Protecting your trademarks in the era of upcycling

"Upcycling" is the practice of recycling an object in such a way that the finished product becomes more valuable than the original item. This is an increasingly popular trend, particularly at a time when eco-consciousness is becoming an important issue.

However, when such products are made up of or feature trademarked items and put on the market, do trademark owners have any say with regard to the reintroduction of their trademarks into the market by third parties?

First of all, the principle of exhaustion of a trademark owner's rights must be considered in this situation. Although registering a trademark grants exclusive rights of use associated with certain goods^[1], once these goods are legally purchased by a third party, the trademark owner's rights on the use of  these goods are said to be "exhausted."
Consider, for example, the case of a person who purchases a well-known brand of an enameled Dutch oven and chooses to resell it as is on the Internet. The trademark owner would not be able to restrict the use of the Dutch oven (including reselling it as a product of the brand), since the trademark owner's exclusivity rights were "exhausted" at the time the Dutch oven was first sold.

The theory of exhaustion thus ensures that a trademark owner has no control over the resale of legally acquired products bearing its trademark^[2].

Below, we cover how upcycling is recognized in both Canada and the United Kingdom.

Upcycling in Canada

This principle has been recognized in Canadian case law, having been first applied by the Supreme Court of Canada in 1984 in Consumers Distributing Co. v. Seiko^[3].

The practice of upcycling, however, raises an interesting question – are the modifications to a trademarked product so significant as to create an exception to the principle of exhaustion? A recent Federal Court decision^[4] seems to suggest that this might be the case in certain circumstances.

In H-D U.S.A., LLC v. Varzari, the dispute involved the modification and incorporation of motorcycle parts bearing trademarks owned by Harley-Davidson (H-D U.S.A. LLC) into custom electric bicycles that the defendant, Eli Varzari, built and sold himself under the name "Harley Davidson Willie G Edition." The Court distinguished this situation from a mere resale, and determined that the principle of exhaustion did not apply in this case.

The Court concluded that there was infringement of Harley-Davidson's trademarks, passing off and likely depreciation of goodwill. The Court issued a permanent injunction prohibiting Mr. Varzari from
selling or advertising his electric bicycles, requiring the surrender or destruction of any reproductions of the bicycles or marketing materials, and awarding damages.

Although the Court recognized rights for a trademark owner in an upcycling context, this decision should be contextualized:

• The product being resold is in a category that is highly similar to the products sold by the owner (motorcycles versus electric bikes)
• The products are sold in a manner that appears to suggest an affiliation with the Harley-Davidson brand

However, with this decision, the Federal Court has clarified the scope of the spectrum of protection afforded to brand owners with respect to the resale of goods bearing their trademarks. There is no protection for simple resale without alteration. Protection is at its highest (and allows exclusivity to be maintained) where the new upcycled product incorporating the mark could create a risk of confusion as to its source and thus dilute the trademark.

For situations falling between these two extremes, however, the degree of protection remains less clear and will have to be assessed on a case-by-case basis. That said, it would be wise for brand owners to keep a close eye on how their trademarked goods are being used and upcycled by third parties.

Upcycling in the United Kingdom

 

The exhaustion position in the UK is similar to that of Canada. In most circumstances, trademark rights in a good are said to be exhausted once they have been sold. This applies where the goods are genuine (and so the trademark has been legally applied) and where the trademark owner has consented to the goods being placed on the market.

Despite Brexit, for goods placed on the market in the EU and EEA by a UK trademark owner or with their consent, the trademark will be considered exhausted even in the UK. Unlike Canada, which typically follows the principle of international exhaustion, the UK does not recognise goods placed outside the EU, EEA and UK as exhausting the rights of UK trademark holders.

Similarly to Canada, UK law recognises that alterations to a product may comprise an exception to exhaustion ^[5]. This is particularly true where an alteration amounts to an addition of a component for which the trademark owner has not consented. This exception means that a trademark owner can still object to the further commercialisation of their goods, through an allegation of trademark infringement.

Given that upcycling necessitates the alteration of a good, and that a visible trademark can greatly enhance the prestige and value of an upcycled garment, it will be interesting to see the extent to which trademark owners pursue allegations of infringement under this exception.

However, as in Canada, UK Courts will pay careful attention to the extent of an alteration when considering if the exception applies and views will be formed on a case by case basis. There have already been a number of cases regarding the change of an underlying product and the extent to which exhaustion applies, so this might simply be a matter of adapting interpretation of the existing law to any given new situation. More on the law of exhaustion can be found in our respective article.

The UK is experiencing an increased demand for upcycled clothing, in particular. Applying the logic of the Canadian court to a clothing upcycling context, the upcycling of clothing is going to fall within an identical sector to the products sold by the owner, leading to an increased risk of confusion.

In addition, many brand owners offer upcycling services themselves, leading to an increased likelihood of affiliation with the brand in question. As a result, and providing the UK and Canadian approaches remain aligned, it is likely that the alteration exception will continue to place upcyclers on difficult legal ground, meaning that they will need to exercise caution.

For personalized advice on how best to protect your brand, we invite you to consult with a member of the Gowling WLG trademarks team.