In this article, our trade mark lawyers discuss what brand owners can do to protect the image and exclusivity of their brand when it is used to promote refurbished and upcycled products.
Contents:
- What are the risks for trade mark owners if third parties refurbish or upcycle their products?
- How can I identify third parties that are upcycling or refurbishing my products?
- Can a third party use my trade mark to advertise or promote refurbished goods?
- How can I tell if a third party is using my trade mark correctly in their advertising?
- Can I take legal action against someone who is upcycling or refurbishing products without permission?
- Exceptions and liability for trade mark infringement/ passing off
- What are my options if I need to take legal action?
- Can I stop the sale of refurbished or upcycled goods that use my trade mark if they don't meet my company’s standards?
- How do I differentiate between legitimate refurbished goods and counterfeit items?
- How can I use contracts to restrict the refurbishment of my products?
- Summary
What are the risks for trade mark owners if third parties refurbish or upcycle their products?
If a third party uses your branded products in goods of an inferior quality or standard, there is a risk that the public will associate those inferior goods with your original brand and your reputation and goodwill may suffer as a result. The quality of such goods is often uncertain and this could result in a loss of consumer confidence in your brand, especially if customers mistakenly believe that the trade mark owner is responsible for the refurbished goods or somehow affiliated or connected to the re-seller’s business. Customers may also experience unsatisfactory customer service and after-sales support after purchasing refurbished products and again, link this back to the original brand owner.
There is also a risk that the market may become saturated with cheaper, refurbished or upcycled products, diverting business and profits away from the brand owner and its authorised distributors and undermining the price of the original branded goods.
How can I identify third parties that are upcycling or refurbishing my products?
You can actively monitor online marketplaces and seller websites to search for sales of your branded goods. You should watch out for things such as sales of your products by businesses that provide limited business or company information, sales at unusually low prices, sellers with negative customer reviews, sales of models that are no longer available or are only available abroad and/or sellers offering a lack of product or after-sales information. You can also conduct keyword searches on the internet and online marketplaces and register on platforms such as the Amazon Brand Registry in order to be notified of unauthorised sales activity in connection with your brand.
You should also keep a list of all your authorised re-sellers and distributors and impose contractual obligations on them and regularly monitor their compliance.
It is important to keep track of third parties so that you can monitor how your brand is being used and retain overall control of your brand identity. If a third party is creating the false impression that they are associated or affiliated with you or selling refurbished goods that will have a negative effect on your brand’s image, you may need to take action against them.
Product markings can assist in tracking the lifecycle of your products and their components, allowing for automated inventory control and distribution monitoring as well as managing and facilitating recalls and identifying unauthorised third-party sales. This can also help you in certifying approved reconditioned or refurbished products and in identifying counterfeits that are not based on your genuine, original branded goods.
Can a third party use my trade mark to advertise or promote refurbished goods?
It is legal for a third party to display the original trade mark on a refurnished item provided that they make it clear that the product has been refurbished and is not new or affiliated with the original brand owner. They must also display the trade mark correctly and ensure that the refurbished product is not of such a quality that it will have a negative impact on the original brand.
How can I tell if a third party is using my trade mark correctly in their advertising?
You should draw up brand guidelines and ensure that these are provided to anyone who will be selling or marketing your branded goods. This includes authorized re-sellers and sellers of refurbished or upcycled goods bearing the original branding. It is also important to keep an up-to-date trade mark portfolio with details of where and when your various trade marks are registered and which goods and services are covered by the registration(s).
Can I take legal action against someone who is upcycling or refurbishing products without permission?
Exhaustion of Rights: The exhaustion of rights principle means that once a brand owner has placed its branded goods on the market in a particular territory or economic area, it cannot then prevent the re-sale or further distribution of those products, provided that certain conditions are met. The UK is no longer a member of the EEA but is still following the EEA’s exhaustion of rights regime.
Exceptions to this rule apply if the goods have been significantly altered or there are ‘legitimate reasons’ as to why the re-sale may damage the original brand’s reputation. This can include where there is a likelihood of confusion with the original branded goods, for example by not clearly using the words ‘used’ or ‘repaired’ or where the reconditioning is so extensive that the product no longer resembles the original in any respect.
