The European Court of Justice (ECJ) has clarified trade mark exhaustion rules, deciding that branded goods not sold in the European market remain in the control of the rights owner.
In its November 30 decision in Peak Holding AB v Axolin-Elinor AB, the Court clarified that trade mark rights are exhausted the moment protected goods are sold to a third party in the European Economic Area (EEA).
In such a case, exhaustion would happen regardless of whether the contract between the trade mark owner and the third party stipulated otherwise.
Importantly for trade mark owners, the Court said that the moment a trade mark owner sold his goods to a third party in the EEA, he had put them on the market, which under article 7(1) of the EU trade marks directive meant that his trade mark rights became exhausted.
The article states that the trade mark does not allow the owner "to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent".
However, in relation to the dispute between Danish company Peak Holding and Swedish company Factory Outlet (today Axolin-Elinor), the Court said that trade mark rights are not exhausted if the owner imported goods to the EEA with the intention of selling them, but did not actually do so.
"Where the proprietor imports his goods with a view to selling them in the EEA or offers them for sale in the EEA, he does not put them on the market within the meaning of article 7(1) of the directive," the Court wrote.
Such an action left the trade mark owner in full control of his goods and did not permit third parties to dispose of them. "Exhaustion occurs solely by virtue of the putting on the market in the EEA by the proprietor," added the Court.
The decision is good news for brand owners, giving them the security that they can use their rights to stop excess stock sold outside the EEA from being re-imported, said Michael Golding, IP partner at Lovells. But he added that it also highlights some aspects that could cause confusion: "To a lot of clients, especially in the US, the whole idea of exhaustion of rights is completely artificial."
Under the existing decision, a brand owner can sell his goods to a so-called jobber (companies who get rid of excess branded stock) under an agreement that the products can be sold only outside the EEA, for instance in Morocco. In light of the recent decision, it remains unclear what happens to his rights if this jobber is based in the EEA and re-imports the same goods back to the EEA.
"For many clients it is hard to understand that it can make a difference whether you sell to a jobber in Southampton or Tangier," said Golding. "If they sell to a jobber in the EEA they lose the right to prevent re-importation even if their contract with the jobber obliges him to sell outside the EEA. But, they retain that right if the jobber is based outside the EEA."
The judgment is good news for Peak Holding, owner of the Peak Performance trade mark, which had granted the Peak Performance Production (PPP) company in Sweden a licence to produce and sell clothing bearing its mark in the country. The company had interfered when Factory Outlet, which sells branded clothing obtained through parallel imports or re-imports, started advertising and selling clothing with the Peak Performance brand at half price in 2000. The clothes were those that had remained unsold by PPP.
