Significant High Court ruling on exhaustion of rights in the case of refurbished and customised products, but to what extent can the reasoning be applied more generally?
What's the issue?
- The High Court (IPEC) has issued an important ruling on the extent to which trade mark owners can rely on their trade mark rights to object to their products being altered by third parties once those products have been put on the market - an issue that will only grow in importance as upcycling, customisation, refurbishment and other activities become more common.
- The Claimant, Aga Rangemaster, alleged that the marketing and sale of authentic AGA cookers - which had been refurbished and converted from fossil to electric fuel by the first Defendant using its eControl System - infringed the Claimant's AGA word, logo and image trade mark registrations. While the Claimant did not object to the first Defendant supplying eControl Systems to be fitted to AGA Cookers in the hands of customers, it did object to the sale of complete retrofitted cookers.
- Under normal circumstances, UK trade mark owners cannot rely on their trade mark rights to object to further dealings in their goods once those goods have legitimately been put on the market in the UK/EEA - their rights are 'exhausted'. However, this is not the case where the trade mark owner has "legitimate reasons" to object to further dealings in the goods (for example, where the condition of the goods has been changed or impaired).
- There is plenty of case law on the application of the legitimate reasons proviso to repackaged pharmaceuticals, but relatively little as regards other scenarios. The test boils down to a balancing exercise, weighing the interests of the trade mark owner against the interests of others such as the purchaser and those operating in the aftermarket.
What did the Court rule?
- The mere fact of the refurbishment works did not give the Claimant legitimate reasons to object to the first Defendant's activities. While "…there may come a point when the extent of the works done will mean that the resulting product is no longer a refurbished or renovated version of the original product but is, instead, a new and different product..." that was not the case here. Where (as here) a product is long lived and there is a significant aftermarket, consumers would not necessarily expect replacement parts to be of the same quality as the original components. There must be some degree of latitude on the nature of replacement parts.
- The Claimant's allegation that it had legitimate reasons to object because the replacement parts used by the first Defendant were of inferior quality and unsafe, significantly damaging the Claimant's reputation, could not be decided on the evidence and given the limitations of a two-day trial. However, the Court was not convinced that customers buying what they would know is a second-hand AGA would necessarily associate any quality issues with the Claimant or its marks. Again, they would not necessarily expect all of the components to be of the same quality as the original components.
- Likewise, the conversion works themselves did not give rise to legitimate reasons. If the Claimant did not object to the first Defendant supplying eControl Systems to be fitted to AGA Cookers in the hands of customers, it is hard to see why it should object to the first Defendant's actions in fitting these systems to second hand cookers itself and reselling them.
- However, the Claimant did have legitimate reasons to object to the way in which the first Defendant had marketed and sold the refurbished and converted products, including references on its website to "eControl Agas", "Controllable Aga Cookers", its "…decades of Aga experience and conversions" and numerous possible "Aga Colours". Taken as a whole, those statements were likely to give customers the impression that the Claimant was somehow involved in the alteration works, when it was not. Information on invoices only reinforced this misleading impression. It was incumbent on the first Defendant to dispel any misleading impression; there was no document which clearly corrected the impression created by the website. The statements on the website therefore constituted infringement.
- An issue that arose after trial was whether the use by the first Defendant of its eControl Systems badge on the altered AGAs gave the Claimant legitimate reasons to object (on the basis of possible post-sale confusion). The Court rejected this argument, holding that people would be more likely to view the badge as descriptive of the fact that the cooker has been fitted with an eControl System than an indication that it is co-branded. Relevant factors included that the badge was positioned quite separately from the AGA badge, the altered AGAs were sold on the aftermarket, AGAs are long lived products and customers would expect them to be refurbished. The Court was of the view that it is not unreasonable – and may even be preferable - for those undertaking refurbishment works to put some sort of label on the product. The balancing exercise comes down in favour of those operating in the aftermarket.
What else?
- A subsidiary claim that the first Defendant had infringed the copyright in the Claimant's control panel also failed. While the design of the control panel was original and a substantial part of it had been copied by the first Defendant, section 51 of the Copyright Designs and Patents Act 1988 acted to preclude infringement. The control panel was not an artistic work (at least not as that term is understood in English law) and – in the absence of argument from the parties on the point – the Court would apply section 51 on its wording. There is an interesting discussion on the interplay between UK and EU copyright law.
- Applying the recent Supreme Court ruling in Lifestyle v Ahmed on accessory liability, the judge held that the second Defendant (a director – and the person in day-to-day control of - the first Defendant) was not liable as a joint tortfeasor. He did not have the requisite knowledge of the essential facts relating to the Claimant's infringement case, or of the facts which meant that there were legitimate reasons. There is a useful discussion of what knowledge can be inferred for this purpose.
What does this mean for you?
- The decision is a (rare) example of the application of the legitimate reasons proviso to the aftermarket for products. It illustrates the Court's attempt to strike a fair balance between the interests of trade mark owners in not having their marks or reputation tarnished by altered (and sub-standard) products and the interests of those in the aftermarket to prolong the life of – and customise - products.
- While those operating in the aftermarket might take comfort from the fact that the works undertaken by the first Defendant did not of themselves give rise to legitimate reasons, this might not always be the case. Each case is very much decided on its own facts and it is not always easy to extrapolate. Where a product is not second hand or the market is different to that in issue in this case, there might be less latitude in terms of the nature and quality of replacement and additional parts (as well as the ability of those in the aftermarket to affix their trade marks to altered products). Where alterations are aesthetic, again, there might be higher expectations in terms of the quality of those alterations. Likewise, there is likely to come a point where changes are so extensive that the original product no longer remains, potentially giving rise to legitimate reasons.
- The Court was not able to decide a particularly significant point in this case – whether the refurbished parts were of such inferior quality (or unsafe) as to seriously damage the reputation of the Claimant's marks. Had the Claimant been able to make out its case on this, the outcome would have been very different. This emphasises the importance of Claimants submitting independent evidence on the point and ensuring that there is sufficient time at trial for it to be properly tested.
- The case is also interesting in terms of the Court's comments on copyright infringement, joint tortfeasorship, and various areas of trade mark law (including the section 11 defences and the role of corrective statements). It also illustrates the increasing focus on past-sale confusion arguments.
- These sorts of cases are never easy for Claimants, not least because of the potential for negative PR consequences to flow. With increasing opportunity and demand for upcycled, customised, and refurbished products, we are likely to see other brand owners having to walk the delicate line between defending their brand reputation and not being seen to discourage the aftermarket in their products.
