European Union: A Recent Case Strengthens Rights of Trademark Holders in the European Union

On November 20, 2001 the European Court of Justice ruled upon an important case concerning the interpretation of trademark law. The Court’s decision shed light on controversial issues, which had sparked heated political debate at Community and national levels.

In the Levi Strauss vs. Tesco and Costco cases, the defendants, two British chains of department stores, bought Levi’s 501 jeans from authorized dealers in the United States, Mexico and Canada and sold them at substantially reduced prices in the UK. While Tesco and Costco maintained that they were not bound by any specific restriction on the importation of goods in Europe, Levi Strauss had not in fact expressed its consent to the importation of such goods in the European Union ("EU"). Could such consent be implied?

A brief overview of the legal framework surrounding this issue will provide a better understanding of the implications of this case. The European Directive on Trademarks of 1989¹ establishes an exclusive right of the proprietor of a trademark to use his mark and consequently a right to prohibit third parties from using the trademark for any purpose, including the importation of original goods bearing his trademark. However, such an exclusive right of the proprietor is limited by the doctrine of "trademark exhaustion", which is embodied in Article 7 of the Directive and according to which the proprietor of a trademark is not entitled to prohibit its use in relation to goods put on the market in the EU by the proprietor himself or with his consent. In other words, once the trademarked goods have been imported into the EU by the proprietor or with his consent, then the trademark holder’s rights to control the use of its trademark are considered exhausted and the goods can freely circulate within the EU.

This particular regime is also referred to as the "European exhaustion" of trademark rights, as not any sale of trademarked goods by the trademark holder or with his consent exhausts his rights (such as in "international exhaustion"), but only sales within the EU trigger the exhaustion of trademark rights. In previous cases (e.g. Case C-355/96, the Silhouette case) the European Court of Justice had clarified that European exhaustion had to be adopted by every Member State, even by those whose legal systems had traditionally provided international exhaustion and where there was a strong presence of parallel traders taking advantage of the varying prices of original goods in different markets.

The issue amounts to a commercial and political struggle between trademark holders, who are interested in controlling the distribution of goods bearing their trademarks, and retailers, who advocate the unrestricted trade of original goods once they are first sold. The same dynamics are mirrored in the EU scenario, where countries who have strong trademark holders, such as Italy or France, are in favor of maintaining the European exhaustion regime, while other countries, such as Sweden or the UK, press for a change in the law to international exhaustion, maintaining that consumers’ interests should prevail over trademark holders’ rights. Current international legal trends promote both free trade between countries and stronger protection of intellectual property rights. Thus, it remains to be seen what balance will be struck between these two tendencies in the long run.

Current law requires that a trademark holder consents to the initial importation of trademark goods into the EU. The requirement of obtaining the proprietor’s consent is crucial, as it allows him to control the imports of trademarked goods in the EU. In the absence of such consent, a trademark holder is entitled to stop any unauthorized importation of goods by parallel importers who source original goods from low priced markets. However, opposing views on the interpretation of the concept of "consent" were debated before the national courts and were later brought before the European Court of Justice. In the Levi Strauss vs. Tesco and Costco cases, for example, no explicit consent to the import of Levi’s 501 jeans was expressed.

The European Court of Justice ruled that such consent must be unequivocally expressed or inferred by facts or circumstances that unequivocally demonstrate that the proprietor renounced his rights. Furthermore, the burden of proof has been placed on the trader, who must prove the alleged consent of the trademark holder, and therefore it is not for the trademark proprietor to demonstrate its absence. Consequently, implied consent cannot be inferred from the mere silence of the trademark holder. The Court also pointed out that it is not relevant that the trader is or is not aware that the proprietor objects to the placement of trademarked goods in the EU, hence making any bona fide exception eventually set forth by the trader unsuccessful.

The European Court of Justice has significantly strengthened the rights of trademark holders with regard to their exclusive control over the importation of original goods in the EU. The activity of importing original trademarked goods from outside the EU without the proprietor’s unequivocal consent is, therefore, a trademark violation. As a consequence, parallel imports of goods without the trademark proprietor’s consent may only be made between EU Member States. Unless the lobbying efforts of traders succeed in amending the current legislation, parallel trade may become attractive again only when new countries with lower priced consumer goods enter the EU.

1) Implemented in Italy by means of Legislative Decree no.480 of December 4, 1992.