Refurbishment and Reverse Passing Off: Can the Two Rs Coexist?

Introduction

Climate action requirements have encouraged the concept of circular economy. The 3 Rs of circular economy are reduce, reuse and recycle. Refurbishment is part of the third R. To sustain increased human consumption and prevent the extinction of natural resources these steps are extremely important. In a recent case before the Hon’ble Delhi High Court, an issue was raised regarding the violation of intellectual property rights by an activity of refurbishing. The plaintiff therein claimed that the sale of refurbished goods amounts to reverse passing off.[1]Here, an attempt has been made to understand the concept of reverse passing off and its impact on selling refurbished/ recycled goods by parties other than manufacturers.

The concept of passing off

Passing off is a common law remedy or a tort remedy. Indian legislators have consolidated all trademark protection, and remedies under the current legislation Trade Marks Act, 1999. For the benefit of the consumers, registration of the trademark has been made mandatory to get any statutory relief but in doing so they have left the remedy of the passing off action open till today. Passing off is not solely based on the intellectual property rights within the trademark. It encompasses the goodwill of the trader, the intention of the wrongdoer, and fraud upon the consumers. To constitute passing off, the following elements must be satisfied, [2]

1. The action of the defendant must deceive the public that the defendant’s goods or services are of the plaintiff, and
2. Misrepresentation in terms of the likelihood of confusion in the mind of the public, and
3. Loss or likelihood of loss to the plaintiff due to misrepresentation.

Action of passing off demands the plaintiff to prove that he is likely to suffer damages and the public will be deceived. The mere resemblance of marks causing an infringement of intellectual property is not a sole test but an essential component to succeed in the action of reverse passing off.

The concept of reverse passing off

The classical passing off action arises when defendant represents his goods as the goods of the plaintiff. The passing off action was held not to be limited to such cases. Instances, where the defendant tries to dishonestly take advantage of the hard work and goodwill of the plaintiff falling outside the scope of classic passing off are also included in tortious passing off.[3]Such passing off action is called as reverse passing off.Unlike classical passing off defendant doesnot sell his goods under the plaintiff’s mark butsellsthe plaintiff’s goods under his mark. There can be multiple forms of reverse passing off. The instances wherethe defendant tries to use the plaintiff’s goodwillfor the goods manufactured by the defendant himself or misrepresent the plaintiff’s origin of goods is the same as that of the defendant’s comes under the action of reverse passing off.In classical passing off when the resemblance of the marks, the similarity of goods and the confusion or deception among the consumers is proved the likelihood of damages automatically arises. But for the reverse passing off the plaintiff needs to show thelikelihood of damage to business or goodwill due to the defendant selling the plaintiff’s goods as his own.[4]

In United States of America Sec. 43 provides a base for actions of reverse passing off by providing civil action remedy against false designation of origin which is likely to deceive or confuse the consumer.[5] The US Supreme Court while determining the true nature of civil remedy available under this section for reverse passing off interpreted “origin of goods” and held that reverse passing off can be claimed by the producer of the goods only and not the person who conceptualises or designs such goods.

In a UK case[6] it was held that to establish reverse passing off five characteristics which are applicable to normal passing off are applicable. The characteristics are as following[7],

1. Misrepresentation,
2. It is made during the course of trade,
3. This misrepresentation is made to prospective customers,
4. Such misrepresentation is calculated to damage business or goodwill of another trader,
5. Such misrepresentation causes actual damage to a business or goodwill of such trader.

Principle of exhaustion and reverse passing off

To sum up the concept of reverse passing off, the defendant must pass off goods created by the plaintiff by masking the plaintiff’smark and selling them as their own. In such situations, the principle of exhaustion comes into play. The Trademarks Act provides exceptions to infringement action if a person lawfully acquires the goods bearing the mark of the plaintiff and sells the goods further.[8]The true construction of the s. 30 (3) is held by Hon’ble Delhi High Court as[9],

• Where goods bearing a registered trade mark are lawfully acquired by a person, the sale of the goods in the market by that person is not an infringement of the trade mark by reason only of the registered trade mark having been assigned by the registered proprietor by some other person after the acquisition of those goods.
• Where goods bearing a registered trade mark are put on the market and are lawfully acquired by a person, the sale of the goods in the market by that person is not infringement of the trade mark by reason only of further sale in the market.

Only limitation to this exception from infringement action is if “there exists legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market.” [10]This limitation is placed to protect the trademark proprietor from devaluing the goodwill of his trademark due to the resale of tampered goods.[11]Indian trademark law recognises the principle of exhaustion as international exhaustion and is not limited to resale within the national market.[12]

The principle of exhaustion as embodied within Indian trademark law protects against the action of the reverse passing off as far as the acquisition and resale of goods are concerned. But where other elements of reverse passing off are concerned, such as obliterating the trademark of the original manufacturer and putting the reseller’s own mark, in case of refurbishment tampering or changing conditions of the goods, the principle of exhaustion does not act as a shield for the action of reverse passing off.

