Reselling items online, as simple as it sounds, can put you in some serious trouble.
Take, for example, this incident between Chanel and Fashionphile. The luxury brand, online vintage reseller, Fashionphile, was sued by Chanel in 2014. But what happened?
Well, if you’re planning to resell items online, you might want to read this to the end.
Expert Opinion: Is It Illegal to Resell Items Online?
Merely reselling items online isn’t a crime. The First Sale Doctrine is a legal principle in copyright infringement law that supports this.
According to the First Sale Doctrine, you can resell, lend, or give away a copyrighted item after buying it without infringing on the copyright holder’s rights. This applies to physical copies of copyrighted works, such as books, CDs, and DVDs.
Economically speaking, reselling items online falls within the framework of a free market economy, where buyers and sellers engage in voluntary transactions.
As long as the products sold are legal and genuine, the market determines the price and value of those items.
We can go on and on to explain why reselling items online is legal, from the right to private property to the economic benefits they bring.
But it’s worth noting that there can be exceptions and limitations to the legality of reselling.
Four Laws Regarding Reselling Online
Several laws control the activities of resellers in the US. You can call them complex because each state may interpret them differently.
Here are some of these laws.
1. Intellectual Property Rights
Intellectual property (IP) rights refer to legal protections granted to individuals or entities for their creations or inventions.
These rights encourage innovation, creativity, and the development of new ideas by giving exclusive rights to the creators or owners of intellectual property.
As a reseller, these intellectual property laws affect you:
- Trademark infringement: Selling counterfeit products can lead to trademark infringement claims. For example, selling fake designer handbags with counterfeit logos would be an infringement of the trademark rights of the brand owner.
- Copyright infringement: Reselling copyrighted works without the necessary permissions or licenses can lead to copyright infringement claims. This applies to books, music, movies, software, and artwork. For instance, selling pirated DVDs or unauthorized copies of software would infringe on the copyright owner’s rights.
- Patent infringement: Patents protect inventions and grant exclusive rights to the inventor or patent holder. Reselling such products without obtaining the necessary licenses can lead to patent infringement claims.
2. Consumer Protection Laws
Reselling activities must comply with consumer protection laws at the federal and state levels. They’re a set of regulations designed to safeguard the rights and interests of consumers in their interactions with businesses.
They cover:
- Product descriptions: You must provide accurate and truthful information about the products. Misleading or deceptive product descriptions, false advertising claims, or failure to disclose relevant details can lead to legal consequences. For instance, falsely claiming that a product has features it doesn’t possess would violate these laws.
- Warranties and guarantees: You may be required to comply with warranty provisions provided by the original manufacturer or offer yours. Failing to honor these warranties or misrepresenting warranty terms can result in legal liabilities.
- Pricing and price gouging: Consumer protection laws often regulate pricing practices to prevent price gouging or unfair pricing practices, particularly during emergencies or disasters. For example, charging a higher price for essential goods like food, water, or medical supplies during a crisis may be considered price gouging and is a criminal offense.
3. Sales Tax Requirements
Sales tax requirements refer to business legal obligations to collect and remit sales tax on taxable transactions. The state and local governments impose them on the sales of goods and services.
As a reseller, you may need to collect and remit sales tax on your sales, depending on the specific state and local tax laws.
The obligation to collect sales tax depends on the volume of your sales, your state, and whether you have a physical presence (nexus) in certain jurisdictions.
4. Restricted Items and Regulations
Certain products are subject to specific regulations, restrictions, or licensing requirements. Examples include firearms, alcohol, tobacco products, pharmaceuticals, and copyrighted material.
These restrictions exist for various reasons, such as public safety, health concerns, or to ensure compliance.
Reselling them may require adherence to additional laws and obtaining the necessary permits or licenses. Some of these laws include:
- Licensing: You’ll need specific licenses or permits before reselling items like firearms, alcohol, tobacco products, pharmaceuticals, and certain chemicals.
