A question which continues to plague trade mark owners and prospective parallel importers is whether trade mark rights can be exercised in Europe to prevent 'grey' imports (original goods which have been sold in another jurisdiction with the right owner's consent} or whether, on the contrary, European law recognises the international exhaustion of trade mark rights. In two relatively recent decisions, Silhouette ([1998] FSR 474) and Sebago ([2000] RPC 63), the European Court of Justice ("ECJ") established that Article 7(1) of the European Trade Marks Harmonisation Directive (89/104/EEC: "the Directive") precludes national rules that provide for the international exhaustion of trade mark rights. The decision in Sebago also added that the legal consequence of exhaustion - the inability to bar further sales by reliance on trade mark rights - can arise only if the trade mark owner's consent to the first marketing extended to each individual item of the goods.

Neither of those cases, however, addressed the issue of what constitutes 'consent' under Articles 5(1) and 7(1) of the Directive. Accordingly, in 1999 the English High Court referred questions on this point to the ECJ in two grey goods cases, Zino Davidoff SA v. A&G Imports Lid (relating to perfumery) and Levi Strauss & Go & anr v. Tesco Stores and ors (relating to jeans). On 5 April 2001 the Attorney General of the ECJ, A.G. Stikx-Hackl, gave her Opinion on those questions. While the Opinion is not binding upon the Court, which will probably give its final decision later this year, the Opinion does indicate the sort of analysis which the Court may apply.

The Attorney General states that Article 5 and 7 embody a complete harmonisation of the rules relating to trade mark infringement and exhaustion regardless of whether the goods were placed on the market inside or outside the EEA. She considered it unclear whether the word 'consent' had the same meaning in both Articles. However, Article 7(1) is a restriction on the proprietor's ability to bring an infringement action under Article 5(1). She concluded, therefore, that the questions referred to the ECJ were to be considered in the light of Article 7(1).

Consent should not be construed as a matter of national law (either lex fori or the governing law of the contract}, but as a matter of Community law. To allow otherwise might be to allow the re-importation of the principle of international exhaustion by the back door given the possible number of distributors in the

chain before the goods entered the Community and the number of contracts. The application of Community law was in the interests of harmonisation. The Attorney General therefore rejected, amongst other submissions of the parallel importers, the argument based on property law that the proprietor was only able to limit the title given to a licensee if they expressly reserved certain rights to themselves. She also rejected the related argument that the proprietor could only indicate a reservation of rights by indelibly marking the goods, reasoning that consent to the placing of goods on the market does not depend upon the transfer of rights, but on the exercise of those rights.

What therefore is needed for consent under Community law? The Attorney General derives her analysis from the older cases on exhaustion, such as Deutsche Grammophon [1971] ECR 487, decided under what are now Articles 28 and 30 of the Treaty of Rome. Through these emerged the principle of attribution i.e. the goods were placed on the market in the EEA by the proprietor or that action could be attributed to them when it came to the legal consequences arising from exhaustion. When considering whether such action could be attributed to the proprietor, the court had regard to certain objective criteria, such as the behaviour of the proprietor and whether they had, or could have availed themselves of, an opportunity to exercise the rights of exclusivity within the EEA.

The Attorney General noted, however, that Article 7(1) could not necessarily be construed in the same way as Articles 28 and 30 -which is logical since it did not have as its purpose the harmonisation of the free movement of goods worldwide. Sebago suggested a distinction between situations where the goods were first placed on the market in the EEA and situations where they were first placed on the market outside the EEA. Indiscriminate application of Article 7(1) would not take account of these different starting positions: within the EEA the transfer of the power of disposal of the goods coincides with the first placing of the goods on the market, whereas these do not coincide when the first placing of the goods on the market takes place outside the EEA. This factual difference gives rise to different possibilities over the control of the distribution chain.

In its decision in Sebago, the ECJ focused on the proprietor's control of the initial marketing of the goods in the EEA through determining, enforcing or monitoring of the distribution chain. The Attorney General therefore inferred that consent to the placing of goods on the market in the EEA cannot be assumed in so far as the proprietor has not had any opportunity to control the initial marketing within the EEA of the products bearing the trade mark.

However, she did not conclude that the proprietor can always claim that their rights are not exhausted if the goods are put on the market outside the EEA. Rather, the principle of free movement has to be balanced against the need to protect the trade mark. The Court has to consider whether in the circumstances of the case the proprietor's conduct has led subsequent purchasers to believe that the proprietor had waived their exclusive rights to first market within the EEA.

If for example, the proprietor had lost control of the distribution of the goods in countries outside the EEA, they might try to reimpose control when the goods were first marketed within the EEA by way of sales bans, territorial restrictions on purchasers' rights of disposal, export bans etc. Depending on the form of these measures, they may give rise to legitimate expectations in the minds of subsequent purchasers which merit protection. In all this, the proprietor cannot act at variance with their own conduct when the goods were actually first placed on the market. It is up to the national courts to decide whether the proprietor has waived their rights.

The Attorney General also considered what sorts of facts would amount to legitimate reasons which justify a trade mark proprietor in opposing further commercialisation of products bearing the trade mark, under Article 7(2) of the Directive. She included among these any actions of third parties (including the removal of bar codes) which seriously affect the value, allure or image of the trade mark or the products which bear that mark. This supports the decision last August of the Court of Session in Scotland in a very similar case. In Zino Davidoff SA v. M & S Toiletries Ltd, the defender claimed not to be aware that the goods had not originated from within the EEA because the bar codes that would have revealed this fact had been defaced. The defender therefore claimed that it was not aware that it was infringing the pursuer's rights. Lord McCluskey nevertheless granted an interim interdict to prevent further dealing by the defender in DAVIDOFF brand perfumes, regardless of their origin. He held that the tampering with the bar codes indicated an attempt to "facilitate some invasion of the prima facie right of the pursuers under the Directive".

Written by Lorna Brazell and Rebecca Harrison.