The Background: Manufacturers and brand owners of personal protective equipment ("PPE") and other "essential" items have discovered unauthorised third parties reselling their products at vastly inflated prices, including on websites such as Amazon. Such price gouging can cause damage to the manufacturers' goodwill and reputation.
The Issue: Can manufacturers and brand owners prevent price gouging by unauthorised third-party distributors?
The Answer: It may be possible for trademark owners in the European Union and United Kingdom to rely on trademark law to prevent unauthorised resellers from price gouging their products where the resellers hold themselves out as authorised distributors. This would mark an expansion of the exceptions to trademark exhaustion historically agreed upon by the EU/UK lawmakers. In addition to trademark law, there are remedies in regulatory and antitrust law.
Further to our Commentary " Trademark Owners Can Protect Themselves from Unauthorized Distributors Price Gouging in Their Name", focusing on the rights of US trademark owners to prevent the unauthorized sale of PPE, this Commentary looks at the same question from a European perspective.
Trademark law provides limited protection for a trademark owner after the economic value of the goods being sold has been realised. The principle in operation, known as "exhaustion", as set out in s. 12(1) of the Trade Marks Act 1994 and Article 15 of the EU Trademarks Regulations 2017, means that once the goods have been put on the market in the European Economic Area, the trademark owner will no longer be entitled to oppose further commercialisation of the goods within the European Union (although limited pricing restrictions may be permissible under competition law), unless there are "legitimate reasons" to do so.
The statutes expressly state that a legitimate reason includes where the condition of the goods is changed or impaired after they have been put on the market (e.g., by repackaging or relabelling). The list of legitimate reasons was further expanded by the landmark EU case of Copad v Dior ( Case C‑59/08 Copad SA v Christian Dior Couture SA). That case concerned the resale of luxury fashion items outside of an agreed selective distributorship. The court held that that the trademark owner's rights were not exhausted where an unauthorised resale damaged the reputation of the trademark.
While the focus of the Copad case was the need to retain the aura and appeal of luxury brands by preventing distributors from reselling the goods in discount stores, arguably the principle regarding damage to the trademark owner's reputation could be applied to unauthorised resellers of PPE who engage in price gouging. Both hyper-inflated pricing and massive discounting can, in certain circumstances, tarnish the reputation of a brand owner.
In the current global pandemic, price gouging of essential items such as PPE could seriously damage the reputation of the owner of the trademark branded on such products, by associating them with such activity in the mind of the consumer. Where, however, it is clear to the target market that the price gouger is a reseller acting independently of the trademark owner, and with no affiliation to it, there is unlikely to be a case to be made out.
Where the goods being offered for resale are counterfeit, there is a range of relief that brand owners can seek, including an injunction to prevent further dealings in the goods, delivery up or destruction of the goods in question and financial damages.
In addition to trademark law, brand owners should consider the extent to which they can impose pricing restrictions through ordinary contractual measures in supply agreements. In particular, competition law generally permits brand owners to impose maximum resale prices on distributors and wholesalers.
Competition and consumer authorities are also focusing on pricing issues in the wake of the COVID-19 pandemic with the European Competition Network, which represents all EU Member State competition authorities, making clear that "it is of utmost importance to ensure that products considered essential to protect the health of consumers in the current situation ... remain available at competitive prices". Individual governments and competition authorities are using the various regulatory tools at their disposal to this end. For example, the United Kingdom's Competition and Markets Authority ("CMA") has set up a taskforce specifically to investigate the issue, the French government has implemented price controls for sanitizing gels and competition authorities in France, Italy, Spain and the Netherlands, among others, have taken steps to increase scrutiny of prices during the pandemic.
Brand owners should consider the extent to which engaging with authorities in relation to instances of price gouging involving their products could provide an efficient means to address concerns. Furthermore, certain national Member State laws prohibiting unfair commercial practices toward consumers or competitors may serve as a legal basis for claims of the brand owner against price gouging.
While there is no broad prohibition on price gouging under either UK or EU competition law, authorities are using consumer protection measures (e.g., against misleading claims) and "soft power" to attempt to bring businesses into line, including persuading platforms such as Amazon and eBay to delist products advertised for sale at inflated prices where the seller is not a "trusted seller" on that platform. Dominant companies also continue to be subject to excessive and discriminatory pricing restrictions, and authorities are likely to take an expansive approach when considering which companies are dominant, even if only as a result of the pandemic.
Three Key Takeaways
- Trademark infringement remedies may be available where damage to the brand is caused by association with price gouging.
- Brand owners should review their distribution contracts to ensure appropriate checks and balances are in place for controlling onward distribution of the products.
- Brand owners should consider setting maximum retail prices.
Originally published 14 May, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.