PODCAST: The trade mark pitfalls of refurbished goods, and can AI systems be patented?

Hello and welcome to the Pinsent Masons podcast, where we keep you up to date with the most important developments in global business law every second Tuesday. I'm Matthew Magee and I'm a journalist here at Pinsent Masons. And this week we have a bit of an intellectual property special as we look at the trademark dangers of selling refurbished stuff and examine a UK Supreme Court ruling that could one day mean you can patent some AI systems.

But first, here's some of the business law news from around the world.
UK proposes overhaul of competition laws
NSW becomes first Australian state to regulate digital safety risks in the workplace, and
Tailored rules for AI chat bots would add to Online Safety Act complexity, says one expert.

The UK government has proposed changes to competition law that it hopes will improve the speed, predictability and proportionality of the processes of the regulator, the Competition and Markets Authority, while preserving its operational independence. There are also proposals to enable increased scrutiny of online retailers’ algorithms. A consultation paper signals an intention to better align the regulatory regime with the UK's broader economic priorities. Much of this follows from the government's focus on economic growth and attracting investment, which has been reflected in the authority’s recent focus on enhancing pace, consistency and engagement in its work. A revision is proposed to the decision making structure for the CMA’s merger control work, as well as its work under the markets regime involving statutory market studies and market investigations under the Enterprise Act. Consultation on the competition reforms is open until the 31st of March and the government intends to bring forward legislation as soon as parliamentary time allows.

The NSW Government has passed new legislation in response to growing concerns about safety risks associated with algorithmic and automated decision making in the workplace, creating major compliance implications for businesses in the Australian state. Digital work systems are defined to include any algorithm, artificial intelligence, automation or online platform, reflecting the increasing reliance on digitally assisted work allocation, monitoring and performance management in the workplace. The amendments create a primary duty of care for businesses to ensure that the health and safety of workers is not put at risk from the use of digital work systems. The amendments include considerations of certain risks that those running businesses must consider when using a digital work system, including excessive workloads for workers, the use of excessive or unreasonable metrics to assess performance, excessive or unreasonable monitoring or surveillance of workers, and discriminatory practices or decision making. The new law will allow permit holders, including union representatives, to require reasonable assistance to access and inspect digital work systems suspected of breaching obligations.

Bringing AI chat bots within the scope of UK’s Online Safety Act would be likely to require tailored rules that would add further complexity to legislation that is already too prescriptive, a technology law expert has said. Lauro Fava of Pinsent Masons was commenting after the UK government confirmed its intention to table an amendment to the Crime and Policing Bill to allow the government to require chat bots not currently in scope of the Online Safety Act to protect their users from illegal content. Fava said the complexity of the Online Safety Act means that it may not be straightforward to simply add AI chat bots to its scope. Its rules are designed specifically for social media and search services. It is likely that a tailored set of rules would need to be created. He said that laws that focus on the objectives platforms are expected to achieve, rather than prescribing complex and detailed rules, are much less prone to being outpaced by technological advancements.

It is fairly uncontroversial at this point to say that we make, consume and throw away too much stuff. The production isn't good for our dwindling store of resources and the waste isn't good for our environment. So increasing numbers of people are looking to buy refurbished or repurposed second hand goods, everything from mobile phones to clothes to cookers, sometimes quite fancy expensive cookers like those that Aga make. It's objected when a company called UK Innovation started selling refurbished Aga cookers, some of them refitted to use electricity as fuel rather than the more traditional oil or gas, and calling them EControl Aga cookers. The Court of Appeal in England and Wales rejected some of Aga's claims but did rule that there was trademark infringement because consumers would think there was a commercial connection between the refurbed cookers and Aga. So is trademark law a big hurdle to the success of the circular economy, we wondered? London based intellectual property expert Emily Swithenbank is here to reassure us that no it's not. She said that the court was at pains to point out that it didn't want to get in the way of a very human impulse to reduce waste.

Emily Swithenbank: What people want, they want goods that are sustainable and goods that have been repurposed and you're not relying upon single use products anymore. So of course it means that manufacturers want to be engaging in the circular economy, but also not just for the reasons of everybody wants to have a sustainability agenda, but it's good for marketing. It's good for sales to be engaging in this way. Relying upon third parties’ branding and brand owners’ own marketing of their products to help then further help them in their reselling of their goods.

Matthew Magee: There are risks though. A brand has intrinsic value and trademark law protects that value and the investment that has gone into generating it.

