Zino Davidoff reference from the UK High Court

Introduction

On 20 November 2001, the ECJ gave its long-awaited judgment in the joined cases of Zino Davidoff SA v. A & G Imports Ltd (C-414/99), Levi Strauss & Co. & Anor v. Tesco Stores Ltd & Anor (C-415/99) and Levi Strauss & Co. & Anor v. Costco Wholesale UK Ltd (C-416/99). The ECJ came down heavily in favour of the trade mark owner, holding that on a proper construction of the Trade Marks Directive (89/104/EEC), if branded goods are placed on the market outside the European Economic Area (EEA), the trade mark owner can use his trade mark rights to prevent their importation into the EEA provided that he has not consented to such importation. The ECJ held that the trade mark owner's consent can be express or implied, although the circumstances in which it will be possible to infer implied consent are likely to be limited.

The Davidoff Case

Zino Davidoff ("Davidoff") is a manufacturer of high cost, luxury products, and is the owner of two trade marks, namely "Cool Water" and "Davidoff Cool Water", registered in respect of and used on a broad class of toiletries and cosmetics. Davidoff 's products are manufactured in France and distributed from there to the rest of the world. Davidoff 's international marketing strategy means that there are substantial differences in price in the Asian and European markets between identical goods in identical packaging bearing the trade marks. A&G Imports Ltd ("A&G") is a company which engages in parallel importation, i.e. it buys goods at one price in one country and sells them in another country at a higher price

Davidoff brought a claim against A&G for infringement of its trade marks based on Article 5 of the Trade Marks Directive ("the Directive"), arguing that its rights had not been exhausted under Article 7(1) of the Directive. Davidoff argued that the exhaustion principle did not and could not apply where goods placed on the market outside the EEA were brought into and sold within the EEA. In support of this argument, Davidoff relied upon the ECJ's decision in Silhouette where it was held that it was not open to Member States to provide in their domestic law for international exhaustion of trade mark rights in respect of products placed on the market outside the EEA.Since all of A&G's stock must have been obtained either directly or indirectly from outside the EEA, Davidoff argued that its trade mark rights had not been exhausted and it was entitled, under Article 5, to prohibit the use of its trade mark in respect of those goods and thus to prevent their importation into the EEA.

A&G argued that they were entitled, under English sale of goods law, to deem the placement of the trade marked goods on the market outside the EEA by Davidoff as consent to further marketing within the EEA. Davidoff disputed this, arguing that this deemed consent effectively amounted to a back door mechanism of imposing international exhaustion of rights, which, according to the Attorney-General's Opinion in Silhouette and Sebago, no Member State could do.

UK High Court Decision

Following an application by Davidoff for summary judgment, Mr Justice Laddie held that the question to be determined in this case was whether or not Davidoff had consented to the importation of its goods into the EEA. The Sebago case, which related to whether or not the trade mark proprietor could prevent the importation of goods bearing his mark when he had not consented to the marketing of those particular goods within the EEA but he had consented to the marketing within the EEA of other similar goods bearing the trade mark, was not relevant to the issues in this case.

With regard to whether or not Davidoff could prevent the importation into the EEA of its products placed on the market outside the EEA, Laddie J took the view that there was nothing in existing case law or Community law to support the suggestion that there is a presumption that a proprietor objects to unfettered distribution of goods which had been sold on the open market outside the EEA unless he expressly consented to such further distribution. Instead, Laddie J held that if the goods were placed on the market in circumstances where the trade mark proprietor could have placed, but did not in fact place, an effective restraint on their further sale or movement, then purchasers of those goods were free to market the goods wherever they liked including within the EEA and the trade mark proprietor was to be treated as having consented to such marketing. The Court examined the terms of Davidoff's exclusive distribution agreements with its Asian distributors and held that, even though the agreements provided for undertakings by the distributor to sell Davidoff's products solely within a defined territory outside the EEA and to impose on co-contractors a prohibition on resale outside the territory, the sub-distributors, sub-agents and retailers were free to sell the products within the EEA without Davidoff restricting the purchaser's freedom to sell them on, reserving its trade mark rights, notifying the purchaser of such reservations or imposing any legally binding obligation upon the purchaser.

