Exhaustion of rights
A recent decision of the European Court of Justice (“ECJ”) has been hailed by manufacturers of trade marked goods as a victory, but criticised by major retailers and consumer associations.
The decision relates to the practice of “parallel importing” in three joined cases which were heard by the ECJ:
Zino Davidoff SA .v. A&G Imports Limited, Levi Strauss & Co. and another .v. Tesco Stores Limited and another and Levi Strauss & Co. and another .v. Costco Wholesale UK Limited.
The cases originated before the High Court of Justice of England and Wales, which referred a number of legal questions to the European Court for its decision.
Davidoff make a range of cosmetic products and Levi Strauss make their famous jeans. In both cases, the defendant supermarkets had bought large quantities of the products from parallel importers outside the European Economic Area (“EEA”). The parallel importers, located outside the EEA, had bought the products from the manufacturers. The core issue before ECJ was whether it constituted a breach of the manufacturers’ trade marks for the supermarkets to buy the goods from a person located outside the EEA and to then sell them on to consumers within the EEA.
It is well settled in European law that once the owner of a trade mark sells goods bearing the mark within the EEA, it is not then a breach of the mark for a person to buy the goods and sell them on again within the EEA. This is known as the “exhaustion of rights” principle, i.e. the owner of the trade mark has exhausted his rights by putting the goods on sale in the EEA. He cannot object to the goods being sold on again in the EEA.
However, in this case Davidoff and Levi Strauss had sold the goods to a purchaser outside the EEA and had not said anything, in their sale agreement, about permission for the goods to be sold on within the EEA.
The ECJ decided that it was a breach of trade mark for the supermarkets to purchase the goods from outside the EEA and put them on sale for the first time within the EEA. The decision confirms the right of manufacturers to stop the import into the EEA of goods which have been put on the market outside that territory, even if the trade mark holder has not indicated any opposition to the goods being sold on within the EEA at the time of first sale.
The decision is likely to have consequences for consumers interested in buying a number of products including electrical goods, perfumes, jewellery and clothes. Such goods have often been subject to parallel trading, with the result that they are made available to consumers at cheap prices, but the ECJ decision makes it clear that this practice will now have to stop.
David Phelan
July 2002