Emily: Reselling products that have already been sold by manufacturers and using the original manufacturers’ trademark to do so is fine. You can refer to the relevant brand when you sell that product if you're using it in a descriptive way. The issues arise when there has been an overuse of that original brand when you come to resell your product and market that product, or those goods are changed in some way. The brand owner can stop that onward trade and the use of the trademark if one of three situations arises. Firstly, where the reworking has somehow had a detrimental effect on the actual condition of the product. Secondly, where those dealings could actually damage the trademark owner's reputation so it has a negative impact on that brand value. And then finally, where those dealings somehow suggest that there is a commercial connection with the original brand owner. If one of those scenarios applies, the brand owner can actually object to the use of the trademark and can claim trademark infringement.

Matthew: Aga wasn't happy and said that UK Innovations was trying to exploit Aga's brand. It tried to stop the use of the Aga name in any way and failed. But where it was successful was in arguing that the way UK Innovations had used its branding would make consumers think there was a connection between the companies, or that Aga had done the conversion work. And this broke trademark law.

Emily: The Aga brand was used by UK Innovations prominently in their marketing, so not simply as a descriptor of what the product is or was, but prominent use of the brand, as well as language such as "buy an eControl Aga." So this suggestion that the product actually had a name which was an eControl Aga. Aga said that that marketing, that presentation of these products, actually misled consumers into believing that the product was either an official Aga product or that Aga themselves had done the conversion. The Court of Appeal did confirm that the nature of the marketing adopted by UK Innovations and the way they presented their products on these occasions to consumers did actually step over the line and gave the impression of a commercial connection with Aga, a false commercial connection. Because in fact there was not that relationship between UK Innovations and Aga and consequently the use of the Aga trademark in those instances constituted trademark infringement.

Matthew: So how does a refurb or resale company avoid breaking trademark law when advertising its products? Emily says it's pretty clear.

Emily: If they're using a third party's brand, they can use it to describe the goods. That's permissible. If it's in this instance an Aga product, you can sell it and you can say it's an Aga product, but you just don't want to over egg the use of that original brand name. Don't go beyond that territory of pure description into suggesting that this product is actually from the original manufacturer or there is some sort of link to them.
You want to avoid using brands in the actual names of the products to make them look like genuine model names. In this instance it was eControl Aga that gave the impression of it actually being an Aga model name. Avoid using other branding cues where there is use of colourways or other particular branding features that bring to mind those brands and mimic the original brand. And then finally use clear disclaimers. And that was actually one of the major downfalls for UK Innovations in this case, that there was no clear signposting that the product had actually been refurbished, repurposed by UK Innovations and not by the original brand owner, by Aga, and that there was no connection with them. If you include one of those clear disclaimers, that will significantly reduce the risk of a finding of infringement.

Matthew: But as we've heard, companies will want to have as great a legal association with some famous well regarded brands as possible, and a lot of that will be lawful. So is it easy to infringe this law without meaning to?

Emily: So I think it is easy to fall foul of the law. People will often go online, they'll go on marketplaces and they'll see other people using brand names and so think it must be ok. But unless you actually have an understanding of what the rules are and what does actually cross over the line, then you don't know at what point you have to stop using the brand. And the more you see other people online using brand names, the more you think that this is going to be permissible. But if you've got brand owners who are enforcing their rights, they would typically write to you and say the way you're presenting this product is not permissible. And if you're a good law abiding citizen, you will then quickly change the presentation of how you've been marketing the product. Whereas those who are consciously pushing the boundaries and going that bit further typically know what they're doing and are looking to take advantage of that brand name beyond what is permissible under trademark law.

Software can't usually be patented and courts have long presided over wrangles about where exactly the line should be drawn. And now AI companies are getting in on the act, seeking protection for their systems by claiming they're not just software. Before we get to the outcome of one of the first cases dealing with this, a quick refresher. A patent is a legal protection for an invention. Society basically says if you show us the secret of how your invention works, we'll give you usually about 20 years of legally protected monopoly over that invention. And that's what a patent is. But right from the early days the system rejected software because of the risk that you give a company a monopoly over some basic mathematical processes or ways of having computers do something that are fundamental and should be open to everyone. In the UK you can't patent software as such, meaning the fact that an invention is software doesn't entitle it to protection, but also it doesn't bar it either. There might be an invention that uses software and is truly inventive and protectable on other grounds. Enter Emotional Perception, a company that has created an AI system called an artificial neural network, or ANN, that will recommend you music based on the perceived mood of that music, rather than by human applied categories. The UK's Intellectual Property Office said the invention was software and shouldn't be patentable. Emotional Perception took it to the courts, as London based intellectual property expert Carissa Kendall-Windless explains.

