Exhaustion of rights - The Rangemaster trade mark case

In this article, we discuss the recent UK trade mark case of AGA Rangemaster Group Ltd v UK Innovations Group Ltd and Michael Patrick McGinley which dealt with the concept of exhaustion of intellectual property rights.

Exhaustion of rights

Exhaustion of rights in the context of trade marks means that a registered trade mark is not infringed through the use of that trade mark by a third party on goods that were put on the market by the trade mark owner or with the trade mark owner’s consent.

Say what!

Sorry, that was quite a mouthful! Here’s a better explanation: if a trader sells goods that bear its trade mark, it cannot later stop the buyer of those goods, or anyone that comes into lawful possession of the goods, from re-selling the goods under the original trade mark. Why? Because the right is said to be exhausted, there is an implied authorisation from the trade mark owner that the goods can be distributed and resold.

Exceptions

There are exceptions to every rule. UK and South African law provides that the exhaustion of rights principle does not apply in cases where there are legitimate reasons for opposing further dealings in the goods. For example, where alterations have been made to the goods which result in a significant change in the condition of the original goods bearing the trade mark. This alone may not be enough - a holistic evaluation is needed, including how the goods are marketed and sold to consumers.

Put differently

In simple terms, if a trader sells goods that bears its trade mark, it cannot later stop the buyer of those goods from selling the goods under the original trade mark. But, if the buyer of the goods has altered the goods, resulting in a significant change in the condition of the original goods then the trader can stop further dealings. Why? Because the alteration might infringe the trade mark owner’s rights, which have not been exhausted.

Feeling exhausted? You’re not alone!

AGA

*Picture credit

Most people probably know what an AGA is, even if you can’t bring yourself to spend the money it takes to get one of these in your kitchen. The AGA is a well-known cooker/stove and the company AGA has various trade mark registrations in the UK covering the name AGA, the AGA logo and appearance of the AGA products.

Refurbishing

The defendant, UK Innovations, refurbished AGA cookers by fitting an electronic control system which enabled the conversion of AGA cookers to run on electricity instead of traditional fossil fuels. The external appearance of the product was left untouched, except for the replacement of the temperature gauge with an ‘eControl system’ badge.

Trade mark infringement

AGA sued UK Innovations for trade mark infringement under various sections of the UK Trade Marks Act. Section 12 of the UK Trade Marks Act (the exhaustion of rights defence) provides that a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market under that trade mark by the trade mark owner or with their consent. A trade mark owner may only object to the use of the trade mark, or further dealings in the goods bearing the trade mark, where there are legitimate reasons for doing so.

An example of a legitimate reason for objecting to the use of a trade mark where the goods have been put on the market by the trade mark owner or with their consent, is where the condition of the goods has been altered to such an extent that further dealings might seriously damage the reputation vesting in the trade mark, or perhaps create the impression that there is a commercial connection between the parties, when one does not exist.

The judgment

The court made the point that certain goods like cookers have a long life span. It is foreseeable that goods that are around for a long time will be maintained, serviced, updated, refurbished or even converted after-market. It is not unreasonable that the person who does the further work applies a label to indicate their involvement, as opposed to obscure or diminish the original trade mark. Customers in such circumstances are likely to be well aware that they are buying a second-hand product, so the converted product would not be deemed as emanating from AGA or reflect badly on AGA, as the trade mark owner.

However, the court found that the reference by UK Innovations to eControl AGA when marketing and advertising on its website would be perceived by consumers as a brand name and creating a connection with AGA. As UK Innovations did nothing to dispel this impression that it had created, AGA had a legitimate reason to object to the use of the trade marks and the court found that trade mark infringement had occurred.

Commentary

Mark Webster, the author of an article that appeared in IPKat, suggests that ‘providers of refurbished or upcycled goods may wish to consider including a clear disclaimer on their website and any relevant marketing communications to make it clear that there is no commercial connection between the original manufacturer of the goods at issue.’

South Africa

Here in the southern tip of Africa, the exhaustion of rights principle forms part of our trade mark law.

In the familiar case of Television Radio Centre Sony Kabushiki Kaisha t/a Sony Corporation, Sony sued Television Radio Centre for trade mark infringement in the court of first instance, as Television Radio Centre imported into South Africa video cassette recorders which had been manufactured for use in the UK, but were no compatible for use in South Africa.

To allow the video cassette recorders to be used in South Africa, Television Radio Centre had caused the adaptation of the video cassette recorders in such a way that materially altered their nature after they left the hands of the trade mark owner, Sony.

The court held that these were no longer genuine goods. Relevant considerations to determine if the goods are genuine include the nature of the goods and the nature, purpose and extent of the alterations. The court said that ‘this issue is essentially a practical one and each case must be decided on its own facts in the light of ordinary business practice and the reasonable expectations of consumers.’

This case goes all the way back to 1987. Just saying!

*Reviewed by Gaelyn Scott, Head of ENS’ Intellectual Property practice.

Michael Marki

Candidate Legal Practitioner | Intellectual Property

mmarki@ENSafrica.com