How can sustainability and IP rightsholders' interests be reconciled in second-hand goods sales in Europe?

To meet consumers’ expectations around sustainability and responsible purchasing, more alternatives to buying new goods are emerging. For example, consumers can purchase goods made from reused or recycled materials. While this is a positive development that aligns with legislative initiatives to keep goods, their components and materials in circulation for as long as possible, it raises questions about the protection of intellectual property (IP) rights.

Exhaustion of trade marks

In the EU and the UK, trade mark owners cannot oppose the resale of goods protected by their trade marks once they have been placed on the market by them or with their consent. The trade mark in relation to those goods is considered to be "exhausted".

The purpose of this rule is to allow the free movement of goods. In the EU and the European Economic Area (EEA), once goods have been placed on the market by the trade mark proprietor or with their consent, the right is considered exhausted. Post-Brexit, the UK has an asymmetric exhaustion regime. This means that goods placed on the market in the UK are no longer considered exhausted in the EU or EEA, but goods placed on the EU or EEA market continue to be exhausted in the UK.

Legitimate reasons

At first glance, the IP exhaustion rule implies that the third-party resale of branded second-hand goods lawfully placed on the market does not require the rightsholder's consent. However, the principle of exhaustion is not absolute and does not apply where there are "legitimate reasons" for the trade mark proprietor to oppose further commercialisation.

This is particularly the case where the condition of the goods is changed or impaired. The extent to which any modifications to branded second-hand goods provide a trade mark proprietor with legitimate reasons to object to further commercialisation is not always clear.

Repairs and refurbishment

Second-hand goods can wear out over time, meaning that they might need to be repaired or refurbished before being put back on the market. Although EU case law in this area is still limited, some national decisions are emerging.

Notably, in France, the Paris First Instance Court recently found in a judgment on 17 May that “the protection conferred by trade mark law must not lead to the prohibition of the legitimate market in second-hand goods, taking into account the need for maintenance and repair inherent in the passage of time”.

Likewise, in the UK, the Intellectual Property Enterprise Court (IPEC) recently confirmed in a trade mark and copyright infringement claim brought by range-cooker manufacturer Aga that, when considering whether there are legitimate reasons, a fair balance must be struck between the trade mark proprietor's interests and the interests of others such as the original purchaser and those who deal with the goods in the aftermarket.

However, in certain circumstances, refurbishment might alter the original configuration of the goods, which could give rise to legitimate reasons to object to their further commercialisation. For instance, in France, the Paris First Instance Court held that the replacement of damaged foams of a genuine second-hand "Togo" sofa, the fabric of which included the “Ligne Roset” trade mark, infringed that trade mark. According to the court, this was because the cover and the foam had been assembled using a unique technique that gave the sofa its appearance and comfort.

In the UK, the IPEC, in the recent Aga judgment, confirmed that the mere refurbishment of products does not give a trade mark holder a legitimate reason to object, but if it causes serious damage to the reputation of the trade mark then that can amount to a legitimate reason to object. In particular, any replacement parts should not be of "such inferior quality as to seriously damage the reputation" of the trade mark, but there is a "degree of latitude" as to their nature. The court recognises a need for flexibility and the parts do not have to be sourced from the brand owner.

Upcycling

Upcycling techniques are increasingly applied to second-hand goods. They can take several forms – for instance, the original goods might be deconstructed to create new goods from all or part of their components or they might be transformed into something new by adding to them third-party components such as scraps of fabric or jewellery. These techniques can also present IP issues.

For instance, upcycled goods can include elements from existing goods that are protected by trade marks to make them more attractive. Brand owners might have legitimate reasons to oppose the resale of such goods in the EU and UK. This might be harder to establish if the reseller is marketing the upcycled goods in a transparent manner; for example, pointing out that the brand owner did not participate in the upcycling operation and the seller has no connection to the brand owner.

However, even if these precautions were taken, the brand owners might, in certain circumstances, be successful on the grounds of "passing off", if it could be shown that the reseller sought to follow in their wake to take advantage of their reputation brand. Future case law on these points is likely to emerge if upcycling trends continue.

Advertising second-hand goods

As a general rule, where trade marked goods have been put on the market by the rightsholder or with their consent, resellers of branded second-hand goods can use the trade mark to inform the public of the resale. Resellers are also entitled to use the trade mark to inform the public that they have carried out repairs and maintenance of the goods or to advertise that they specialise in the sale or repair and maintenance of these goods.