Carissa Kendall-Windless: Emotional Perception were filing a patent application. They had created a system using an artificial neural network, so an ANN, to recommend music or other based media based on the emotional feel of a track. Emotional Perception would say that it's not a stereotypical computer programme because it's learning on the job. However, the UKIPO, the UK Intellectual Property Office, rejected the application because it believed the invention was just a computer programme and therefore can't be patented. The IPO basically said it didn't add anything technical beyond running software on a computer, so it fell into this excluded category. Emotional Perception disagreed and then a legal battle ensued over the course of 27 months. It started off at the UKIPO, it went to the High Court, it moved on to the Court of Appeal and then ultimately ended up at the Supreme Court.

Matthew: The UK Supreme Court ruled last week, and the case has received a lot of attention for two reasons. It's an early example of a skirmish that will become more common as AI companies argue that their inventions are more than just software and so are patentable. And because the Supreme Court said that the IPO and courts should use a new, different test when considering whether something involving software should be patentable. This is a seismic shift away from the four part so called Aerotel test that's been used for about 20 years, says Carissa.

Carissa: This shift to the EPO aligned test, which is the "any hardware" test, will have a practical consequence on wide ranging sectors. So AI, so long as it's coupled with hardware and that hardware involvement confers technical character, then the UKIPO or any Patent Office that's considering the application at that stage will move it on to the next stage of assessment, which is novelty and inventive step. The Supreme Court decided that ANN is a kind of computer programme and that the UKIPO had been applying the wrong legal test, called the Aerotel approach. It's a four step framework that courts developed. The first step is you construe the claim. You then move on to identifying the contribution. You then work out if that contribution falls under excluded subject matter, for example a computer programme. And then fourth, you ask if the contribution is technical. However, the Supreme Court doesn't like Aerotel now because it criticised it for jumbling up the invention exclusion question with other patentability requirements. That second step of identifying the contribution should actually come later. Instead, it endorsed this any hardware approach, which is the EPO Board of Appeal decision, and under this hardware approach, if a claimed invention involves or embodies the use of any physical hardware, it is not excluded at the initial invention stage. The question at this stage is simply whether the claim has technical character and not whether it is novel or inventive. So that means the emphasis of the Aerotel questions is not only switched, but the novel and inventive assessment comes later.

Matthew: So, the use of hardware as part of the invention becomes more important and could be a crucial factor in companies' arguments that their AI systems deserve the protection of a patent.

Carissa: The Supreme Court held that the claim isn't excluded as such merely because it involves a computer programme. Using this adopted EPO interpretation under the technical means/hardware means, you don't fail at that threshold of the invention stage simply because it's a computer programme. In other words, yes ANN is a computer programme when implemented on hardware, but because the invention used technical means, this hardware, the databases, the networks, and it doesn't use coded instructions, it is not excluded at the outset under the computer programme exclusion and the Supreme Court said that's all I'm deciding it is a kind of computer programme, but it's not excluded because it includes hardware. So I'm going to send the case back to the UKIPO to reassess the application using this new EPO aligned harmonised approach.

Matthew: Carissa said that the ruling will result in many more software adjacent inventions getting further into the amended IPO process, but that doesn't mean that more will eventually receive patent protection. She also said that this ruling could have ramifications far beyond the AI industry itself.

Carissa: I think what’s going to happen is more patents will get through that initial stage, but they will definitely be scrutinised heavily once it gets to the technical character step and whether that technical character can support inventive step. It's good news for AI companies because it means that they have some guidance, but it definitely means they will have to start tying their claims and inventions to hardware and these so called technical effects in order for their claims to be granted. This was an AI company that was before the Supreme Court, but we know that a number of other industries use AI. We can look at, for example, consumer electronics, diagnostics and digital health. Many people walk around with aura rings these days and those will have hardware and computer software elements to them. You then have the automotive industry which relies heavily on AI. So I think, the bottom line for clients is more inventions will now survive the first hurdle in the UK, particularly those involving AI. But the real focus going forward is whether the invention has technical features that are genuinely inventive. This is not just a decision for AI and machine learning companies, this is much more wide ranging as we see AI bleed into a number of industries.

Well, thanks again for listening, for spending time with us. Please do share it with anyone you think might be interested or whose work might be related to these fields, and you can ask them or yourself. Subscribe at pinsentmasons.com/newsletter to get a weekly digest of everything that our specialist team of reporters at Outlaw produces for Pinsent Masons. Or you can just look at the website at any time and see what the latest news is. Thanks for spending time with us. Until next time, goodbye.

The Pinsent Masons Podcast was produced and presented by Matthew Magee for international law firm Pinsent Masons.