Exceptions and liability for trade mark infringement/ passing off
It is always a good idea to register your trade marks in any country in which your goods and services may be provided. This will make it easier to take action for trade mark infringement against a third party that is using your brand in an unauthorised manner, including sellers of recycled or refurbished products that do not meet the legal requirements.
The recent Intellectual Property Enterprise Court decision in AGA Rangemaster Group Limited involved the sale of retrofitted, refurbished AGA Cookers that were fitted with defendant’s own eControl System. The new products looked the same as the original and bore the original AGA branding as well as the “eControl System” brand. AGA argued that this constituted trade mark infringement and that there was a likelihood of confusion with the AGA brand. The defendants cited the exhaustion of right’s principle in their defence.
The judge ruled that there were legitimate reasons for AGA to object to the re-sale, not on the basis of the conversion or refurbishment works or the fact that the products bore the co-branding of both parties, but because the defendant had marketed and sold the refurbished products in a way that could give customers the impression that there was some commercial connection between the defendants and AGA. The defendant’s website referred to the converted goods as “AGA Cookers’, making it appear that the converted products were one of a current range of AGA’s own cookers. The website did not contain any statement to give the impression that there was no commercial connection between the defendant and the brand owner.
This case emphasises that re-sellers must take certain steps to avoid liability for trade mark infringement and/or passing off, including making it clear that the refurbished products are not connected to the original brand owner and that there are no other legitimate reasons for the brand owner to object to the re-sale. Such reasons could include the refurbished products being of such an inferior quality that they will have a negative effect on the reputation of the original brand or, where there is a safety risk or the re-sold goods no longer meet industry standards or regulations.
What are my options if I need to take legal action?
The first step that you can take as a brand owner if you think your rights are being infringed by a re-seller is to seek legal advice. Determining whether refurbishment and re-sale of a brand owner’s products constitutes infringement or passing off or is contrary to the exhaustion of rights principle is a complex issue and one that must be determined on a case-by-case basis.
A trade mark lawyer may recommend that you send a Cease and Desist letter to the re-seller, explaining how their actions constitute infringement or passing off and asking them to cease all infringing activity. This could involve requiring them to add a disclaimer or further information to their website and/or products to clearly explain that they are not connected to the original brand owner or requiring them to amend their packaging. You may also be able to issue a “takedown notice” against the re-seller via the online marketplace that they are using to sell the goods.
If this fails, you may then need to go to the courts to obtain an injunction preventing further sales of the refurbished goods and/or to bring infringement/passing off proceedings against the re-seller.
Can I stop the sale of refurbished or upcycled goods that use my trade mark if they don't meet my company’s standards?
The exhaustion of rights principle means that it is not always possible to prevent the re-sale of refurbished or recycled goods just because they have been altered or don’t meet the rigorous quality standards of your original brand. Customers generally expect re-sold goods to be somewhat inferior to the original products.
However, you should regularly monitor the quality of any refurbished goods sold by third parties to ensure that they are so low quality that they may have a negative effect on your brand image. You should also ensure that they are not being marketed in a manner that may suggest a link or commercial connection with your company.
If you want to impose more rigorous standards on sales of refurbished goods, you may want to set up your own dedicated business arm for the sale of refurbished or second-hand items or partner with select re-sale sites. Brands such as Apple, Amazon and eBay have dedicated platforms and channels for the sale of refurbished products that are certified to meet certain standards. They may have different tiers or gradings for different certifications of goods, i.e. ‘excellent’, ‘very good’ or ‘fair’. Certain stores also offer refurbished goods, which have been inspected, tested and repaired by qualified technicians before being offered for sale.
The more prestigious your brand is, the more likely it is that you will be able to impose more rigorous standards on re-sellers and take action against them if they do not comply with them.
For example, if you only sell your branded goods through exclusive distributors and impose strict conditions as to the nature and quality of their sales environment, customer service, marketing activities and presentation of the brand and products to the public, you may be able to establish legitimate reasons to oppose the re-sale of your goods in other, less exclusive ways.
