Side by Side - AG Mengozzi Sets Out the Rules Around Parallel Importation and TM Infringement

Many brands don't only compete in a domestic market these days, but a larger global market where individual countries can be incredibly valuable in addition to the country of origin. In these instances parallel importation can be a thorny subject, particularly when the rights to particular goods (or the IP in them) has been licensed or even sold on from the original proprietor. Parallel importation also shares the field with exhaustion, potentially leaving the original seller without recourse as their rights have expired, but the matter hasn't been addressed in the EU courts for over 20 years. In the light of this silence, a case has recently been referred to the CJEU, and ahead of its decision an Advocate General stepped in to provide some well-needed insight into the law and its interpretation.

The case of Schweppes SA v Red Paralela SL related to the sale of soda water. The Schweppes brand of soda water has been sold since the late 18th century by Schweppes. The company also registered the name as a trademark in all European countries as national marks, e.g. the UK (TM 508257). In 1999 Schweppes sold the rights to the name to the Coca-Cola Company in 13 EU Member States (including the UK), keeping their rights in 18 other countries in the EU, among which was Spain. Red Paralela started to import bottles of Schweppes from the UK to Spain, after which Schweppes took Red Paralela to court for trademark infringement, with Red Paralela defending the matter under exhaustion.

The referring court asked four questions, which revolve around Article 7 old Trade Mark Directive and Article 15 of the new Trade Mark Directive relating to the exhaustion of rights in registered trademarks.

Advocate General Mengozzi set out to considered all of the questions together, summarising them as asking "…whether Article 36 TFEU and Article 7(1) of Directive 2008/95 preclude… the licensee of the proprietor of a national trade mark from invoking the exclusive rights enjoyed by the latter under the law of the Member State in which the trade mark is registered in order to oppose the importing into and/or marketing in that State of goods bearing an identical trade mark which come from another Member State, one in which that trade mark, which was once owned by the group to which both the proprietor of the mark in the importing State and its licensee belong, is owned by a third party which has acquired the rights to it by assignment".

In essence, the questions ask whether it is possible for the original owner of trademark rights, having since sold them in some jurisdictions, to prevent a seller from importing legally sources goods from another country to another where the rights don't exist for those goods.

The AG started off with setting out what the exhaustion of rights under EU law looked like.

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In order for exhaustion to operate, two conditions have to be met: (1) the goods bearing the trade mark must have been put on the market in the EEA; and (2) the proprietor of the trade mark must, if it has not itself put the goods on the market, have consented to their being put on the market. The first condition is only met when the goods are sold, not merely imported on the market. The second condition requires consent, which can be, according to case law, derived from when the goods are put on the market by an operator that is economically linked to the trade mark proprietor, such as, inter alia, a licensee. This stems from the protection of the free movement of goods under EU law. Consent can also be implied in the absence of an economic link through circumstances and facts before, during or at the same time of placing the goods on the market, which demonstrate an unequivocal renouncement of rights.

The next point was the fragmentation of rights and the exhaustion of those rights through the distribution of exclusive rights for the goods.

National trademarks, according to EU case law, operate independently. If the importing entity and the owner of the national trademark in that country are the same or economically linked, the rights are exhausted. This does require that the goods were manufactured under the control of a single body, and that there was a possibility of control over the quality of the goods. In the event of assignment, there is no control over the quality of the goods by the original owner of the rights, and exhaustion therefore wouldn't apply.

In the light of the above, the AG then considered whether the importation of Schweppes from the UK to Spain would infringe on Schweppe's rights.

The AG looked at the economic link between the parties, specifically in the instance of parallel importation after the assignment of rights in different countries. Exhaustion, in the AG's view, can also exist not only where the two entities are strictly dependant on each other, but also where the trademark is under 'unitary control' in the circumstances of a matter. This would also be the case where the two parties that own national rights have 'joint control' over the exportation and importation process, or if the marketing and manufacturing of the goods happens under unitary control. Joint control would have to entail an agreement as to "…determining directly or indirectly the goods to which the trade mark may be affixed and of controlling their quality". In other words, exhaustion can apply where two companies "…coordinate their commercial policies with a view to exercising joint control of the use of their respective marks".

From an evidentiary standpoint, the burden of proof on the relationship between the companies and their business relating to the relevant marks falls on the parallel importer (Coca-Cola in this instance), showcasing the exhaustion of rights. Should there be enough evidence to potentially prove exhaustion; the original proprietor has to prove that they have no agreement in place, or collaboration, with the importer on unitary control, which exhausts their rights.

In short, the AG set out his opinion on the questions asked: "… Article 36 TFEU and Article 7(1) of [the] Directive… preclude the licensee of the proprietor of a national trade mark from invoking the exclusive rights enjoyed by the latter under the law of the Member State in which the trade mark is registered in order to oppose the importing into and/or marketing in that State of goods bearing an identical trade mark which come from another Member State, one in which that trade mark, which was once owned by the group to which both the proprietor of the mark in the importing State and its licensee belong, is owned by a third party which has acquired the rights to it by assignment where, given the economic links existing between the proprietor of the mark in the importing State and the proprietor of the mark in the exporting State, it is clear that the marks are under unitary control and that the proprietor of the mark in the importing State has the possibility of determining directly or indirectly the goods to which the trade mark in the exporting State may be affixed and of controlling their quality".

The opinion does set the tone for the decision by the CJEU in the near future, and it will be an important landmark on the law surrounding parallel importation. The simple assignment of some rights, at least in the mind of this writer, shouldn't preclude the restriction of importation by a competitor in the absence of clear acquiescence through either agreement or a joint relationship relating to those goods. The division of rights sets a clear marker on the retention of rights in key jurisdictions, and the ignorance of that purely through assignment would be short-sighted and effectively remove the possibility of doing so anywhere in the fear of losing global rights elsewhere.  In the end the CJEU will set the test for this, but the AG's opinion seems like a realistic and common sense approach to the issue at hand.