Food for Thought – Brand sales: barcodes

Our commercial contracts team regularly advises a leading global food manufacturer and distributor in regard to the disposal of household name brands. One interesting element of these transactions is the contractual obligations relating to barcodes.

By way of background, the starting position is with a not-for-profit organisation that develops and maintains global standards for business communication, known as GS1. In this jurisdiction, GS1 UK provides suppliers with licences to use their own unique company prefix (which allows them to track all of their products across multiple product ranges) and for each product to have a Global Trade Item Number (GTIN). Each GTIN uniquely identifies an individual product and is the number shown beneath barcodes. The GTIN will also include the supplier’s unique company prefix.

Before a supplier sells a brand to another company, they should consider the implications on the GTINs for its product range. As part of any disposal process, suppliers should factor in that the terms of the GS1 licence provides that GTINs cannot be transferred on a brand sale. Consequently, an alternative solution is required.

Where a selling supplier maintains a unique company prefix covering multiple brands and one of the brands is sold, the selling supplier will want to retain and keep their use of their unique company prefix for their other brands. We can advise on the process that needs to be followed to facilitate this. Usually, it is limited to the buyer exhausting all existing stock carrying the selling supplier’s GTIN. We can provide advice as to UK practice as buyers may not be comfortable that transferring existing stock will meet their future onward supply needs.

If a seller allows their GTINs to continue to be used by a third party beyond what is permissible under their GS1 UK licence, this may result in termination of the selling supplier’s licence (which may include other products/brands). This could have a significant impact on a supplier’s ability to sell its products. The consequences are even more significant in the food sector as many supplier’s use their GTINs to monitor and track the location of the products both for commercial and for regulatory compliance reasons. As a result, a risk sensitive supplier will prohibit the buyer of a brand from manufacturing and issuing GTINs which include the selling supplier’s unique company prefix. We can advise on practical ways to deal with these issues in a way that is consistent with the licence terms and acceptable to GS1 UK.

This article is from the spring 2020 issue of Food for Thought, our newsletter for those working within the food and drink industries. For further information please contact Jack Shreeve or a member of Birketts’ Corporate team. To download the latest issue, please visit the newsletter section of our website.