ECJ: Trademark Owner Can Take Action If Licensee Resells Goods to Discount Stores
Owners of prestigious trademarks are keen on guarding the
exclusive image of these trademarks. One way to do so is to have
the trademark goods traded only by means of exclusive or selective
distribution. But what can a trademark owner do if a distributor
acts in violation of the agreements on exclusive dealing, and
resells the trademark goods to a party that is not part of the
exclusive system? Naturally, the trademark owner may bring an
action for breach of contract. But he would much rather bring an
action based on his exclusive trademark right, as this gives him
more options (for example to claim surrender of profits and full
compensation of legal costs). However, this is usually prevented by
the rule of exhaustion, that prescribes that once trademark goods
have been brought into the market with the consent of the trademark
owner he can no longer oppose further distribution of the goods.
This was recently confirmed again in a case about further
distribution of 'tester' perfume bottles of the Davidoff
trademark (Court of The Hague in preliminary relief proceedings, 29
January 2009; www.boek9.nl, B9
7529).
The case that gave rise to the judgment of the European Court of
Justice (ECJ) relates to goods of the well-known French fashion
house Dior. Besides perfumes, Dior makes lingerie, which it brings
on the market through a system of selective distributors
(licensees), including Société Industrielle Lingerie
('SIL'). The license agreement with SIL contains a clause
prohibiting SIL from selling the trademark goods to discount stores
that are not part of the network of Dior's selective
distributors. When SIL did this anyway, Dior sued both SIL and the
discount store, Copad, for trademark infringement. The French court
thereupon posed preliminary questions to the ECJ, which relate to
Articles 7 and 8 of the Trademark Directive.
Article 8(2) of the Trademark Directive provides that the
trademark owner may invoke the rights conferred by that trademark
against a licensee under certain circumstances. According to the
ECJ, the circumstances mentioned in this article are comprehensive,
but the ECJ also holds - which is new - that if the licensee acts
in contravention to the license agreement and thereby 'damages
the aura of luxury of the luxury goods, thus affecting their
quality', the trademark right may be invoked against the
licensee. Pursuant to Article 8(2) of the Trademark Directive
(which was implemented in the Benelux in Article 2.32(2) of the
Benelux Treaty on Intellectual Property ('BTIP')), the
trademark owner may therefore on grounds of his trademark right act
against a licensee who violates a license agreement that prohibits
the sale to discount stores for reasons of prestige. However,
according to the ECJ, in that case it is required that there is an
impairment to the allure and prestigious image which bestows on the
goods an aura of luxury.
Subsequently the ECJ rules on Article 7 of the Trademarks
Directive (Article 2.23 of the BTIP). This article contains the
above-mentioned rule of exhaustion, which provides that a trademark
owner cannot oppose further distribution of goods that have been
brought into the market with his consent. Since it is usually
assumed that goods that were traded through a licensee have indeed
been brought into the market with the consent of the trademark
owner, this article usually does not provide a remedy for trademark
owners in the event of resale by the licensee. Now, the ECJ has
ruled that if there is a situation as referred to in Article 8(2) -
that is if the trademark owner can oppose the resale by a licensee
on grounds of his trademark right - the exhaustion rule does not
apply. This means that in that case the trademark owner may also
apply directly to the party to whom the goods were resold - in this
case to Copad - and may invoke his trademark right. Finally, the
ECJ also considered that if the rule of exhaustion does apply, the
trademark owner may oppose the further distribution of his goods if
this would be detrimental to the trademark's reputation.
All in all, this judgment of the ECJ makes it easier for owners
of prestigious trademarks to take action if a licensee acts in
breach of the license agreement and resells the trademark goods to
discount stores. However, some more clarity is still needed as to
when exactly 'the aura of luxury' of the goods is affected.
No doubt we will still see new case law on this question.