- Age restrictions: Products, such as alcohol, tobacco, or adult content, are subject to age restrictions. To avoid legal consequences when reselling such products, you must implement age verification systems and adhere to age-related restrictions.
- Safety regulations: Some products have safety regulations and standards that resellers must adhere to. This can include laws related to consumer products, electrical appliances, toys, or recreational equipment. Resellers must ensure that products meet safety standards and carry any necessary certifications or labeling requirements.
- Export controls: Items, including weapons, military equipment, or sensitive technologies, are subject to export control regulations. Only resellers with a license can sell these internationally.
When Does Reselling Become Illegal?
While anyone can resell an item they own, some actions or situations can make it illegal. This includes:
Counterfeit Products
You were probably wondering what happened in the Chanel vs. Fashionphile case. Summarizing the incident, you can say Chanel was suing the reseller for selling counterfeit products.
Although this dragged on for about two years, it was dismissed with prejudice, with the ruling only available to the affected parties.
But here’s the point: selling counterfeit goods, which are unauthorized replicas of trademarked items, is illegal.
It infringes on intellectual property rights (recall the first law) and can lead to legal consequences.
An act like this can also be misleading to the public.
There are several instances of legal actions taken against unauthorized distributors. Consider this lawsuit between Kanye West and Boogie Down Production.
But what exactly is unauthorized distribution?
Unauthorized distribution refers to distributing or selling products without obtaining proper authorization from the rights holder.
These transactions violate contractual agreements, intellectual property rights, or licensing requirements.
Some manufacturers may have agreements with authorized sellers that restrict the resale of their products. You could face legal issues if you violate such agreements by reselling products without authorization.
Restricted Items
Echoing what we said earlier: you’ll need to be an authorized reseller to legally resell products like prescription drugs, firearms, or copyrighted material.
These restrictions exist for several reasons:
- They help regulate and control the sale and distribution of these products, ensuring they’re handled by those who meet standards or criteria.
- They ensure resellers operate within the legal framework set for the particular product or industry.
- Licensing helps protect consumers from harm and ensures the responsible distribution of products.
- They allow authorities to track and monitor the flow of these products in the market.
Price Gouging
During emergencies or natural disasters, some jurisdictions may impose price-gouging laws. These laws restrict sellers from significantly increasing prices on essential goods and services.
Although this doesn’t happen often, violating such laws can result in legal consequences.
Is Reselling a Good Side Hustle?
A reselling business can be a flexible and low-cost side hustle, offering a reasonable profit margin and personal growth.
It provides flexibility if you have other commitments. You can choose when and where to source products, list them for sale, and handle customer inquiries.
Even as a novice, you don’t require much upfront investment to start a resale business. You can start small, resell cheap items, and gradually scale your business.
There are also valuable learning opportunities, from understanding market trends to building negotiation skills.
What’s the Difference Between a Retailer and a Reseller?
While the two terms are often interchangeably used, they differ slightly in meaning. The difference between a retailer and a reseller lies in their roles and the nature of their business operations.
Retailer
A retailer purchases goods or products from manufacturers, distributors, or wholesalers and sells them directly to consumers. They typically operate physical, online stores, or a combination of both.
In retailing, the focus is on the final stage of the supply chain, where they provide products directly to the end consumers.
Retailers often have several products and brands available for customers to choose from.
They are responsible for various aspects such as inventory management, marketing, customer service, and creating a shopping experience.
Reseller
Resellers acquire products from various sources, including other resellers, and then sell them to consumers.
They don’t have their own manufacturing or production capabilities. However, they focus on selling products that already exist in the market.
Unlike retailers, resellers may specialize in certain product categories, niche markets, or specific brands.
Reselling, A Legal Side Hustle
Reselling isn’t illegal. Several principles, like the first sales doctrine, support it. However, you must also be careful not to step on the wrong side of the law.
Avoid reselling fake items under the guise of being original or falsely claiming to partner with a trademark.
Also, remember to check your state or local laws regarding if you need a sales tax id number.
