now estimated that a trial would result in an additional $250,000 in attorney fees with no guarantee of success (Holpuch, 2017). Should Hallatt continue his legal fight against Trader Joe's or should he attempt to settle out of court?

The Gray Market Pirate

Every week over the last five years, Hallatt had made the round-trip in a white van to Bellingham and Seattle from Vancouver to purchase and transport $6,000 of Trader Joe's products to

Volume 13, Winter 2020 87 Canada. Trader Joe's banned Hallatt from its Bellingham store in his second full week of operation. Soon after, its Seattle stores followed, and eventually Hallatt was banned from every Trader Joe's location across the US (Nguyen, 2016). Hallatt was forced to hire a US team of secret shoppers to continue the buying, and if a shopper was exposed, he rotated the individual to a new location (Cima, 2014). With their weekly pirate booty secured, the team rendezvoused with Hallatt and his van. 

Though Hallatt had created a Trader Joe's gray market, which is defined as the sale of brand-name products by unauthorized resellers (Rosenbloom, 2013), from the Canadian government's perspective, Hallatt was not violating any laws. He had purchased the products at full retail price; thus, he legally owned them and could resell them (Chappell, 2013). Hallatt always transported the products through a Canadian customs port of entry with relative ease given the North American Free Trade Agreement (NAFTA) between the US and Canada, and paid any and all applicable import duties (Dawson, 2015). He also relabeled all product nutritional information to meet Canadian regulations (Cima, 2014). Trader Joe's approach to product branding was to focus on its own private label, or store brand, rather than national brands such as Kellogg's, Nabisco, Campbell's, and Folgers. National brands were owned by major consumer product manufacturers and sold in nonaffiliated grocery chains and other retail formats throughout the US. A private label brand was developed and owned by a retailer and sold only in its stores. Consequently, most consumers associated a given private label brand to its retailer and expected to find it only at that retailer's locations. Most major grocery chains also had their own private label brands (e.g., Kroger's Private Selection) and sat them alongside national brands on their shelves. However, very few national brands were sold in Trader Joe's stores.

The Appeals Court remand once again brought to the forefront Trader Joe's four points of contention with Pirate Joe's. Trader Joe's had accused Hallatt of: (1) misleading Canadian consumers into "falsely believing Pirate Joe's was authorized or approved" by the company, (2) using a "confusingly similar 'South Pacific' trade dress for the Pirate Joe's store", (3) displaying "Trader Joe's trademarks in connection with the sale of products at Pirate Joe's", and (4) reselling "Trader Joe's products without authorization and without adherence to Trader Joe's' strict quality control practices" and possible recall procedures (Focarino, 2016). Pirate Joe's openly advertised its store's products as Trader Joe's products, and used actual Trader Joe's bags to hold customer purchases (Dawson, 2015). The store displayed an exterior sign using "familiar" red lettering in conjunction with a nautical mural depicting a sea turtle, and the islander theme continued in the store's interior (Dawson, 2015). The store offered over 1,000 Trader Joe's products, at substantially inflated prices, including perishable goods such as frozen meals (Graham, 2016), and it employed US workers to secure the goods.

Hallatt's Decision

As the trial drew closer, Mike Hallatt still believed his stance was supported by the US statute of the First Sale Doctrine, which gave a lawful purchaser the right to resale a legitimate product (Focarino, 2016). Hundreds of Trader Joe's products, including frozen items, were sold on Amazon by other small gray marketers and Amazon itself, yet Trader Joe's was not pursuing legal action against them (Kessler, 2014). Hallatt was simply buying and reselling the products,

Volume 13, Winter 2020 88 too. Trader Joe's continued to base its legal argument on the Lanham Act. Could the company successfully convince jury members that Hallatt's importing activity was truly harmful to Trader Joe's? Hallatt netted approximately $52,000 annually from the Pirate Joe's operation (Dawson, 2015), and he needed $250,000 for legal fees to continue the fight. He would need a crowdfunding campaign to secure the funds (Holpuch, 2017), but the outcome of such an approach was uncertain at best. Hallatt had two options: (1) he could elect to go to trial, or (2) he could attempt to settle out of court. What course of action should Hallatt take?

Question

A.Identify & discuss the essential benefit, core product, and enhanced product of Pirate Joe's.

B.How did the existence of Pirate Joe's threaten the brand equity of Trader Joe's in relation to the 5 dimensions of brand equity? Discuss in detail.  (can you please explain in-depth I'm trying to broaden my knowledge thanks!)