McIntosh, Parasound vs Bogus Resellers

The new year got off to a litigious start as the audio industry's seemingly endless battle against the gray market continued with a pair of federal lawsuits.

On January 5, Parasound Products, Inc. and McIntosh Laboratory, Inc. filed suit against a host of alleged unauthorized resellers in US District Court for Northern California. The suits pit the plaintiffs against several New Jersey– and New York–based retailers and websites accused of unauthorized trading in the companies' products.

Included in the list of defendants in one filing are, Craftwood Custom Home Theater, and one individual, Mark Herman. The other list includes as principal defendants Uncle's Stereo of New York and New Jersey, and several business all operating out of the same address in Carteret, NJ: Downtown Audio LLC; Home Theater by the Sea, Inc.;; NY Wholesale AudioVideo; Reliable AudioVideo; and four individuals—Vivek Prabhakar, Carlos De Silva, Nathaniel Gurien, and Andrew Kent, also known as "Andrew Katz." They are accused of trademark infringement and "unlawful, unfair, and fraudulent business acts and practices" in violation of "common law rights" as well as of a federal unauthorized trademark use statute called the Lanham Act and several provisions in the California Business and Professional Code. Unauthorized resale of trademarked products is likely to cause "confusion, deception, and mistake among members of the public and the trade," the lawsuits claim.

Defendants displayed pictures of trademarked goods on their websites, and were repeatedly warned in writing by plaintiffs' attorneys to cease and desist, according to the briefs. The defendants allegedly complied briefly after receiving written warnings, only to repost offerings of McIntosh and Parasound products a few weeks later. San Francisco–based Parasound and Binghamton, NY–based McIntosh are seeking an injunction to end the unauthorized reselling and recompense for damage. San Francisco law firm Smith Reed LLP represents the plaintiffs.

Manufacturers spend an enormous amount of time and money building solid dealer networks and training sales people and installers. These efforts are undermined by a few unscrupulous characters in the distribution chain who divert goods to inappropriate channels. The manufacturers then have to waste time and money with detective work and legal action to correct the problem. A few months ago, during a short visit I had with him in his San Francisco office, Parasound president Richard Schram (shown above at CES holding his copy of the suit) showed me some of the results of such detective work: photos posted by a fly-by-night dealer. Some of them were Parasound products on display shelves; others were boxed goods in a warehouse. "We think we know where these pictures were taken," Schram mentioned at the time.

The McIntosh/Parasound case is one of many that have been launched against unauthorized Internet dealers. A year prior to this filing, Klipsch Audio Technologies launched one of its own against five online dealers. That case was settled last April. One of the dealers went out of business within two weeks of the lawsuit's filing; the others dropped Klipsch products from their lineups. McIntosh and Parasound hope for similar results, in addition to discouraging other quick-buck artists.