Grey goods - brand owners remain protected

Towards the end of 2009, the ECJ handed down judgment in yet one more parallel importing case. Another long running dispute, the parties to the case in question, Makro and Diesel, had in fact first clashed over the matter at least 10 years previously. The case was eventually referred to the ECJ for guidance.

The background to this case was characterised by a complex series of distribution and licensing agreements between the well-known fashion company Diesel, its distributors, and various sub-distributors. Shoes bearing Diesel’s trade marks then appeared for sale in the discount store Makro.

Diesel brought an action against Makro for trade mark infringement in the Amsterdam district court, which then granted an injunction against Makro. Makro appealed to the higher court (Hoge Raad der Nederlanden). Makro argued that Diesel was no longer entitled to enforce its trade mark rights as these had been exhausted.

In European trade mark law, the doctrine of exhaustion functions as an exception to a trade mark owner’s exclusive rights. The doctrine states that once goods bearing a trade mark are put on the market in the European Economic Area (EEA) with the express consent of the trade mark owner, the trade mark proprietor’s rights are exhausted and he can no longer object to further dealings in those goods within the EEA.

Thus, Makro’s case was that the shoes it was offering for sale had been put on the market with Diesel's consent (following the long chain of distributorship which had been set up), so Diesel's trade mark rights were exhausted, and it could not enforce those rights against Makro.

The main issue for consideration was, therefore, whether Diesel had indeed consented. In this respect, the parties disagreed as to the correct interpretation of the previous case law on consent. Accordingly, the Hoge Raad stayed the proceedings and referred the question to the ECJ.

Reviewing the previous cases, the ECJ noted that these concisely set out the relevant law on trade mark exhaustion and were not to be read as only applicable to particular factual situations. Thus, the law should be uniformly applied by national courts to the different facts and circumstances of each case.

As to what the law was, the Court ruled that, in determining whether trade mark rights have been exhausted, it did not matter whether the goods bearing a trade mark were first placed on the market within or outside of the EEA. Rather, the important question is whether, from the facts, it may be inferred that the trade mark owner has unequivocally renounced his exclusive rights by (impliedly) consenting to the goods being put on the market in the EEA.

The ECJ’s decision has reassured brand owners that the position on trade mark exhaustion and parallel trade has not changed. It must be shown that a trade mark owner has unequivocally consented to goods being placed on the market in the EEA before his rights will be exhausted. This has proved a very high hurdle, which no one has managed to clear since it was first established in 1999.

The decision also highlights how important it is for companies to maintain control of their distribution and licensing networks and ensure that there is no unauthorised use of their trade marks, which may later affect their ability to enforce their exclusive rights. Indeed, it has proved to be a lengthy and, no doubt, costly battle for Diesel to establish its rights. And it is not over. The case has now gone back to the Dutch court to decide whether, on the facts, Diesel did unequivocally renounce its rights. Watch this space.

Makro Zelfbedieningsgroothandel CV & Ors v Diesel SpA ECJ, Case C-324/08