This is, however, provided that the mark is not used in a way that may create the impression that there is a commercial connection between the reseller and the trade mark proprietor. This includes ensuring that an impression is not given that suggests that the reseller's business is affiliated with the trade mark proprietor's distribution network or that there is a special relationship between both undertakings.

In addition, with regard to prestige goods, the Court of Justice of the EU (CJEU) reminded in a decision in 1997 that the reseller must not act unfairly in relation to the legitimate interests of the trade mark owner and must endeavour to prevent their advertising from affecting the value of the trade mark by detracting from the prestigious image of the goods in question.

In line with this, the Spanish Supreme Court subsequently emphasised that one of the functions of a trade mark is to encapsulate prestige. Therefore, damage to the trade mark's reputation constitutes a valid reason for an exception to the principle of trade mark exhaustion. The Spanish Supreme Court outlined several factors that can negatively affect a trade mark's reputation, such as restricted product range, limited stock, absence of new products, refusal to accept product returns, and displaying products alongside those of inferior quality.

Repackaging, de-branding, rebranding and co-branding

Sellers of repaired, refurbished or upcycled goods sometimes repackage, de-brand, rebrand and co-brand in an attempt to avoid trade mark infringement. However, this is not without risk.

For example, in the case of repackaging, the CJEU has previously held that the essential function of a trade mark – to guarantee trade origin – means that "the consumer or end user can be certain that a trade-marked product…has not been subject at a previous stage of marketing to interference by a third party, without the authorisation of the trade mark owner, in such a way as to affect the original condition of the product".

Where the reseller, without the consent of a trade mark proprietor, removes the trade mark from the goods (de-branding) and replaces it with the reseller’s name (such that the trade mark of the manufacturer is entirely concealed), the trade mark proprietor is entitled to prevent the reseller from using their trade mark to advertise the resale. This is because damage is caused to the essential function of the trade mark and consumers are prevented from distinguishing between goods originating from the proprietor and those from the reseller or other third parties.

In the UK, the IPEC held that it is foreseeable that there will be maintenance, servicing, updating or even conversion works in the case of long-lived products, in this case Aga cookers. It was held not to be unreasonable that the person carrying out the work might want to put a label on the product (co-brand), not to obscure of diminish the original brand but to indicate the person's work on the product. This in itself is not enough to amount to a legitimate reason to object to further commercialisation, as, in this scenario, the balancing required by the exhaustion provisions comes down in favour of those dealing with the product in the aftermarket.

There has been a significant amount of case law on this issue in the context of disputes between manufacturers of pharmaceutical products and parallel importers, which could also be relevant in the context of second-hand goods.

Practical steps for brand owners and resellers

It is virtually impossible for brand owners to monitor all potentially objectionable sales and counterfeiting activity due to the sheer volume and whack-a-mole nature of such activity. However, there are various proactive steps brand owners can take. For example, brand owners should register their key trade marks, including brand names and stylised logos, in their key markets, as well as the countries where their products are manufactured and known counterfeiting hotspots.

Utilising a trade mark watching service to monitor potential third parties that may be involved in producing or selling counterfeit products is also advisable. The UK Intellectual Property Office has acknowledged that influencers who promote counterfeit products on social media are a key area of concern and therefore monitoring social media is crucial. Likewise, making use of tools on e-commerce marketplaces is also recommended.

On the other hand, resellers should keep detailed records of purchases of second-hand goods to establish which exhaustion regime applies. If possible, records of previous purchases should also be obtained. A risk assessment of each contemplated refurbishment, repair or upcycling operation should be undertaken to assess whether the authorisation of the brand owner is necessary. Resellers should also carefully draft their marketing and sales materials so as not to infer a commercial connection with the brand owner where one does not exist.

Osborne Clarke comment

This is a complex and developing area of law that will likely see further judicial consideration as consumer demand for more sustainable shopping grows. While the principle of exhaustion is straightforward, determining whether a trade mark holder has legitimate reasons to object to the further commercialisation of their products is less clear cut.

Determining whether a repair, refurbishment or upcycling operation to branded goods changes or impairs its original condition and amounts to an IP right infringement requires a case-by-case analysis. Brand owners need to be prepared to take action in appropriate cases and second-hand goods resellers must ensure that their actions will not have a detrimental effect on brand owner's trade mark or wrongly give the impression of a commercial connection.