With increasing customer preference for environmentally-friendly products and minimal waste, upcycling is becoming more and more popular. But dig a little deeper and the trend of upcycling raises a whole suite of intellectual property issues – not least because New Zealand’s intellectual property law does not appear to have contemplated the new phenomenon.
Protecting trade marks and reputation
A trade mark is a sign (for example, a name, brand, colour, taste, or word) capable of being represented graphically and that distinguishes the goods or services of one person from those of another. Trade marks are “badges of origin” – an indication to consumers who produced the goods or services they are about to purchase. Upcycling poses a new challenge to businesses looking to control their reputation through their intellectual property, and may force a rethink on how these can better be protected.
When upcycling is carried out by brand owners, no trade mark issues arise. However, when upcycling is performed by unrelated third parties, this can give rise to a potential trade mark infringement claim. In New Zealand, a person infringes a registered trade mark if they do not have the right to use the mark, and use an identical or similar mark in the course of trade.2
With fashion a key focus of the upcycling trend, we look at the intellectual property implications of upcycling fashion products in particular, the implications of recent US case law and what this could mean in a New Zealand context.
Recent US examples
While upcycling hobbyists who sell their creations on platforms like Etsy are unlikely to face significant legal scrutiny, upcyclers who compete commercially with the original brand owner are more likely to find themselves subject to legal challenge. Most of the case law in this area is coming out of the US to date.
Nike, Inc. v MSCHF Product Studio, Inc.
In 2021, art collective MSCHF released its ‘Satan Shoes’ in collaboration with rapper Lil Nas X. Nike sued MSCHF, alleging that the company had materially altered the Nike Air Max 97 shoes to feature a “satanic theme” – alterations included referring to the shoe as the ‘Satan Shoe’, and adding red ink and human blood to the midsole, a bronze pentagram to the laces, an inverted cross to the shoe’s tongue, and an embroidered reference to the biblical passage, Luke 10:18, on the side of the shoe. Further, 666 pairs of the shoes were produced.
Source: Nike, Inc. v MSCHF Product Studio, Inc. Case No. 21-cv-1679 at 3
Nike argued that the Satan Shoes were an infringement of its trademarks and were “likely to cause confusion and dilution and create an erroneous association between MSCHF’s products and Nike… Decisions about what products to put the SWOOSH on belong to Nike, not to third parties like MSCHF.” Nike also produced evidence that it had suffered significant harm to its goodwill, with consumers and potential consumers believing Nike endorsed Satanism.
Nike was granted a temporary restraining order, preventing MSCHF from using Nike trademarks and fulfilling any orders for the Satan Shoes. The case eventually settled, with MSCHF issuing a voluntary recall on the Satan Shoes.
Hamilton International Ltd v Vortic LLC
Vortic, a small watch manufacturing company, restored antique pocket watches by turning them into wristwatches. Vortic sold ‘The Lancaster’, a watch that featured refurbished pocket watch parts that featured the trademark of Hamilton, a large watch manufacturer. The back case of the watch included the words “Vortic Watch Co” and Vortic’s serial number. Each buyer also received a booklet that displayed Vortic’s logo and described its manufacturing, assembly, and restoration process.
Hamilton claimed that The Lancaster infringed its trademark and was sold without Hamilton’s consent, causing confusion as to the watch’s origin and giving the false impression that the watch was affiliated with Hamilton.
The District Court held that particular characteristics of The Lancaster would lead reasonable consumers to view it “as restored antique pocket watch movement, face, and hands that have been reincorporated into a new wristwatch.” Further, an ordinary prudent purchaser viewing the watch would conclude "that the Hamilton mark is only displayed because Hamilton created the original movement, face, and hands that have subsequently been restored." The court also found there was no evidence of actual customer confusion and that Vortic had demonstrated good faith in producing The Lancaster.
On appeal, the Second Circuit court endorsed the District Court’s approach.4
Is the doctrine of exhaustion an applicable defence?
The doctrine of exhaustion is a defence to trade mark infringement and constitutes a limit to intellectual property rights. Simply put, once a product has been sold in the market by the brand owner (who owns the applicable intellectual property rights), the owners’ intellectual property rights in the product are exhausted and can no longer be exercised. The US courts, as demonstrated above, are only likely to decide that upcycled products have infringed a trade mark where the source product has been ‘materially altered’, and particularly in circumstances where consumers are likely to be misled or deceived by the origin/authenticity of the upcycled product.
New Zealand law has recognised this defence under the Trade Marks Act 2002 and the Copyright Act 1994, in the context of permitting parallel importing. However, New Zealand intellectual property law, as it stands, does not appear to have contemplated the modern phenomenon of upcycling. The provisions in the Trade Marks Act and the Copyright Act deal with the doctrine only on an international level – and only in an importing context.
Given the US case law, and the propensity to settle such claims outside of court, it is unclear where a New Zealand court would land on the issues raised in the Nike or Hamilton cases. It may be that a common law claim of passing off could be made, or a claim for breach of the Fair Trading Act 1986 (FTA) for misleading or deceptive conduct.5
There are a range of other New Zealand provisions that could also come into play. Under section 16 of the FTA, it is an offence to forge a trade mark or to falsely apply to any goods any trade mark which resembles a trade mark likely to mislead or deceive.
Further, under section 90 of the Trade Marks Act, a registered trade mark is infringed where there is non-compliance with certain contractual requirements that require the purchaser or owner of the goods not to do specific acts. These forbidden acts include:
- the alteration, part removal, or part obliteration of the trade mark;
- the application of any other trade mark to the goods; or
- the addition to the goods of any written material that is likely to damage the reputation of the trade mark.
What can New Zealand businesses do to protect their trade marks?
New Zealand businesses may wish to think about how they can further protect their intellectual property in response to the upcycling trend. Failure to do so could leave them open to reputational damage from trade mark infringement – or open to legal action if they are participating in upcycling products that involve someone else’s trade marks.
Businesses that are involved in upcycling should consider engaging proactively with trade mark owners – here, it’s better to ask for permission than forgiveness. In some cases, trade mark owners may consent to the upcycler’s use of the trade mark, meaning upcyclers won’t be at risk of a trade mark infringement claim. Further, a trade mark licence agreement could also be a possible option for upcyclers and trade mark owners.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.