The Delhi High Court recently issued a significant judgment regarding the sale and rebranding of refurbished goods, particularly addressing disputes between Seagate Technology LLC and WD Technologies (“original manufacturers / plaintiffs”) against several Indian entities involved in the rebranding and sale of refurbished Hard Disk Drives (HDDs), including Daichi International and a few others (“refurbishers / defendants”). This judgment [Seagate Technology LLC vs. Daichi International and Ors.], is set to impact the standard operating procedures within the refurbished goods industry.

Facts:

In a nutshell, HDDs are manufactured by the original manufacturers and supplied to various Original Equipment Manufacturers (OEMs) across the globe for installation as part of laptops, desktops and other equipment. These HDDs have a life span prescribed to them by the original manufacturers and once their warranty expires, they are sold by the OEMs to refurbishers. The reason for the resale is that the HDDs retain their functionality despite the expiry of their warranty period. Thereafter, the refurbishers remove the labels and references to the original manufacturer and sell the HDDs under their own brand names with an additional two-year warranty.

Issues:

The major issue to be decided by the Court was if the sale of refurbished HDDs, after removing the original brand names and repackaging them with the refurbishers label would constitute trademark infringement under the Trade Marks Act 1999 (‘Act’).

Submissions:

Plaintiffs’ Arguments:

The Plaintiffs relied on the protection offered to them under section 30(4) of the Act which enables a trademark owner to oppose the further dealings of the goods bearing their trademark if the condition of the goods has been changed/impaired. According to the plaintiffs, the process of removing labels, refurbishing, reformatting, and repacking with different brand names is changing the condition of the goods / impairing the goods and would amount to trademark infringement.

Defendants’ Arguments:

The defendants relied on the protection offered to them under section 30(3) of the Act. This section essentially prescribes a limitation on the rights of a registered trademark owner.  To clarify, under this section a person other than the registered trademark owner can lawfully acquire and sell the goods bearing the registered trademark, provided that the goods were put in the market with the consent of the registered trademark owner.  According to the defendants ,since the products were put in the market with the consent of the trademark owner i.e. the original manufacturers, the refurbishing and rebranding by the refurbishers would not amount to infringement.

The defendants further argued that by refurbishing and rebranding they were not diminishing the product, in fact, they were giving life to a product which would have been discarded by the original manufacturers. The defendants also argued that refurbishment involves more than just label removal; it includes health testing, assigning new serial numbers, and providing consumers with a cheaper product alternative along with a promise of an extended lifetime and support from the refurbishers, thus it would not amount to impairment.

Court’s Decision:

The Court while analysing the issue of infringement dissected section 30(3) into three parts and determined that if these three parts were satisfied, then it would not to be an infringement:

  1. That the goods in question bear a registered trademark
  2. Those goods are lawfully acquired by a person.
  3. Sale of those goods in the market or dealing those goods by that person.

The Court analysed these parts in detail and regarding the first part was of the view that the goods in question i.e. the HDDs, bore the trademark of the plaintiff originally before they were refurbished and sold. Regarding the second part, the Court observed that the acquisition was lawful considering that there is no law, regulation or policy which prohibits importation of these HDD’s or their sale. Thus the first two conditions were satisfied, whereas for the third part, the court considered sale of the goods to mean the sale of the goods with the original logo. Therefore, if the goods were being sold without the original logo then the defendants will not be able to rely on the protection offered to them under Section 30(3). To simplify, if the defendants wanted to continue to refurbish and sell the HDDs then they would have to do so without removing the labels and trademarks of the original manufacturers.

Guidelines Issued:

To balance the interest of trademark owners on one hand, refurbishers on the other and keeping in mind the market demand for refurbished goods, the Court provided the following comprehensive guidelines for the sale of refurbished goods:

  1. Packaging must clearly indicate that the products are manufactured by the original manufacturers, with such disclosure being clear but not dominating the packaging.
  2. References to the original manufacturers should only be made through their word marks and not the device marks of the original manufacturers, to prevent consumer deception.
  3. Packaging must specify that there is no original manufacturer’s warranty.
  4. Packaging must prominently state that the product is “Used and Refurbished” by the refurbishers.
  5. The extended warranty provided by the refurbisher should clearly state it is from the refurbisher and not the original manufacturers.
  6. Packaging must reflect an accurate description of the features and purpose of the refurbished product without any misleading statements.
  7. Compliance with these directions is mandatory for promotional literature, websites, e-commerce listings, brochures, and manuals.

Written By Rohit Magesh