Refurbishment and reverse passing off

After wandering through the thicket of the concepts related to passing off and reverse passing off, the true conflicting points in the recycle or refurbish economy can be identified as obliterating the original manufacturer’s mark and tampering or changing the conditions of the goods. Principle of exhaustion provides limited protection in the process of refurbishment till acquiring the used goods for refurbishment. When tampering with goods is initiated the protection under the principle of exhaustion ends. But to succeed in a claim of reverse passing off the plaintiff has to prove that,

1. Refurbishment activity deceives consumers as to the origin of the product.
2. Such deceiving may damage the business or goodwill of the plaintiff.

In the case of refurbished goods, true test for actionability of reverse passing off can be devised as,

1. Whether even after refurbishing can the end consumerlink the product to the original manufacturer?
2. Whether such linking give an impression that the original manufacturer and refurbisher have a commercial connection?
3. Whether such deception by the refurbisher may lead to loss of business or goodwill if the products become/ are substandard?

The growth of the refurbished goods market is an essential component to achieve a sustainable future. If the sale of refurbished products gives rise to a cause of action for reverse passing off the courts should refrain from taking a narrow approach and balance the interests of the refurbisher and the original manufacturer. The Hon’ble Delhi High Courtin Seagate[13]has issued interim directions ensuring that the interests of both refurbisher and original manufacturer are protected. The guideline emerging from this decision can become a beacon for evolving jurisprudence in the Indian refurbishment sector. The guidelines emerging from this decision are as follows,

1. Refurbisher should identify the original manufacturer and place the identity of the original manufacturer on goods but not to give the impression that refurbished product is marketed by the original manufacturer themselves.
2. Refurbisher should in a clear and legible manner put a disclaimer that goods are refurbished and are the liability of the refurbisher only and the original manufacturer is in no instance liable for the refurbished product.
3. Refurbisher should disclaim that all warranties, guarantees, and performance of goods are the responsibility of the refurbisher alone and the original manufacturer has no role in the sale of refurbished products.
4. All advertising, informational brochures and manuals should bear information of the above nature.

While dealing with reverse passing off for refurbished products it must be borne in mind that to constitute reverse passing off, damage to the plaintiff’s business or goodwill is the most important aspect. If damage can be avoided then such a route needs to be preferred.

Conclusion

Indian government has encouraged the policy of the right to repair which is a step toward the circular economy. Refurbishment of products is an important element in reducing waste and reducing resource utilisation. In the three Rs of circular economy recycling/ refurbishing is an important step and it should not be impeded by taking a restricted view of reverse passing off. While facilitating the refurbishment industry if needed reverse passing off should act as a check to protect the goodwill and business of the original manufacturer. If such a view is taken Reverse Passing Off will become an R which induces fair play in 3R economy.

[1]Seagate Technology LLC v Daichi International and Ors., 2024:DHC:4193.

[2]Satyam Infoway Ltd. v. Siffynet Solutions (P) Ltd., (2004) 6 SCC 145, paras. 13 to 15.

[3]Bristol Conservatories Ltd v Conservatories Custom Built Ltd, [1989] RPC 455.

[4]THJ Systems Ltd and another v Sheridan and Anr., [2023] EWHC 927 (Ch).

[5]Trademarks Act of 1946, 15 U.S.C. § 1125.

[6]Yours Naturally Naturally Yours Ltd v Kate McIver Skin Ltd , [2023] EWHC 890 (IPEC).

[7]Erven WarninkBeslotenVennootschap and Anr. v J. Townend & Sons (Hull) Ltd. and Anr., [1979] A.C. 731.

[8]The Trademarks Act, 1999 (Act 47 of 1999), s. 30 (3).

[9]Kapil Wadhwa &Ors. v Samsung Electronics Co. Ltd. &Anr., 2012 SCC OnLine Del 5172, para. 49.

[10]The Trademarks Act, 1999 (Act 47 of 1999),s. 30 (4).

[11]Kapil Wadhwa &Ors. v Samsung Electronics Co. Ltd. &Anr., 2012 SCC OnLine Del 5172, para. 50.

[12]Ibid, para. 71.

[13]Seagate Technology LLC v Daichi International and Ors., 2024 DHC 4193.

Viraj Thakur

Author

Viraj Thakur is currently pursuing LLB from Law Center-1, Faculty of Law, University of Delhi. Viraj has graduated in B.E. (Electronics and Telecommunication) from RAIT, Nerul. Prior to joining law school, he has 3.5 years’ experience in intellectual property as Patent Analyst in one of the leading patent service provider companies. He is passionate about Intellectual Property law, Cyber law, Technology law and Law and policy in Emerging Technology. His research work demonstrates attention to detail, analytical rigour and innovative thinking. He is excited to start his legal career and make a positive impact.