Davidoff 's application for summary judgment was dismissed by the High Court, but the proceedings were stayed pending a reference by the High Court to the ECJ on the interpretation of the Directive, and in particular the meaning of "consent" in Article 7(1).

ECJ Decision

The ECJ confirmed the law as set out in Silhouette, namely that Member States cannot introduce by way of domestic law a principle of international exhaustion. The Directive limits exhaustion of a trade mark proprietor's rights to cases where goods have been put on the market in the EEA and allows the trade mark proprietor to market his products outside that area without exhausting his rights within the EEA.

Contrary to the view expressed by Laddie J, the ECJ held that on a proper construction of Article 7(1), the "consent" of a trade mark proprietor to the marketing within the EEA of products bearing the trade mark which had previously been placed on the market outside the EEA by the trade mark proprietor or with his consent must be so expressed that an intention to renounce his trade mark rights is unequivocally demonstrated. Although such an intention will normally be seen in an express statement of consent, the ECJ held that consent may be implied where it follows from the facts and circumstances prior to, simultaneous with or subsequent to the placing of the goods on the market outside the EEA, where those facts or circumstances unequivocally demonstrate, in the view of the national court, that the proprietor has renounced his right to oppose placing of the goods on the market within the EEA.

Accordingly, "consent" must be expressed positively. It cannot be inferred from the mere silence of the trade mark proprietor. Furthermore, the ECJ held that implied consent cannot be inferred from:

  1. the fact that the trade mark proprietor had not communicated to all subsequent purchasers of the goods placed on the market outside of the EEA his opposition to marketing within the EEA;
  2. the fact that the goods carried no warning of a prohibition on their being placed on the market within the EEA; and
  3. the fact that the trade mark proprietor had transferred the ownership of the products bearing the trade mark without imposing any contractual reservations and that according to the law governing the contract the property right transferred includes, in the absence of reservations, an unlimited right of resale or, at least a right to market the goods subsequently within the EEA.

In considering the question of exhaustion of trade mark rights, the ECJ held that it was irrelevant that the importer of the goods bearing the trade mark was not aware that the trade mark proprietor objected to their being placed on the market in the EEA or sold there by traders other than authorised retailers. Furthermore, the fact that the authorised retailers and wholesalers had not imposed on their own purchasers contractual reservations setting out such opposition even though they had been informed of it by the trade mark proprietor, was also irrelevant.

Comment

The ECJ's decision is clearly good news for trade mark owners but has the pendulum now swung too far in favour of the trade mark owner? Opinion is divided.

On the one hand, the ECJ decision could be said to be very fair. Consumers generally buy quality branded goods because of the exclusivity and image of the brand. If they want to reap the benefit of the trade mark owner's investment in the promotion of the brand image then they should pay for it. If the law were to allow goods to be imported cheaply from another market, the trade mark owner would stop spending his time and money in promoting the brand in that particular market and the brand would gradually lose its exclusivity and image. The commercial reality is that trade marks now act as indications of quality and as "style symbols" and it is important to allow owners of national rights to decide on the level of quality of their goods within a particular market.

The alternative, and perhaps more common, view is that the ECJ's decision allows trade mark owners to create price differentials in different countries, thereby partitioning the world market by preventing imports. The purpose of a trade mark is, and always has been, to act as a badge of origin. It is irrelevant whether the commercial reality is that they now also denote quality and status. Provided that the trade mark serves its purpose in denoting origin then it makes little difference to the consumer whether those goods were first placed on the market in the US, UK or China. The ECJ's decision preserves the trade mark owner's strangle-hold over his supply chain, allowing him to use his trade mark rights to prevent importation of his goods from outside the EEA, thereby distorting competition. This is not what trade marks were originally designed for.

Whatever view one holds, the ECJ's decision is a turning point. The onus is now heavily on the parallel importer to show that the trade mark owner has given its consent to the importation and hence onward trade in the EEA of the products bearing the trade mark. It will be increasingly difficult, where there is no express consent of the trade mark owner, to define exactly those circumstances when consent can be implied. This will inevitably result in the need for importers to establish either that the trade mark owner has expressly consented to the importation of the products into the EEA or that the products are marked in some way to show that the trade mark owner has not reserved his exclusive rights in relation to importation of the products.

Also published in the January 2002 edition of WIPR.


Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.