Remanufacturing: How do intellectual property rights hinder the reprocessing of products?

Remanufacturing: How to define it and what its legal challenges are. Read more

What are intellectual property rights? Intellectual property rights serve to legally secure and protect intellectual property in the commercial field and exist in the form of trademarks, patents, or designs, among others. They protect against imitation by others.

Rights holders and remanufacturers pursue different interests

So what does the interaction of the players in the remanufacturing cycle look like? The rights holders (regularly the producers) are initially interested in selling their own protected products as new. Increasingly, however, they are also engaging in remanufacturing themselves and using their know-how to reprocess their own products and thus occupy this market themselves. To secure this business area, intellectual property rights, which can be enforced with injunctions and damages claims, come into consideration.

Exclusive remanufacturers, on the other hand, aim to reprocess products from other companies. They then bring these to the market "as good as new". They must be aware that these products may be protected. Therefore, it is very important for remanufacturers not to infringe on third-party rights to avoid legal vulnerability.

More IP rights lead to stronger conflicts

This conflict potential has been growing for years. The number of so-called IP rights (short for intellectual property), which include patents, utility models, trademarks and designs, is increasing. There are no legal regulations or uniform solutions for the area of remanufacturing yet. Rather, an assessment is regularly made based on the circumstances of the individual case and the interpretation of indefinite legal terms.

1. Principle of exhaustion as a limit to remanufacturing

Fundamental to the permissibility of remanufacturing in terms of intellectual property rights is the so-called principle of exhaustion: If a protected product is placed on the market by the rights holder or with their consent by a third party in the European Economic Area (EEA), the respective exclusive rights to this specific item also end.

As a result, the general public can freely dispose of this item and use it within the limits of the respective protection right. However, this exhaustion principle cannot be invoked by someone who creates an entirely "new product" through the changes made.

In patent law, it depends on whether the product is only "used as intended" by the action. In trademark law, the product marked with the trademark must not be changed in its "nature" and must not contradict the "legitimate interests" of the trademark owner. In design law, the "overall impression" and "identity" of the product must not be changed.

2. Patents and remanufacturing

Patents are property rights for technical inventions. Typical examples in the area of remanufacturing where there is often conflict potential with existing patents are, for example, brakes or clutch gears.

In addition, certain reprocessing procedures can also be protected by a patent. We will not go into further detail here; it is sufficient to state that such protected procedures may only be used by the patent holder (or by third parties under a licence).

Remanufacturing must be distinguished from (new) manufacturing

If patent-protected products are placed on the market with the consent of the patent holder, they may be used by the general public extensively as intended. The intended use in patent law generally includes the repair of an item.

The limit of this intended use is, however, the "new manufacture" of the item, as the (new) manufacturing right always lies with the patent holder. The business field of remanufacturing thus lies precisely on this patent law boundary.

Remanufacturers must always ask themselves whether the reprocessing process still preserves the "identity" of the item that has already been placed on the market. What is still "permissible intended use" so that the exhaustion principle applies? When does this amount to "impermissible new manufacture"?

I. Is the identity still preserved? Intended use vs. new manufacture

The most recent German Supreme Court decision in this context is the decision “Scheibenbremse II” (BGH, judgment of 8 Nov. 2022 - X ZR 10/20). However, not all case constellations are yet legally covered, leading to significant uncertainties in practice. With the decision Scheibenbremse II, it is at least established that the replacement of mere wear parts – i.e. parts that have no other effect according to the patent teachings than to wear out – is regularly classified as intended use.

In detail, the BGH decides the distinction question at a first stage based on whether the so-called opinion of the relevant public (“Verkehrsauffassung”)  classifies the reprocessing process as intended use or as new manufacture. This (i.e. the examination at a first stage) applies at least when the patented product is identical to the items available on the market.

