Pirate Joe’s might be in hot water again

At the very least, you have to admire the simplicity of Michael Hallatt’s business model.

Hallatt, a former designer, baker, programmer, carpenter, and filmmaker has had a jones for Trader Joe’s food ever since he spent a year in Emeryville, California, living on frozen burritos and tamales. (“I ended up falling in love with someone, and our daughter was basically conceived on tamales,” he told the website Priceonomics in 2014.) When the family moved to Vancouver, he found himself missing his Joe’s fix and drove back to a TJ store across the border in Bellingham, Washington. There, says Priceonomics, he encountered other disgruntled, Joe’s-craving fellow Canadians—and the big idea: buy Trader Joe’s food in the U.S., bring it back to Canada, and sell it.

The result was a feisty little retail outlet called Pirate Joe’s, which describes itself this way: “Pirate Joe’s is an unaffiliated unauthorized re-seller of Trader Joe’s products …. We stock what we are asked to stock by Trader Joe’s lovers who don’t always have the time (or a car or a passport) to head south to Bellingham (the nearest Trader Joe’s). We buy retail from Trader Joe’s then import everything legally and add Canadian compliant ingredient and nutrition facts labels. We have to pay the rent and the help (and the label supplier), so prices are about 30-40 percent higher than at Trader Joe’s. We also import other brands Canadians are duped out of.”

Put it that way, and Pirate Joe’s is kind of the retail equivalent of fan fiction, a tribute as much as a business. Who could possibly object?

Well, yes, Trader Joe’s. Joe’s sent cease-and-desist letters. It banned Hallatt from its stores, where by 2013 he had spent more than $350,000. Undeterred, Hallatt donned disguises, drove further afield, and eventually hired shoppers to get his goods for him.

Eventually, in 2013, Trader Joe’s sued, citing trademark infringement and false advertising, among other charges. The case was thrown out in December of that year. Trader Joe’s appealed and got part of it reinstated last week.

We’ll get to the legal ins and outs in a moment, but first let’s pause and think about how weird the situation is. In general, as Kai Raustiala and Chris Sprigman pointed out in the Freakonomics blog at the time the original suit was filed, you can do what you like with physical objects you buy. “PJ’s is reselling TJ’s popular merchandise,” explain Raustiala and Sprigman. “The ordinary rule of property is that once you purchase an item, it’s yours to use as you like. Or, to resell. This concept is the basis of a great American (and Canadian) institution: the yard sale. And more recently, eBay.

“Now, reselling on a larger scale is also possible. Sometimes resellers are authorized by the original manufacturer—as in the case of authorized Apple computer resellers like Peachmac. Sometimes they aren’t, as in the case of Pirate Joe’s. But our rules of real property (that is, tangible property, or as The Economist once called it, ‘things you can drop on your foot’) permit reselling as a general matter.”

So the question is how Pirate Joe’s hurts Trader Joe’s. TJ’s complaint argued that Pirate Joe’s was creating the false impression that it was an authorized outlet for Trader Joe’s goods. “For example,” TJ’s lawyers wrote, “Defendants have placed a sandwich board outside of their retail store containing the phrase ‘We Sell Trader Joe’s!’ A sticker bearing the phrase ‘I [heart] TJ’ is affixed to the back of Defendants’ cash register. Defendants also provide customers with shopping bags from Trader Joe’s, which prominently display the TRADER JOE’S trademark.”

The U.S. district court that first heard the case was not persuaded that there was damage to Trader Joe’s in Washington State, and it ruled that there was insufficient evidence of harm to American commerce to allow a suit that applied U.S. law outside the nation’s borders.

It was that last decision that the Ninth Circuit Court of Appeals just reversed. It doesn’t mean that Trader Joe’s has won, just that a trial can go forward.

It’s already clear that Trader Joe’s plans to argue that its brand has to do with the exclusive nature of its goods, its pricing, and the security of its supply chain. (And, let’s be honest, it’s hard to trust a supply chain that consists of visiting a retail outlet, buying food, some of it perishable, and driving it across the border.) These are distinctions that may not make a great difference to all consumer products, but can be extremely important to food companies. In-N-Out Burger, for instance, sued the delivery company DoorDash last year for buying and delivering its food without authorization—a similar case that has yet to be decided.

“There is nothing implausible about the concern that Trader Joe’s will suffer a tarnished reputation and resultant monetary harm in the United States from contaminated goods sold in Canada,” writes the Ninth Circuit. “Incidents of food-born illness regularly make international news, and Trader Joe’s alleges that it is aware of at least one customer who became sick after consuming food sold by Pirate Joe’s. Courts have held that reputational harm to an American plaintiff may constitute ‘some effect’ on American commerce.”

This promises to be an interesting, possibly important case. We’ll keep you posted.