The European Court of Justice gives a seminal ruling that strengthens the powers of brand owners.
Davidoff doesn't want cut-price imports of its "Cool Water" perfume. Levi's doesn't want Tesco selling its jeans for less than the authorised price. Is the brand owner set against the consumer?
The European Court of Justice (ECJ) has given its long-awaited judgment in these two cases, which both concerned the rights of brand owners to control the importation (and hence the price) of their products within the European Economic Area (EEA). It has come down heavily in favour of brand owners, by holding that, unless branded goods are placed on the market in the EEA with the brand owner's consent (at which point his trade mark rights are said to be "exhausted"), the brand owner can use his trade marks to prevent the importation of those particular goods into the EEA.
Since the law was the same in both cases, the ECJ only dealt with the Davidoff facts. A&G Imports Ltd (A&G) is a company which engages in parallel importation, that is, it buys goods cheaply in one country and sells them in another country at a higher price. Davidoff sued A&G for trade mark infringement (it owns Cool Water registered for toiletries and cosmetics) on the basis of A&G importing Cool Water into the UK. Davidoff argued that its trade mark rights had not been exhausted because it was clear (from packaging and so on) that it had only consented to these particular bottles of perfume being placed on the market in Asia. A&G argued that by placing its branded goods on the market outside the EEA, Davidoff had implied consent to their resale within the EEA.
In the English High Court, the judge took the view that unless a brand owner expressly objected to the resale within the EEA of goods first sold outside the EEA, there was no reason in UK or European law to presume that he did not consent to such resale. Although Davidoff's distribution agreement with its Asian distributors only allowed the distributors to sell Davidoff's products outside the EEA, it did not specifically prevent sub-retailers from selling the products into the EEA. However, the judge asked the ECJ to rule on the exact meaning of "consent".
The ECJ confirmed the law as set out in the Silhouette sunglasses case, namely that member states cannot introduce domestic law to alter the general EU rule of exhaustion of rights. European trade mark law limits exhaustion of a trade mark owner'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 English court's view, the ECJ held that "consent" must be unequivocal and positive. Although consent may be implied, it cannot be inferred from the mere silence of the brand owner, nor from:
(1) the fact that the brand owner 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 warn- ing of a prohibition on their being placed on the market within the EEA.
Thus it was irrelevant that an importer of branded goods was not aware that the brand owner objected to their resale in the EEA, even if authorised wholesalers had failed to inform him of this. The ECJ's decision is clearly good news for brand owners but some commentators now think the pendulum may have swung too far in their favour.
On the one hand, consumers generally buy quality branded goods for their exclusivity and image. If they want the benefit of a brand owner's investment in the promotion of a brand image then they should pay for it. A law which allows branded goods to be imported cheaply from another market kills the golden goose to no one's long-term benefit and it is important to allow owners of national rights to decide on the level of quality of their goods within a particular market.
On the other hand, detractors say 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 to act as a badge of origin and it should be irrelevant that in commercial reality 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.
Either way, the ECJ's decision is a turning point. The onus is now heavily on the parallel importer to show that the consent has been given to the importation into the EEA of branded goods. It will be increasingly difficult, where there is no express consent of the brand owner, to define exactly when consent can be implied.
This will inevitably result in the need for importers to establish either that the brand 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.
First published in Brand Strategy in January 2002.