Out-Law Analysis | 03 Apr 2020 | 9:48 am | 9 min. read
Acting within both the spirit and the letter of the government's coronavirus measures, working within the boundaries of competition law, and respecting intellectual property rights will help UK retailers navigate legal and reputational risks that they face.
Recent government guidance that non-essential bricks and mortar shops must close, with certain exceptions, is now backed by statutory powers in the Coronavirus Act. The measures raise a number of practical considerations for retailers, including around which shops provide essential goods or services and, where shops have essential and non-essential components, how this is addressed by the retailer, according to Samantha Livesey and Felicity Parsons of Pinsent Masons, the law firm behind Out-Law.
It might not always be clear to retailers how the measures apply to their particular operations, but it is important to act in the spirit of the directions as not doing so risks reputational damage and to be aware of obligations under health and safety law too.
Retailers should note that the government's guidelines on businesses that must close refers to 'essentiality' in the context of the types of premises operated rather than the types of products sold within them. The Association of Convenience Stores has recently criticised an over-zealous enforcement and reading of guidelines, which has led some convenience stores to believe they can only sell so-called 'essential' items stocked.
The guidance makes clear that "all retail" should close, but it contains a long list of exceptions. The following retailers are exempt from the direction to close:
Shopping centres should be considering their own tenant mix so as to establish next steps. This might include whether and how to close, how to service tenants providing essential services on a reduced-service basis, and how to facilitate tenants choosing to remain open, each in line with lease requirements as applicable.
Partner, Head of Commercial
Retailers should consider issuing letters to those employees travelling to work so they can demonstrate the need to be travelling
Online retail and postal and delivery services are still being encouraged to run as normal currently. However, there remain issues for online retailers to consider in respect of government and public health guidelines. Work that can only be done on-premises – such as in warehouses and distribution centres – should be carried out in line with the social distancing measures being directed. This includes the requirement that people maintain a two-metre distance from others, and that they wash their hands with soap and water, or hand sanitiser gel if soap and water is not available, often.
Workers are still allowed to go into bricks and mortar stores to pick and pack for delivery of online retail sales if that is where the stock is located.
Where you have a workforce continuing to travel to work at your premises, then you must follow the government guidelines and ensure it is only those employees who cannot physically undertake their work from home, that these persons are not suffering from the virus, show no symptoms of it and are not self-isolating. Hand washing/sanitising should occur on entry and exit and regularly during the day, social distancing requirements should be followed.
For restaurants, cafes and other food and drink establishments, these should either be closed or set up as takeaways – the government has changed planning laws to enable this change in purpose. There should be no seating provided where food is being served, or where no food is provided seating should be configured for appropriate social distancing.
The position in relation to workplace canteens is slightly different. The government guidance states: "Where there are no practical alternatives, other workplace canteens can remain open to provide food for their staff and/or provide a space for breaks. However, where possible, staff should be encouraged to bring their own food, and distributors should move to takeaway. Measures should be taken to minimise the number of people in the canteen / break space at any one given time, for example by using a rota."
As non-essential travel restrictions tighten and in light of police powers to stop individuals to check the reason for their journey, retailers should consider issuing letters to those employees travelling to work so they can demonstrate the need to be travelling.
In the UK, some competition rules have been temporarily slackened to help businesses in the food retail market to continue to ensure security of supply to consumers during the public health crisis, as Alan Davis and Tadeusz Gielas of Pinsent Masons explain.
Specifically, an Order has been introduced into law that exempts certain cooperation between grocery chain suppliers and logistics services providers for this purpose, where otherwise the cooperation might fall foul of rules on collusion and other anti-competitive behaviour set out in the Competition Act 1998.
Qualifying agreements must be notified to the secretary of state within 14 days of the Order coming into force for already implemented arrangements; or otherwise within 14 days of being made, to benefit from the exemption.
Partner, Head of Competition, EU & Trade
Agreements exempted by the Order are protected from private litigation claims for perceived competition law breaches – the CMA's guidance does not confer such protection.
The CMA's guidance requires businesses to self-assess whether their coordinated action with others is of the kind that the regulator will apply a relaxed approach to enforcement on. The coordinated action does not need to be notified to the CMA, but it must fit within the boundaries of the criteria it has set out.
According to the authority, coordinated action would need to be appropriate and necessary in order to avoid a shortage, or ensure security, of supply; clearly in the public interest; contribute to the benefit or wellbeing of consumers; deal with critical issues that arise as a result of the Covid-19 pandemic; and last no longer than is necessary to deal with these critical issues.
