UK: Parallel Imports

Last Updated: 2 June 1999

Parallel imports

A High Court decision thought to be the most important judgment affecting commercial law so far this year was given on 18 May 1999 in the case of Zino Davidoff SA v A&G Imports Limited.

Mr Justice Laddie gave judgment in favour of the parallel importers, A&G Imports, after the brand owners, Davidoff, applied for summary judgment on the basis that A&G could have no defence to Davidoffąs complaint of trade mark infringement. He found that there were substantial reasons to suggest that the Defence should proceed.

The case concerns parallel importing - bringing into the European Economic Area (EEA) genuine trade-marked goods which were originally sold outside the EEA, often at much lower prices than the normal price within the EEA. In other words, will manufacturers be able to stop the flood of imports from outside the EEA?

The judgment concerns consumers, who may pay more if brand owners are able to rely on trade marks to divide up the world-wide market and pricing for their products.

It will also concern brand owners and retailers. This judgment may affect current court cases involving, among others, Honda, Levi's and Tesco.

Most of those directly concerned know about the decision of the European Court of Justice in Silhouette, in which the Austrian claimants,the brand owners, prevented the importation of trade-marked sunglasses from Bulgaria. That case was thought to have established that a trade mark owner still retains rights and can rely on trade mark infringement arguments to block the sale in the EEA of its branded products, even where it has sold them itself outside the EEA.

In this case, Davidoff are suing A&G Imports, a large parallel importing business, about their importation of 'Cool Water' and 'Davidoff Cool Water' products which were originally sold in Singapore. Davidoff argued that A&G had no defence as a result of the Silhouette decision. A&G argued that there was no infringement if - as they claimed was the case here - the trade mark owner legally consented to the goods being sold in the EEA.

Davidoff claimed that the Silhouette judgment in effect precludes "international exhaustion" of trade mark rights and that the trade mark owner can therefore always assert its rights whenever its product enters the EEA. A&G argued that this cannot be the case if the trade mark owner consents (expressly or implicitly) on the first sale, to the goods being freely circulated in the world market thereafter. A&G succeeded in their argument at this stage. The Court also specifically rejected Davidoff's argument that there should be a presumption in favour of the trade mark owner that it objects to unfettered distribution. Mr Justice Laddie said: "There is nothing to support the suggestion that existing case law or community law creates a presumption that a proprietor shall be taken to object to unfettered distribution of goods which have been sold in the open market outside the EEA unless he expressly consents to such further distribution". This aspect of the judgment will give great encouragement to those who hoped that Silhouette would not be the final word, and that the trade mark owner's conduct - and the issue of consent - could still be important. In the words of Mr Justice Laddie: ".... it seems to me that in the light of the specific subject matter of trade marks there are compelling reasons why the courts should not strain to give Article 7(1) and the Silhouette decision any wider effect than absolutely necessary....".

Davidoff had a secondary argument: namely that the removal (either by A&G or by earlier suppliers in the chain) of all or part of the code numbering system used on the products or their packaging were changes which were sufficient to give Davidoff "legitimate reasons" to object to the further sale of those goods. They put this argument in two different ways. Their first argument was that the changes to the codes would or might make it harder to effect a product recall, and would therefore contravene the Cosmetic Products (Safety) Regulations 1996. The Judge held that whilst the retention of the code may be helpful to the Plaintiff (it was shown that the requirement for marking had been used by the Plaintiff as a convenient method for tracking its goods) that was not necessarily something which rendered this a trade mark infringement, particularly given the insubstantial adverse effect that removal of the codes might have on the "mental condition" of the goods. Secondly, Davidoff argued that the mere removal of the codes themselves harmed the aesthetic look of the products, and hence their "physical condition". The Court found that their prospects of succeeding on this issue are remote.

This case shows that there is still real scope for argument that parallel imports from outside the EEA can be legitimate. However, it also clearly demonstrated some of the difficulties in interpreting and applying under English law the EC Trade Marks Directive, and, in particular, the decision in the Silhouette case. Mr Justice Laddie recognised that this is a crucial and economically important issue, and one in which thousands of people are likely to be interested. It is essential that the ECJ has the opportunity to explain and clarify some of the issues which are not fully answered in the Silhouette decision. It has therefore been ordered that a number of detailed questions in this case will be referred to the European Court of Justice.

A decision from the ECJ will not be quick, and it remains to be seen whether questions will also be referred to the ECJ in the other pending parallel importing cases, but in the meantime, this decision will give brand owners cause to reflect.

This note is intended to provide general information about some recent developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained. If you would like further information or specific advice, please contact Andy Millmore at Macfarlanes' London office.

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