EUROPEAN PERSPECTIVES

Another Step Towards Fortress Europe

The French company, Zino Davidoff, sells a range of luxury fragrances under the trade mark Cool Water on a worldwide basis. All of these products, no matter where they are sold, are physically identical. However, because of variations in market conditions, the prices of Cool Water fragrances are far from identical in different markets. For example, wholesale prices in Singapore are no more than half those found in the UK and the rest of the European Economic Area (EEA). In South East Asia, Davidoff granted a local distributor (Luxasia Singapore) exclusive rights to import, promote, sell and distribute Cool Water products in eight territories, including Singapore. Although the distribution agreement with Luxasia contained the following clause,

"The Distributor undertakes not to sell any Products outside the Territory and shall oblige his sub-distributors, sub-agents and/or retailers to refrain from such sales",

it did not contain a clause that expressly required Luxasia or its sub-distributors etc to restrict the freedom of their purchasers to sell and supply Cool Water products only to those that they (Luxasia) might think fit.

It followed that Cool Water products were sold by Luxasia in Singapore and elsewhere in South East Asia without any notice appearing on the packaging forbidding the resale of the fragrances outside the confines of Luxasia's territory and without any legally binding contractual obligation being imposed on purchasers which restricted their freedom to sell Cool Water products to other (non South East Asian) markets.

Given the huge differences in price between Davidoff's products in Singapore and the UK, it is not altogether surprising that a parallel importer, A & G Imports Limited, decided to import Cool Water fragrances from Singapore and offer them for sale in the UK.

Once Davidoff had noted A & G's activities, they immediately brought an application for summary judgement before the English High Court (Mr Justice Laddie), their action being based, principally, on trade mark infringement (Zino Davidoff S.A. v A & G Imports Limited).

In their action, Davidoff relied on UK trade mark registrations for stylised forms of the marks Cool Water and Davidoff Cool Water. They argued that, on the basis of the ECJ's Silhouette decision, their trade mark rights were not exhausted when goods were placed on the market outside the EEA and that therefore A & G's activities must constitute trade mark infringement in the UK. The Judge disagreed and refused to grant the summary relief requested. Mr Justice Laddie made the following comments and rulings,

• Parallel imports into the UK should be permitted unless the registered trade mark owner places restrictions on where the goods can be sold. In the absence of full and explicit restrictions being imposed on purchasers at the time of purchase, the proprietor is treated as consenting to the goods being imported into and sold in the EEA.

• In the present case, it was at least arguable that Davidoff's implied consent to the onward sale of Cool Water fragrances from Singapore to the UK could be inferred from their decision not to place appropriate restraints on those purchasing these goods in Singapore.

• To avoid implied consent, the restrictions imposed on the first sale must incorporate self perpetuating contractual terms on everyone further down the distribution chain limiting where the goods may be sold.

The English Court realised the importance of the issues raised by this case and therefore requested rulings from the ECJ on a number of questions relating to Article 7 of the Trade Mark Harmonisation Directive, the Article dealing with the exhaustion of trade mark rights. The questions dealt primarily with the circumstances under which a trade mark owner may be found to have consented to the resale of his original, branded goods. At about the same time, the English Court also considered a case involving the parallel importation of original Levi's 501 jeans to the UK from Canada, Mexico and the USA by the UK supermarket chain Tesco. Once again, the Court put a series of questions to the ECJ aimed at clarifying the rights of trade mark owners and parallel importers under Article 7. The ECJ combined the questions referred in the Davidoff and Levi's cases and, in November 2001, pronounced as follows

• Confirming ECJ decisions in earlier parallel importation cases, the effect of the Trade Mark Harmonisation Directive is to limit exhaustion of the rights conferred on the trade mark

• proprietor to cases where goods have been put on the market in the EEA and to allow the proprietor to market his products outside that area without exhausting his rights within the EEA.

• The concept of consent used in Article 7(1) should be interpreted uniformly throughout the European Union, rather than under the national law of individual Member States.

• Consent to the placing on the EEA market of goods previously marketed outside that area may be express or implied. In the latter case, however, the national Court may only infer that consent has been given if the facts and circumstances of the case unequivocally demonstrate (emphasis added) that the trade mark proprietor has renounced his rights to oppose the placing of the goods on the market within the EEA.

• The parallel importer must prove that the necessary consent to EEA marketing has been given.

• Implied consent to the importation of goods to the EEA from outside that area cannot be inferred from

  - The mere silence of the trade mark proprietor.

  - The fact that the trade mark proprietor has not communicated his opposition to marketing within the EEA.

  - The fact that the goods do not carry any warning that it is prohibited to place them on the market within the EEA.

  - The fact that the trade mark proprietor transferred ownership of the goods bearing the mark without imposing contractual reservations.

  - The fact that, according to the law governing the contract, the property right transferred includes, in the absence of such reservations, an unlimited right of resale or, at the very least, a right to market the goods subsequently within the EEA.

• It was not correct to recognise deemed consent, rather than implied consent. Community law required that consent should be positively expressed.

• With regard to the exhaustion of the trade mark proprietor's exclusive rights, it is not relevant that:

  - The importer is not aware that the proprietor objects to their being placed on the EEA market or sold there by traders other than authorised retailers.

  - The authorised retailers and wholesalers have not imposed on their own purchasers contractual reservations setting out such opposition, even though they have been informed of it by the trade mark proprietor.

Comment

Although one should never underestimate the ability of the English judiciary to rule in favour of what they see as legitimate competition, this ECJ ruling does appear to blow a hole in long established English common law views on parallel importation. From now on, it will be extremely difficult for a parallel importer to import original, marked goods from outside the EEA into that area. With the exception of the highly regulated pharmaceutical industry, where EEA governments still tend to impose prices, this will mean that luxury brand owners will be able to set the same or very similar (high) prices throughout the EEA region and maintain that price in the face of much cheaper versions of the same luxury products being available in, for example, North America and the Far East. This will not stop Levi's jeans losing market share to rivals such as Diesel, but it may allow a faltering brand to maintain profitability for a while longer.

This case raises one of the most fundamental trade mark questions, namely should a brand owner be allowed to use trade mark law to dictate the way in which his products are sold and the price at which those products are made available to the public? In the writer's view, the answer should be yes. The sale of Chanel No. 5 perfume or Hermes scarves at a knock down price, alongside fruit, vegetables and soap powder, in a UK supermarket is bound to affect the cachet and allure of those brands and therefore the value of those brands to the trade mark owner adversely. Such trade mark owners should be free to choose their own exclusive network of distributors. This does not prevent consumers from buying perfumes or scarves at lower prices, they simply have to choose alternative, cheaper products.

Finally, it is reported that the English supermarket Tesco may not yet be ready to accept that they cannot import Levi's jeans from the USA into the EEA. They are now threatening to invoke human rights legislation to overturn the effects of the above parallel importation ruling. As always, watch this space for further developments.