Brand owners suffer blow over goods revamping

Emily Swithenbank and Gill Dennis of Pinsent Masons were commenting after the High Court of England and Wales ruled on a dispute over the re-sale of revamped AGA cookers.

According to the High Court, UK Innovations (UK Innovations) Group acquired AGA cookers from trade suppliers or from customer trade-ins before reselling them as refurbished and retrofit with an electronic control system (eControl System). Fitting the system allowed the AGA cookers to be run on electricity rather than “traditional fossil fuels”, the court said.

The revamped cookers that UK Innovations sold looked the same as the original AGA cookers from the outside, except that UK Innovations fitted a ‘eControl system’ badge to the product. This displayed alongside an AGA badge.

AGA Rangemaster Group (AGA Rangemaster), which manufactures AGA cookers, claimed that UK Innovations activities infringed its trade mark rights. While the company accepted that there is a legitimate aftermarket in the refurbishment and resale of its products, it argued that UK Innovations’ actions “went beyond what is permissible”. UK Innovations denied infringement.

The High Court examined the extent to which AGA Rangemaster had a right under trade mark law to prohibit UK Innovations’ activity. Some of the arguments between the two parties revolved around the principle of the exhaustion of rights.

Under UK trade mark law, trade mark owners have a right to control how their branded goods are initially sold in the UK or the European Economic Area. Once they first place their goods on this market, however, the law provides that trade mark owners’ right to control the secondary sale of their products is generally exhausted. An exception applies to the exhaustion of rights if trade mark owners can show that there exist legitimate reasons for it to oppose further dealings in the goods.

In this case, UK Innovations argued that it was free to undertake the actions it performed because AGA Rangemaster had exhausted its rights to control the way the AGA cookers were sold. However, AGA Rangemaster argued that there were legitimate reasons why it should be able to oppose the activities.

In this regard, AGA Rangemaster took issue with the extent of the changes UK Innovations made to its original products and its marketing and sale of those revamped cookers using the AGA brand. It claimed that there was a risk of serious damage to the reputation of the AGA brand as a result of the changed condition of the products, and further argued that the way the eControl cookers were marketed and sold might lead people to believe that there was a commercial connection between UK Innovations and AGA Rangemaster. 

In considering those arguments, Nicholas Caddick KC, sitting as a deputy High Court judge, examined the nature and extent of the works UK Innovations had undertaken when revamping the AGA cookers.

The judge considered that the works fell into two categories – restoration works and conversion works. The restoration work involved restoring the cookers to “the sort of condition in which it had originally been placed on the market”, he said, while the “conversion works” changed the condition of the original products and included the fitting of the eControl System and the removal of the barrel and oil burner that were part of the AGA cookers’ fossil fuel system.

In this case, some of the restoration works performed, like the replacement of insulation and cleaning of the product, was uncontentious, but AGA Rangemaster took issue with the standard of replacement parts UK Innovations used.

On that issue, a witness for AGA Rangemaster said any replacements used should be “like-for-like” with the originals, even if not necessarily official AGA parts, and that they should be of the same quality as the originals used. However, the judge said refurbishers like UK Innovations must be given “some degree of latitude” as to the nature of the parts they use and that customers of second-hand goods would not necessarily assume that the parts used in those goods would be of the same quality as used in the original product.

The judge said that while “replacement parts used to refurbish an AGA cooker should not be of such inferior quality as to seriously damage the reputation of [AGA Rangemaster’s] marks”, he considered that was not the position in this case and so rejected AGA Rangemaster’s arguments that the nature of UK Innovations’ renovation works provided it with legitimate reason to oppose the resale of those goods.

Nicholas Caddick KC also considered that the conversion works on their own did not provide such a legitimate reason to AGA Rangemaster either. Nor did he think they gave rise to legitimate reasons on the basis of alleged damage to the AGA brand’s reputation, rejecting what he described as "unsubstantiated" and “hearsay” evidence that purported to show negative reviews of the revamped products online, as well as concerns raised about the quality of the AGA badge that displayed on the UK Innovations products, which AGA Rangemaster claimed was a replica in the case of a “trap purchase product”.

However, the judge did find that AGA Rangemaster had legitimate reasons to oppose UK Innovations’ further dealings of its products based on the way the reseller had marketed and sold the revamped cookers. The judge accepted AGA Rangemaster’s claims that UK Innovations had “given customers or potential customers the impression that there was some commercial connection between” the two businesses.

In reaching that view, the judge assessed statements that UK Innovations had made on its website and invoices. He considered that the wording used went beyond what would be seen as merely descriptive of the product. Rather, he said, the wording would likely be viewed as “part of the brand for the product being offered for sale” and in turn be linked to the “highly distinctive” AGA name, which he considered increased the risk of there being confusion as to whether UK Innovations had a commercial connection to AGA Rangemaster. He further cited a lack of wording to make clear that UK Innovations’ eControl System was not connected to AGA Rangemaster.

Swithenbank said: “Most of the disputes that arise over the exhaustion of trade mark rights, and when a rightsholder has legitimate reasons to object to the alteration of their products, arise in the context of the cross-border parallel trade of pharmaceutical products. So this ruling is a helpful reminder to both brand owners and resellers in other industries of how the law in this area can apply to them.”

“While AGA Rangemaster was ultimately successful with its claims of trade mark infringement against UK Innovations in this case, the judge was clear that this was to do with how the revamped cookers were marketed as opposed to the way they were refurbished and retrofitted. Indeed, his comments regarding the renovation and conversion works undertaken in this case are unhelpful to brand owners that may be concerned about the effect that third party alterations to their original goods are having on their brand’s image. The judge’s views on consumers’ tolerance towards the use of lower quality replacement parts in respect of second-hand products will not be welcomed by brand owners wishing to oppose such activity and maintain the same quality standards whenever their brand is used,” she said.

“The ruling does, however, need to be viewed in the broader context where there is growing focus on the ability of businesses to restore and re-use materials and avoid unnecessary waste. We expect the sustainability agenda to play into disputes over the exhaustion of trade mark rights in other cases in future,” she added.

After finding that UK Innovations had infringed AGA Rangemaster’s trade marks, the High Court went on to consider whether one of the company’s directors, Michael McGinley, was personally liable as an accessory to that infringement. McGinley developed the eControl System that UK Innovations installed into the revamped AGA cookers in this case.

Dennis said: “The High Court considered that McGinley did not have the requisite knowledge of the infringements to be considered personally liable for them. In reaching that conclusion, the court applied case law developed earlier this year by the UK Supreme Court, which established that directors of companies that infringe trade marks can only be held personally liable as an accessory to that infringement in the UK if they have knowledge of the essential facts that make the acts trade mark infringement. The High Court’s ruling in this case shows that brand owners face a challenge in adducing enough evidence to satisfy the ‘knowledge’ test when alleging director liability for trade mark infringement.”