Can Sustainability, The Circular Economy, And Intellectual Property Be Reconciled? The Particular Case Of Trademarks

In an era marked by overproduction and overconsumption, discussions around the adoption of more sustainable policies, particularly those promoting the circular economy, have gained momentum. Vitor Palmela Fidalgo, Legal Director, Inventa, sheds light in the interplay between sustainability and intellectual property protection, especially in practices like resale and upcycling. Now more than ever, it's crucial to address how to reconcile safeguarding trademark law and sustainability goals.

This year, WIPO chose sustain­able development and IP as the theme of World Intellectual Property Day. The question is how both principles can work together to achieve a future with innovation, creativity, and more sustainability. This topic is especial­ly relevant. As is well known, we live in an era of overproduction and overconsumption, which, while it may have benefits for econom­ic growth, has a negative impact on the envi­ronment. It is in this sense that the adoption of more sustainable policies promoting the circular economy is being discussed.

A circular and sustainable economy is an eco­nomic system designed to minimize waste and make the most efficient use of resources. In this model, products are designed to be reused, recycled or repurposed at the end of their lifecycle, rather than being disposed of as waste.

At first glance, the relationship between sus­tainability and intellectual property does not present any conflicts. Promoting innovation through the granting and protection of IP rights encourages the creation of innovative products and solutions that help the environ­ment and sustainability. "Green patents" or "eco-patents" addressing environmental and sustainability issues are in the spotlight.

However, the structure of IP still promotes tensions between protecting the exclusive rights granted to its holders and third parties who want to make more sustainable use of products. The reason for such tensions lies in the fact that IP, while promoting innovation and market transparency, also grants legal monopolies to holders, giving them signif­icant control over products. From a broader perspective, it seems that the IP system was designed based on a linear, basic economic process where products are manufactured, sold, and finally discarded, without consid­ering the indirect costs of products or their environmental impact.

While IP protection is guaranteed by the Charter of Fundamental Rights of the Euro­pean Union (Article 17(2)), we cannot forget that this same instrument also establishes the protection of the environment and the guar­antee of policies promoting sustainable devel­opment (Article 37). It is assumed, therefore, that from a legal point of view, a reconciliation must take place between these two constitu­tionally guaranteed interests.

We will analyze, as a case study, two practices commonly integrated into the circular econo­my, resale, and upcycling, confronting them with a particular IP right, the trademark. Choosing the trademark over other IP rights, such as patents, designs, or copyrights, does not mean the absence of any tensions between the sustainable economy and these other IP rights. Indeed, they exist. However, the trade­mark, due to its protection scope, which in­cludes various types of signs, such as designs, shapes, packaging, colors, or patterns, as well as its protection, ranging from the risk of confusion to the protection of the evocative character of the sign, can represent a thorny issue for resale and upcycling projects in the circular economy.

Regarding resale, this involves selling or ex­changing used goods to give them a second life, extending their lifespan and reducing the need for new products to be manufactured. While not a recent development, its promi­nence surged with the rise of online market­place platforms.

At first glance, the legal framework for trade­marks seems to have an obvious solution to this problem: the principle of trademark exhaustion. Exhaustion constitutes a limit to the trademark, not allowing its holder to prohibit its use for products marketed under that trademark or with its consent. However, it should be noted that this is not an internationally established principle, and its regulation is left to the states by the TRIPS Agreement (Article 6).

In the Euro­pean Union, after intense discussion in the last century, a regional exhaustion principle was established, only for products market­ed within the Union, so it is possible for holders to prevent a new marketing of legit­imate products originating from countries outside the European market. However, even in the EU, the principle of exhaustion is not without restrictions. Trademark hold­ers may oppose exhaustion for "legitimate reasons" (Article 15(2) of the Trademark Directive and Article 15(2) of the EU Trade­mark Regulation).

The law does not define in absolute terms what legitimate reasons are, but gives examples such as modifica­tion or alteration of the product after it has been placed on the market. The problem of product resale may arise, in particular, in the case of luxury products or those mar­keted with famous brands. By way of exam­ple, in the Copad vs. Christian Dior case (C- 59/08), the CJEU seems to allow the holder to object to the repackaging of luxury prod­ucts, as such practice may undermine the luxury image associated with them (§ 59). Indeed, although the exhaustion principle is relevant in product resale, such practice may be hindered, particularly when dealing with famous brands or luxury products.

Now let's look at the case of upcycling. This practice involves the transformation of dispos­able products or materials into new products of greater value or utility. Unlike traditional recycling, upcycling aims to increase the val­ue of recycled materials, creating products of equal or superior quality to the original. In upcycling, materials are reused creatively and innovatively, often maintaining or enhancing their original characteristics. For example, glass bottles can be transformed into lamps or food packaging can be reused as decorative containers.

Upcycling raises two sets of problems. First, it is not clear whether the exhaustion principle can be applied in this case, as we are already dealing with significantly different products than those placed on the market. If the ex­haustion limit – the legitimate reasons alleged by the holder – applies "whenever the state of the products is modified or altered after their placement on the market," then it seems that the holder may object to this practice.

Linked to this issue is the fact that it is not uncommon for transformed products to re­tain the "original trademarks," either totally or partially visible. This issue is even more prob­lematic when we consider that the current concept of a sign is illustrative and covers even marks that do not have independence from the product itself, such as marks composed of the product shape, position marks, or colors per se, which may allow trademark holders to claim that such use creates confusion with their marks or that there is an exploitation or dilution of the distinctive character or prestige of the mark.

A legislative change at the European level is currently not planned and is unlikely to hap­pen. The most reasonable way to achieve a balance between the principle of a sustainable economy and trademark law will be through the interpretation of the CJEU. Over the years, the Luxembourg court has been particularly active in developing European IP law, often at the limits of the letter of the law and against the understanding previously held on certain matters. Such guidelines often end up being codified in subsequent reforms.

In this context, we have several options. The most obvious is through an interpretation of the exhaustion limit, accommodating certain uses for resale and upcycling of products, tak­ing into account the objectives of a sustainable economy, which also benefits the European common market and the underlying political objectives. Another way would be to frame the general limits present in Article 14 of the Trademark Directive and Article 14 of the EU Trademark Regulation to these practices, for example, understanding that in the case of marketing products transformed by the up­cycling technique, such use of signs does not have a distinctive effect, especially when the seller's communication is transparent, inform­ing consumers that the product in question does not come from the trademark holder and results only from a transformation operation.

This limit is particularly important because it allows for the exclusion of cases where the third party does not act in accordance with honest practices in industrial or commercial matters, thus differentiating legitimate cases of upcycling from cases where the third par­ty "exploits" this practice to improperly use someone else's mark. Lastly, although less likely, it is not entirely ruled out that the CJEU may accommodate such concerns in the rules on the scope of trademark protection, ultimately stating that certain use does not constitute use "as a trademark," for example, because it does not affect its essential function.

We will see what will happen in the near future.

Originally published by Leaders League group

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