Potential implications for trade in branded goods post-Brexit

Of the many issues involved as the UK moves towards Brexit, one that is receiving little press coverage is the concept of exhaustion of trade marks.

Concept of exhaustion

Exhaustion concerns whether a trader may buy products which are genuine and branded, and then resell those products under their brand name. At first glance most businesses would consider it sensible that if a trader buys genuine products in one country, then that trader can resell those genuine products in the country of purchase or elsewhere under the brand. However, the position in law is not so straightforward.

Currently the UK, as a member of the European Economic Area (EEA), applies the EEA’s rules on trade mark exhaustion. The rules of the EEA apply what is known as ‘regional’ exhaustion. This means a trader can obtain genuine, branded products in any country within the EEA, move those products to any other country which is an EEA member, and sell the products using the original brand name. As a result, where a brand owner places its own branded products on the market within the EEA, any third party can buy those branded products, and either: (i) resell them within the country of purchase; or (ii) export them anywhere else within the EEA and resell them under the trade mark owner’s brand.

Whilst branded products can move freely within the EEA, the rules change when branded products cross the EEA boundary. If branded products are entering the EEA, the brand owner can stop the resale of the products even though they are genuine products. For example, if a trader obtained genuine Chanel perfume from Singapore, that trader could not import that perfume into the UK for resale using the Chanel name. However, if the same trader obtained the genuine Chanel perfume in Romania, then it could (under the rules of exhaustion) import that perfume into the UK and resell it under the Chanel brand.

What happens post-Brexit?

Following Brexit the UK will potentially have a choice as to which form of exhaustion is applied. The political ideal of a freely trading nation indicates that the UK may return to its pre-EU days of applying ‘international’ exhaustion. This form or exhaustion allows businesses the maximum freedom, as they have the ability to buy genuine, branded products from anywhere in the world and import them into the UK for resale. Due to there often being a significant price difference between the cost of UK products and the overseas equivalent, businesses may be able to take advantage of that difference to secure a new opportunity for revenue and margin.

Considerations

The increased availability of branded products at lower price points could result in lower prices for consumers. Whilst many traders and consumers would desire this outcome, there are a number of factors to consider:

• there is a possibility that traders and consumers will increasingly buy direct from overseas, disrupting distribution and supply chains, and warranty issues;
• as lower priced branded products are available, traders that do not meet the brand’s price point position could obtain products and offer these in a retailer perceived to be of a lesser quality, which may damage the brand’s standing;
• there is a quality concern as product quality can vary in different countries, based on local laws and tastes. This could result in consumers being dissatisfied with their favourite brands if the quality they are used to is reduced; and
• there may be increased levels of counterfeit products as fakes become harder to identify if the quality of genuine products in the UK market varies.

As there is currently no agreement on how the Government will approach exhaustion, businesses are advised to consider their brand portfolios, brand usage guidelines, distribution models and current sources of revenue so they are prepared for whatever happens post-Brexit.