Cheap Cigars?

Headline

The Court of Appeal has finally found a set of circumstances from which it was prepared to imply consent from a Trade Mark owner to its goods being sold in territories other than those for which express consent had been given.

The Case

Mastercigars Direct Limited -v- Hunters & Frankau Limited and Others. (2007) EWCA Civ 176. Court of Appeal (leading Judgment: Jacob LJ).

Context

A registered Trade Mark gives its owner (the "Brand") the exclusive right to use the mark in question on or in relation to the goods/services covered by its Specification. This right is limited to determining when the goods are first sold. Once the Brand has consented to its goods being sold, its Trade Mark rights are said to have been "exhausted", and it cannot later rely on Trade Mark rights to prevent further sales of those goods. However, Trade Marks operate on a national/territory by territory basis, and consent can therefore similarly be given (or withheld) on a territory by territory basis. (Except in the case of Marks/territories within the EEA, where the principles of free movement of goods dictate that once a Brand has agreed to goods bearing its Mark being sold in any EEA territory, its Trade Mark rights are then exhausted throughout the whole market, and it cannot complain if the product is subsequently sold in other countries within the market).

The result is that even if the goods in question are physically exactly the same, if the Brand has agreed to its products being distributed in, for example, Singapore, its Trade Mark Rights elsewhere (here, for example) have not been exhausted. It can therefore stop genuine product being sold in the UK by taking an action for Trade Mark infringement.

Supermarkets, independent outlets, and importers have long argued that this is an unfair practice, harming the consumer by preventing competition, and that using Trade Mark registrations to prevent the sale of genuine product is really an abuse of the system, which was originally created to give consumers a "badge of origin", and not to help Brands to maintain price levels by carving up markets. Their concerns were often made worse when they perceived that Brands actually caused the problem, by over-supplying product into their "authorised" territory, not marking the product to make it clear that it was not for export, not preventing its distributors by contract from exporting, and/or turning a blind eye in most cases to the product then being exported. They argued that in cases like that, even if the Brand claimed that it did not consent to the goods being sold elsewhere, it should be taken as having impliedly consented.

Legally, the watershed was reached in 2001, when disputes about grey market Davidoff perfumes and Levis jeans went from the English High Court to the European Court of Justice. In Zino Davidoff –v- A&G Imports Ltd (2001) ECR I-8691, the ECJ found against the parallel importers and supermarkets. It ruled that although "consent" (for Trade Mark purposes) can be implied as well as express, implied consent will only be found in the most extraordinary cases. That is, where the surrounding facts and circumstances "unequivocally demonstrated" that the Brand had renounced its rights to oppose the placing of the goods on the market in the EEA.

There have since been a number of cases in the English Court, in which importers and others have tried to establish "implied consent". They have all failed.

Facts

In Cuba, the production and sale of hand made cigars is in effect controlled by Corporacion Habanos SA ("HSA"), in which the state is a 50% joint venture partner, and which owns a number of registered Trade Marks (including in the UK). Commercial exports are controlled by HSA, and are by way of sale to authorised overseas distributors. Within Cuba, they are physically sold by franchised outlets (Casas), who agree not to re-sell them outside of Cuba. A foreigner taking them out of the country in any quantity needs to have paperwork showing they were bought legally (which forms include translations in German). There was an informal arrangement between HSA and the outlets by which individual sales were limited to around US$2,000 worth, except in the case of the Casas del Habano chain (sales by which were the subject of this case), where the limit was US$25,000 per purchase.

The Defendants imported commercial quantities of cigars which had been bought from official outlets. The claimant alleged that no "consent" had been given to their introduction to the EEA, and that their sale would therefore infringe registered trade marks.

Decision

At 1st instance, the Judge had accepted the assertion that there was no express consent to the products being sold in the EEA, and that the evidence fell short of the "unequivocal" demonstration that was required. The Court of Appeal disagreed. It reached different conclusions about some of the evidence (and noted the apparent desire by HSA and others involved to seek the "hard currency" benefits of large scale exports) and decided that this was more than mere inaction by the Brand. (In Davidoff, it was held that if a Brand knows about the activity, and does nothing to police or prevent it, that of itself does not give rise to an implied consent). Rather, this was a Trade Mark owner actually facilitating the export of what were plainly commercial quantities of cigars, by purchasers who obviously might be going to take them in the EEA in order to re-sell.

Jacob LJ was satisfied that consent had been given in fact, and should be implied: "It seems to me blindingly obvious that HSA are saying in effect to the Casas 'you can sell these small but commercial quantities to foreigners, and if you do you must give them the appropriate documentation so they can go through Customs so they can take them home to sell'. And that conclusion leads ineluctably to the conclusion that consent to the use of the trade marks on the purchaser's home market is given. The "unequivocal" test is passed. Despite having exclusive distributors outside Cuba, HSA were prepared not only to tolerate but to allow small commercial quantities to be purchased by foreigners within Cuba for them to take out and re-sell abroad".

Comment

On its face, the decision does not seem surprising – most people seeing these facts would assume that the HSA should be taken to have consented to what was a very likely (if not actually positively intended) result of their overall practices and policies. But the Judge at first instance had thought otherwise, following the post Davidoff trend. This decision is therefore important because it is the first decision which shows that "implied consent" can in fact be shown, and is not just a theoretical possibility which can never be achieved in practice. Whether it will lead to further cases where the Court is now ready to imply consent by a Brand, or will remain an isolated aberration created by the exigencies of the Cuban economy, remains to be seen.