If this opinion of the relevant public concludes that the action to be assessed amounts to new manufacture because the measure extends the natural lifespan of the product, the examination is already concluded at this point in most cases according to current legal status. This means that the reprocessing is likely to be assessed as patent infringement.

It is obvious that the reference to the "natural lifespan" does not really fit the area of remanufacturing or rather fundamentally contradicts it. If the reprocessing is classified by the opinion of the relevant public (if such a perception can exist at all) as a usual maintenance measure because such measures are usually expected during the natural lifespan of the product, it is generally considered intended use.

At a second stage of examination, however, it must be further asked whether the opinion of the relevant public may be "wrong" because the action actually goes so far that the essential invention idea disclosed in the patent is realised again. The originally intended use can thus, in individual cases, still constitute (patent law impermissible) new manufacture. A balance of interests determines whether the reprocessing process realises the technical or economic advantages of the invention again, i.e. whether the technical effects of the invention are reflected in the exchanged part and thus constitute patent infringement.

This question represents the "core patent law examination". Especially here, many detailed questions are still open and depend on assessments. What is the "key feature" of the invention? And does the part to be exchanged play a decisive (new) role in this "key feature" or is the part a mere passive object?

II. Special case group: assembly from different items

A particular problem arises in cases where parts from different non-functional products are combined in such a way that a functional product is created at the end of the reprocessing process, which is offered as qualitatively equivalent and thus competes directly with products from the original manufacturer.

This case group is particularly relevant for remanufacturing, as the used parts, the so-called "cores", often come from different original products. The BGH last addressed this case group in detail in the 1950s, so a new fundamental decision is urgently needed.

Until then, the remanufacturing industry faces the legal challenge that these assembled items strictly speaking no longer have "identity" with the previously lawfully placed products. Since this identity is essential for the application of the exhaustion principle (see above), it must be convincingly argued why this is still applicable. Otherwise, patent infringement would almost always have to be affirmed. In our opinion, such arguments can primarily be found in the disclosed technical teachings of the respective patent specification.

3. Trademarks and remanufacturing

In addition to protecting the inventions themselves, producers want to protect the association of the products with their company. They achieve this by marking their products with their trademarks. A trademark assigns the product or service to a specific company ("origin function") and also stands for a certain quality of that product ("quality function"). Therefore, rights holders have an interest in ensuring that their trademark only appears on their own (original) products.

As a trademark holder, they have the exclusive right to offer the goods and services registered for the trademark under their sign. This right can only no longer be enforced if they themselves have placed a product marked with their trademark on the market in the EEA.

This exhaustion ends, however, where the use of the trademark by a third party contradicts the "legitimate interests" of the trademark holder. Such legitimate interests are particularly present when the condition of the goods is changed or deteriorated after they have been placed on the market. The core question is therefore whether reprocessing is to be classified as such a change or deterioration.

III. Reprocessing = change or deterioration in terms of trademark law?

A change in terms of trademark law is assumed when the goods are altered in their characteristic properties, i.e. in their nature. The term nature includes properties of the goods whose alteration contradicts the origin and the derived quality function of the trademark. The standard is not whether this change is visible but the expectation of the public, the practices of the affected economic sector, and the nature of the respective goods.

In the case of a repair, it is crucial whether the goods have been so heavily altered that a new identity and thus a new product has been created. This includes changes in the purpose of use, the construction principle, the functionality, or the appearance. For example, trademark infringement was affirmed in a case where the product had more functions after repair than the deliberately throttled original product and thus represented an improvement from the consumer's perspective.

In addition to repairs, the refill area is interesting from a trademark law perspective in the context of reprocessing. Here, third parties refill products originally filled by the manufacturer and placed on the market with their own products after they have been used up. This also constitutes a change to the original goods, which at least carries the risk of impairing the origin and/or quality function as well as the risk of exploiting or impairing the distinctiveness or reputation of the trademark.

The relevance of remanufacturing is shown by a current referral question to the ECJ. The ECJ has to decide whether the trademark holder can prohibit the sale of goods under their trademark if these goods have been repaired by other, unauthorised persons.

