When Christa Cole became general counsel of California Tan Inc. three years ago, she had one main job: stop Web sites from selling the company's products.
A Los Angeles-based manufacturer of tanning lotions, the company tries to maintain an upscale image and price by selling exclusively through tanning salons, spas and major hotel resort chains.
But in a new twist on the perennial problem, California Tan has seen its brand damaged by a slew of discount Web retailers that sell at razor thin margins close to the wholesale price.
"The products are being what we call 'diverted' onto the Internet, which hurts sales and hurts our business," Cole said. "The indoor tanning salon owner will not want to carry our product if it's accessible and can be purchased anywhere."
In simpler times, companies would scour shops and flea markets in search of their merchandise that got distributed to the wrong channels. These days, they're scanning the Internet looking for their products on Web sites.
Selling discounted brand name products isn't necessarily illegal, though distributors may have broken their contracts with retailers by either intentionally or inadvertently supplying to discounters.
However, under a recent court ruling, California Tan has been able to strike back by claiming the Web retailers infringed on its copyrights by displaying its trademarked images on their sites in order to sell products.
It has filed about a dozen copyright infringement lawsuits against Web sites selling the company's products. That effort has stopped 64 Web sites from carrying its product lines and it currently is investigating 14 others.
While the Internet has allowed small and midsize retailers to expand far beyond their local borders, it also has provided an opening for a new breed of Web-based distributors who get their hands on brand-name products.
These companies, often with a handful of employees and rented warehouse space, are able to ship directly to consumers all over the world.
"Now, you have people in China and Japan asking for this stuff. You're selling it overseas," said Anthony Miano, executive partner at S.G. Hart & Associates, a brand equity consulting company based in Richfield, Conn.
"The traditional diverters potentially only sold within a geographic area, say the Northeast," Miano said. "Now, you can buy something at a low price in Tallahassee and sell it at a high price in New York. You have access to a whole new market."
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