Outside of the legal arena, commercial ways in which brand owners can limit re-sales of their products include increasing the production of in-demand products, imposing contractual conditions into sales contracts and terms and conditions and limiting the number of purchases by individual consumers. For example, you could stipulate in your terms and conditions of sale that your products must not be displayed alongside those of inferior quality and that any re-sale must be accompanied by information stating how the products were refurbished or changed and that there is no commercial affiliation or connection with the brand owner. Other possible steps include designing packaging for some products such as ink cartridges, that cannot be re-used or re-filled or copied without infringing the original patent. You could also introduce differential pricing to try to maximise your revenue across different customer groups.
How do I differentiate between legitimate refurbished goods and counterfeit items?
Whereas the sale of refurbished and upcycled goods may be legal, provided that certain steps are taken not to cause confusion or to tarnish the original brand; the sale of counterfeit goods is illegal and prohibited. Counterfeit goods are fake products that are made to look and seem like the original but are in fact unauthorised copies and are usually of inferior quality and sold at heavily discounted prices, often through fake websites purporting to be owned by, or connected to, the true brand owner.
Although refurbished or upcycled goods may also be sold at a discount and be less reliable or of inferior quality than the original product, unlike counterfeiters, the vendors of such goods will normally take deliberate steps to inform the public that the goods have been refurbished and that they are not affiliated with the original brand owner, in order to avoid liability. Counterfeiters are looking to exploit any potential for confusion and deliberately give the impression that they are selling the original branded product.
A grey area may however arise where the refurbishment or repair is so extensive as to create a new product; this may, in certain circumstances, be deemed to be a counterfeit and/or to infringe the original brand owner’s trade mark.
You will need to vet your vendors and have an approved vendors/re-sellers list. You should also make a list of any other re-sellers of which you are aware, that are transparent in their labelling and marketing. Any other sales made purportedly under your brand should be carefully investigated and samples purchased where possible, to ascertain whether the goods are genuine.
How can I use contracts to restrict the refurbishment of my products?
Provided you have sufficient protections in place, then allowing the re-manufacture and sale of refurbished goods can be beneficial for you as the brand owner, providing additional revenue sources and increased profit margins.
One thing you can do to ensure that you have watertight distribution and other supply chain agreements in place. These should be drawn up by a lawyer to make sure that they contain adequate protections and are legally enforceable.
You should ensure that your distributors and authorised re-sellers comply with your rules and policies governing the use of your trade marks and branding. Selective distribution networks can help to preserve your brand’s integrity and image, although care must be taken to ensure that your distribution agreements and sales terms do not fall foul of competition law. Any requirements and restrictions must have a legitimate objective and be proportionate and objective and not applied in a discriminatory fashion. Legitimate clauses may impose obligations on the re-seller or a licensee or distributor to:
- apply consistent quality criteria in relation to the selection of retail outlets and marketplaces for the re-sale of your branded goods;
- comply with brand and trade mark usage guidelines;
- comply with minimum advertised prices;
- comply with product inspection, quality control and audit requirements and handling and storage guidelines;
- comply with labelling and notice and disclaimer requirements;
- comply with product tracking and inventory requirements;
- co-operate with consumer safety and product re-call obligations;
- honour any manufacturer’s warranty;
- comply with customer service and after-sales policies and complaints procedures;
- report any product damage, theft, loss or knowledge of unauthorised re-sellers.
Re-seller contracts can also impose certification requirements, such as obliging the re-manufacturer to pay a certification fee to the brand-owner in return for being certified as an authorised re-seller or refurbisher. This can help raise the image of both the brand owner and the re-seller and build customer trust.
Penalties for breach of these terms are enforceable through ordinary contract law and dispute resolution procedures but the brand owner could also impose sanctions such as loss of the distributor’s exclusivity.
Summary
The market for refurbished and upcycled goods is booming. Indeed, brand owners can benefit from the refurbishment and re-sale of their products in terms of additional profits as well as raising their profile as a company that supports sustainable consumption.
There are associated risks involved to your brand and you will need to mitigate against these in order to protect your brand image and the value of your goodwill. This will include having properly drafted agreements in place, as well as taking steps to register and enforce your intellectual property rights, where necessary. Talk to our experienced lawyers to see what steps you can take to protect your brand against dilution or tarnishment caused by the unregulated use of your brand in respect of refurbished or upcycled products.
