Shaky bridge between exhaustion of intellectual property rights and the refurbishing of electronic products

In the wake of the enactment of the French act No. 2020-105 of 10 February 2020 on the fight against waste and the circular economy, the French authorities notified the European Commission, on 21 January 2021, of a decree proposal relating to the conditions of use of this term by operators. It follows from this proposal that smartphones or other electronic products could only be associated with this term if they are: (i) second-hand products; (ii) have undergone tests on all their functionalities in order to establish that they meet the legal safety requirements and the use that the consumer may legitimately expect, as well as, if necessary, one or more interventions in order to restore their functionalities; and (iii) all personal data collected or stored in connection with a previous use or a previous user have been deleted in compliance with the provisions of Regulation (EU) No. 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and of Law No. 78-17 of 6 January 1978 on information technology, data files and civil liberties.

As stated by the French government "the development of the market of refurbishing products, which preserves the environment, must be done by guaranteeing the rights of consumers".

In addition to consumer protection, the distribution of refurbished electronic goods also raises questions about the potential intellectual property (IP) rights of the manufacturers and/or distributors of the genuine good and, in particular, about the need to obtain an authorization. 

From a legal standpoint, it follows, from French law and in line with EU law, that once a good protected by an IP right has been put lawfully on the market within the EU (or the EEA), that is to say by the right holder or with his/her consent, the rights conferred by that IP right in relation to the commercial exploitation of said good are exhausted. In other words, the IP right holder can no longer invoke his/her IP right to prevent the further resale, rental or other forms of commercial exploitation of the good at stake by third parties.

French law, in line with EU law, somewhat qualifies the above exhaustion general rule by providing for certain exceptions. 
More specifically, from a trademark law perspective, the owner of a trademark may oppose further commercial exploitation of its genuine goods lawfully placed on the EU market, where there exist "legitimate reasons", relating in particular to "the subsequent modification or alteration of the condition of the products". Therefore, can the operator who refurbishes a branded smartphone lawfully placed on the EU market be opposed that the trademark right was not finally exhausted on the grounds that the state of the good has been altered, so that he/she needs to obtain the approval from the relevant right holder? Let's take as an example the case where one or more parts of the said second-hand smartphone have been replaced with non-genuine parts in order to have its technical functionalities restored; If the new parts present a safety issue, it is very likely that consumers will be led to believe that the trademark owner is responsible for it. Therefore, in such case, it appears legitimate for the trademark owner to challenge the exhaustion of the trademark to protect her/his trademark reputation. 

In reality, it will be necessary to assess on a case-by-case basis whether any of the interventions involved in the refurbishing process is likely to result in a modification or alteration of the state of the good in question. 

In any event, operators who refurbish goods for resale while keeping their trademark will be expected to respect the guarantee of identity of origin function of the mark at stake. This implies that the final consumer must be able to clearly identify the origin of the refurbished good (specific information obligations, use of new packaging, etc.).

As far as patents are concerned, to date, French case law seems to draw a line between recycling, repair and reconstruction: (i) recycling, in the sense of reusing the good that is no longer protected for other purposes, could be admitted; (ii) a repair limited to minor interventions, such as cleaning, disassembly and reassembly, to restore the functionalities of the good could be lawful; and, (iii) however, changing an essential component of the good or reproducing one of its components protected by a patent could be qualified as infringement.

The matter of exhaustion is further rendered more complicated by the fact that the exceptions to the exhaustion rule are not the same depending on whether one is dealing with literary and artistic property or industrial property law. This being said, as to copyright and design law, as long as the interventions on the electronic good do not result in infringing the integrity of the good, these rights –  where they exist – should be exhausted and no authorisation should be sought from their holder. This must also be checked on a case-by-case basis.

In view of this, in order to market a refurbished electronic good, it is necessary to :

• First, ensure that the good in question has been lawfully placed on the EU (or EEA) market by the IP right owner or with his consent.
• Verify that the operations to be carried out to test and/or restore the functionality of the electronic good are not likely to impede the exhaustion of the IP rights in question, and, if so, to take the necessary measures (request for authorization from the relevant right holders, removal of the trademark, modification of the packaging, etc.).

Why this matters?
With more and more so-called "refurbished" electronic products being sold in the EU and EEA markets and new platforms designed to sell them, there seems to be a need for clear and harmonised regulation and guidelines to provide certainty and security to distributors of refurbished goods. Indeed, the reuse and/or recycling of electronic goods (in particular smartphones) is crucial to foster the circular economy, one of the pillars being the sustainable consumption, in order to reduce the impact on the environment.