The future of brand exhaustion is still unclear for brands after Brexit

The UK’s withdrawal from the European Union has brought about a series of legal and procedural developments – and still imminent changes – which are expected to have a significant impact on the functioning of fashion brands and luxury product groups. Among the key legal principles which the new post-Brexit reality is still being decided by UK lawmakers is the issue of trademark exhaustion – or in other words, limiting the ability of a trademark holder to exercise control over a product bearing a trademark once it releases – or authorizes the release of – that product on the market.

A fairly rare issue, brand exhaustion (better known as the First Sale Doctrine in the United States) has been cited in a range of fashion and luxury-focused cases in light of the rise in power. of the secondary market. Earlier this year, for example, the Crepslocker dealer pushed back the since trademark case that Chanel filed against it, arguing that Chanel had “no proper basis” for its objections to Crepslocker’s sale of Chanel products. authentic and to the use of the Chanel trademarks, because its “rights in the goods have been exhausted by the sale made in its authorized points of sale in the United Kingdom or in the EU”. The issue has also been raised in an interesting case concerning the Ferrari Testarossa brand, and in a number of cases focusing on the distribution of high-end cosmetics and perfumes in the EU. (In the United States, the first-sale doctrine has recently been used as a defense against trademark cases by Chanel, Nike, and iPhone accessories maker OtterBox, among others.)

Under EU law, trademark rights are considered exhausted when a product is placed on the market by the trademark owner (or an authorized agent) anywhere in the European Economic Area, an approach which allows the free movement of goods between EU member states. With the UK having left the EU, it “has the opportunity to decide on its future regime for the exhaustion of intellectual property rights,” said the UK Intellectual Property Office (“UKIPO”) in a released statement. in June.

As UKIPO stated earlier this year, the issue of depletion is “vitally important” because it “underpins parallel trade” – or trade in gray market products (that is, i.e. genuine branded products obtained in one market (i.e. country or economic zone) which are then imported into another and sold). At present, the pre-Brexit rule that the importation of goods into the UK that were originally sold in EU countries is still in effect, meaning that trademark holders whose goods have been placed on the market in the EU cannot prevent their subsequent importation. in the UK and sold there. At the same time, however, products bearing a trademark cannot be imported into the EU from the UK without the consent of the rights holder. “The effect of this is that right holders can prevent goods that have been placed on the market in the UK from being imported into the European Economic Area at the same time,” according to Bristows LLP lawyers Jeremy Blum and Jake Palmer.

To date, the UK government has said it has no preference on the issue of what trademark exhaustion regime to adopt in the future. – with four main avenues raised: (1) the continuation of the current regime at EU level; (2) a national regime in which exhaustion would occur after the goods were first offered by the rights holder (or authorized party) in the United Kingdom; (3) a mixed regime under which the UK could apply different exhaustion standards for different types of IP goods, sectors and / or doctrines; and (4) an international regime in which exhaustion in the UK would occur as soon as the goods are placed on the market anywhere in the world by the rights holder (or authorized party).

Following a consultation period this summer, it is understood that most rights holders are opposed to the implementation of an international system, which would see trademark rights run out in the UK once that a product is marketed anywhere else in the world, thus, largely limiting the ability of rights holders to largely prevent parallel importation. More likely is the continuation of the current EU-wide system, or what is known as the unilateral or UK + regime.

Reflecting on UK options after Brexit, Emily Roberts of Burges Salmon LLP says there is a good chance the country will continue to observe the current system, which would mean “no change in the position on parallel imports “. This option, she asserts, “could be the least expensive for companies dependent on the European Economic Area for the supply of goods and raw materials, although parallel exports from the United Kingdom to the European Economic Area may be prohibited, with a corresponding impact on prices. . It would also allow rights holders to avoid any ‘change in their business models’ that would result from adopting any of the other regimes.

Blum and Palmer echo this, stating that they expect the future trademark exhaustion regime “to look like what it seems most rights holders prefer: a continuation of the current regime with a fallback position of national exhaustion, potentially with bilateral extensions in the event that the United Kingdom accepts trade agreements with other countries. Nevertheless, they warn those who are waiting for a decision on the grounds that “this government has not always acted in the interests of companies”.

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