Businesses exchanging commercially sensitive information on future pricing or business strategies, exclude smaller rivals from any efforts to cooperate, or raising prices above normal competitive levels will risk enforcement action from the CMA. Likewise, the Order does not exempt the direct sharing of prices or costs information among businesses – such conduct may still infringe competition law.
Arrangements that do fall within the scope of the new Order will have more legal certainty than those that are subject to the CMA’s approach. For example, agreements exempted by the Order are protected from private litigation claims for perceived competition law breaches – the CMA's guidance does not confer such protection.
Further issues for retailers to consider at this time include those arising in the world of intellectual property (IP), according to Florian Traub and Anna Harley of Pinsent Masons.
To address the short supply of ‘essential’ products including toilet paper or flour, caused by the Covid-19 crisis, some retailers may consider alternative sources of supply to source and obtain these products, including by parallel importation. Parallel imports from within the European Economic Area are generally permissible and cannot be prevented by trade mark owners save in limited circumstances.
To-date, there has been no relaxation of the rules relating to the exhaustion of rights in relation to parallel imports to meet a supply shortage where the relevant shortfall is met by a parallel imported product deriving from outside the EEA. Parallel imports from outside the EEA without rights holders' permission will therefore still constitute trade mark infringement.
De-branding parallel imported products will not completely remove any infringement risk. A 2018 ruling by the Court of Justice of the EU (CJEU) in a case involving vehicle manufacturer Mitsubishi provided that even in the event that a third party removes all signs identical to the relevant mark and affixes other signs, that conduct may still amount to trade mark infringement in certain circumstances.
While the facts of the Mitsubishi case are relatively unique, it does remain open to a trade mark owner to object on this basis and there is some risk that a UK court may apply and follow the Mitsubishi case law even in light of a shortage of supply of ‘essential products’.
De-branding parallel imported products will not completely remove any infringement risk
The Covid-19 crisis is also causing disruption to the filing of IP rights before intellectual property offices around the world, including in the UK.
For its part, the UK Intellectual Property Office (UKIPO) has declared that Tuesday 24 March and all subsequent days until further notice are to be considered to be ‘interrupted days’. This means that all deadlines for trade marks and designs, amongst other registered rights, falling on or after 24 March will be extended until the UKIPO notifies the end of this period.
However, to ensure that any planned product or line launches can proceed as planned once the hiatus period ends, it is recommended that retailers meet original deadlines where possible. This is also the approach suggested by the UKIPO.
Looking further ahead, it is as yet unclear whether there will be any Brexit-related impact on deadlines as the impact of the Covid-19 disrupts preparations for the end of the transition period at the end of the year.
Samantha Livesey and Felicity Parsons of Pinsent Masons explain that the government has put in place a number of measures that may temporarily reduce or suspend overheads for retailers.
Up until 30 June 2020, no business will automatically forfeit their lease and be forced out for missing a payment. However, this is not a rental holiday. Commercial tenants are still liable for rent – they are only protected from eviction if they are unable to pay due to the impact of the Covid-19 crisis.
For retailers in rented premises, this should help ease pressure while premises are possibly closed to the public. This break for retailers could have gone further: at present, landlords will still be able to claim for forfeiture following 30 June, although the government may extend this period, and non-collection of rent will not be treated as a waiver of the right to pursue the same. Landlords may still exercise their right of forfeiture for reasons other than non-payment of rent during the protected period.
Banks and other lenders are also following FCA guidance around granting a payment holiday to customers for an initial period of three months where difficulties arise as a result of Covid-19. Such lenders are to ensure that there is no additional fee or charge other than additional interest as a result of such payment holiday. However, at this stage the measure does not look to be focused on business customers who are able to apply for the government’s business interruption loan as an alternative.
Other reliefs available to retailers include support for businesses through deferring VAT payments for three months – although this will still have to be paid at a later date – as well as the introduction of a business rates holiday for retail, hospitality and leisure businesses for the 2020 to 2021 tax year.
Cash grants have also been made available for retail, hospitality, and leisure businesses with a rateable value of under £51,000 – the upper limit varies depending on the rateable value of the property but may be up to £25,000, and there is the possibility of furloughing employees that are not required during this period, although employment law advice should be obtained in such instances.
Retailers should consider the insurances held, whether notification in any instances is required, and the terms of such insurance policies if they are to be relied on. Terms might, for example, require prohibition by law for policies to be triggered, but in other cases coverage might apply where government guidance suggests certain operations of retailers should stop.