Furthermore, the ECJ has been asked to comment on whether the exhaustion principle does not apply if the trademark is used in a way that does not create the impression of a connection between the trademark holder and the third party. The ECJ's decision will be crucial for core questions of the trademark law exhaustion principle in connection with the repair of goods.

Until a contrary decision by the ECJ, remanufacturers should ensure that it is clearly recognisable to the consumer that the item originates from an (original) company but has been externally reprocessed. The use of an identical or similar sign must not create the impression that there is an economic connection between them and the trademark holder, that the company belongs to the trademark holder's distribution network, or that there is any other special relationship between the two companies.

IV. Remanufacturing from the perspective of trademark holders

Trademark holders should also pay attention to the topic of remanufacturing, as they have exclusive rights only for the registered goods and services. Most existing trademarks are only registered for the "original products" and, for example, not for the service of reprocessing or the reprocessed products themselves. Therefore, trademark holders are advised to review their trademark portfolio to see if it is still strategically aligned or if it needs some additions or adjustments.

4. Design rights and remanufacturing

Design rights protect the visual appearance of a product. Accordingly, the assessment of design infringement depends on whether the product in question creates the same overall impression as the protected design (which is registered in the design register).

Unlike patent law, the replacement or repair of parts of a product protected by design rights usually does not pose any or only poses minor problems if these parts are not visible in the protected design or are not visible during intended use or due to construction.

However, if visible parts of a product are involved, design law problems can arise in remanufacturing if the boundary to new manufacture is crossed and the exhaustion principle no longer applies.

This would be the case, for example, if essential parts of the product are completely replaced or changed to such an extent during repair that the design-protected product loses its original identity. The replacement of individual parts is generally possible within these limits. However, a disassembly into the smallest parts followed by reassembly into the design-protected product would be problematic, similar to patent law.

If the spare or repair part needed to repair a product is itself protected by design rights, the reproduction of this spare part can again constitute design infringement. This constellation is addressed by the "repair clauses" in the laws relevant to design protection, which are quite controversial.

In German law, the repair clause is found in § 40a DesignG. Simplified, this means that there is no design protection for individual parts used for repair purposes (i.e. restoring the original appearance). The design holder cannot therefore block the market for such spare and repair parts with their design rights. However, the repair clause does not protect modifications or "beautifications" of the affected parts.

However, caution is advised here: The legal situation can vary in different countries, even globally. Whether "repair clauses" exist in the respective country, how they are applied, and what restrictions may need to be considered depend on the individual case.

In Germany, for example, the "repair clause" only applies to designs registered since 2 December 2020. This means that many previously registered German design rights do not fall under the repair clause and can still prevent the manufacture and offering of spare and repair parts. Furthermore, the other requirements of § 40a para. 2 DesignG must be observed (information of consumers).

Conclusion: Remanufacturers must analyse the protection rights situation in advance

Intellectual property rights do not inherently stand in the way of remanufacturing. However, they can be relevant obstacles in individual cases. It is therefore all the more important for companies that engage in (or want to engage in) remanufacturing to thoroughly analyse the protection rights situation in advance. Once they have identified the relevant protection rights, they must then assess them based on the specific circumstances of the individual case and the interpretation of a variety of indefinite legal terms.

Key questions are:

• Does the reprocessing of a product still correspond to the intended use of the previously placed product?
• Has the nature of the product, which was placed on the market under a trademark, been changed?
• Has the overall impression of a design and its identity been preserved?

It is also not yet conclusively clarified to what extent the protection rights holder, e.g. the patent holder, has contractual freedom at the first sale to restrict subsequent remanufacturing of their products. Here, contractual private autonomy and the exhaustion principle collide.

Our experts are happy to assist you in the IP law assessment of your remanufacturing project or in examining whether the actions of your competitors infringe on your intellectual property rights.