The United Kingdom’s withdrawal from the European Union has brought with it an array of legal and procedural developments – and still-impending changes – that stand to have a significant impact on the workings of fashion brands and luxury goods groups. Among the critical legal tenets whose new post-Brexit reality is still being decided by lawmakers in the UK is the issue of trademark exhaustion – or in other words, the limitation of a trademark holder’s ability to exercise control over a trademark-bearing product once it releases – or authorizes the release of – that product into the market.
Hardly an uncommon issue, trademark exhaustion (better known as the First Sale Doctrine in the U.S.) has been argued in an array of fashion and luxury-centric cases, particularly in light of the relatively recent rise of the $30 billion-plus secondary market. Earlier this year, for instance, reseller Crepslocker pushed back in the since-settled trademark case that Chanel filed against it, arguing that Chanel lacked “any proper basis” for its objections to Crepslocker’s sale of authentic Chanel goods and use of the Chanel trademarks, as its “rights in the goods have been exhausted by the consented sale from its authorized outlets in the UK or the EU.” The issue was also raised in an interesting case over Ferrari’s Testarossa trademark, and a number of cases centering on the distribution of high-end cosmetics and fragrances in the EU. (In the U.S., the First Sale doctrine has been recently raised as a defense to trademark cases waged by Chanel, Nike, and iPhone accessories maker OtterBox, among others.)
In accordance with EU law, trademark rights are considered exhausted when a product is released into the market by the trademark holder (or an authorized agent) anywhere in the European Economic Area, an approach that enables the free flow of goods among the EU member states. With the UK leaving left the EU, it “has an opportunity to decide its future regime for the exhaustion of intellectual property rights,” the UK Intellectual Property Office (“UKIPO”) asserted in a release in June.
As the UKIPO stated earlier this year, the issue of exhaustion is “vitally” important as it “underpins parallel trade” – or the trade of gray market goods (i.e., authentic branded goods obtained from one market (i.e., a country or economic area) that are subsequently imported into another and sold). As of now, the pre-Brexit rule that importation of goods into the UK that were first sold in EU countries is still in play, which means that trademark holders whose goods were put on the market in the EU cannot prevent them from subsequently being imported into the UK and sold there. At the same time, though, trademark-bearing products cannot be imported into the EU from the UK without the consent of the rights holder. “The effect of this is that rights holders can prevent goods that were first put on the market in the UK from being parallel imported into the European Economic Area,” according to Bristows LLP attorneys Jeremy Blum and Jake Palmer.
To date, the UK government has stated that it does not have a preference in terms of which Among the critical legal tenets whose new post-Brexit reality is still being decided by lawmakers in the UK is the issue of trademark exhaustion regime to adopt going forward – with four key avenues being raised: (1) a continuation of the current EU-wide regime; (2) a national regime in which exhaustion would occur once goods are first offered up by the rights holder (or authorized party) in the UK; (3) a mixed regime under which the UK could apply different exhaustion standards for different types of goods, sectors and/or intellectual property doctrines; and (4) an international regime in which exhaustion in the UK would occur as soon as goods are put 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 exhausted in the UK once a product is put into the market anywhere else in the world, thereby, largely limiting the ability of rights holders to broadly prevent parallel importation. More likely is the continuation of the current EU-wide system, or what is being referred to as the unilateral or UK+ regime.
Reflecting on the UK’s options post-Brexit, Burges Salmon LLP’s Emily Roberts states that there is a good chance that the country will continue to observe the current system, which would mean “no change to the position on parallel imports.” This option, she asserts, “could be the least costly for businesses reliant on the European Economic Area for the supply of goods and raw materials, although parallel exports from the UK to the European Economic Area could be prohibited, with a corresponding impact on prices.” It would also enable rights holders to avoid any “changes to their business models” that would come as a result of the adoption of any of the other regimes.
Blum and Palmer echo this, stating that they expect the future trademark exhaustion regime “to resemble what it appears most rights holders favor: a continuation of the current regime with a fallback position of national exhaustion, potentially with bilateral extensions in the event the UK agrees trade deals with other countries.” Nonetheless, they caution those awaiting a determination on the basis that “this government has not always acted in the interests of business.”