As reported by IP Kat the European Court of Justice has handed down it’s decision in Copad SA v Christian Dior Couture SA & Ors, Vincent Gladel, as liquidator of Société industrielle lingerie (SIL) and Société industrielle lingerie (SIL), the subject of an appeal from a French Court regarding Dior’s allegation of trademark infringement.
The case involved a trade mark licence agreement that Dior had entered into with SIL to make and sell “luxury corsetry goods” bearing the CHRISTIAN DIOR trademark.
The terms of the license agreement expressly prohibited SIL, as the Licensee, from selling the goods in discount and other outlets.
The French Court considered the effect of the terms of the Licensing Agreement on the exhaustion of the rights conferred upon the proprietor of a trademark.
The European Directive states that a trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the European economic area under that trade mark by the proprietor with their consent.
However the Directive also provides that the exhaustion of rights doctrine doesn’t apply where there exist legitimate reasons for the proprietor to oppose further commercialisation of the goods, in particular where their condition would be changed or impaired after having been put out on the market.
DIOR relied upon Paragraph 5 of Clause 8.2 of the licensing agreement between the two parties expressly excluded the resale of the goods to a discount store:
‘in order to maintain the repute and prestige of the trade mark the licensee agrees not to sell to wholesalers, buyers’ collectives, discount stores, mail order companies, door-to-door sales companies or companies selling within private houses without prior written agreement from the licensor, and must make all necessary provision to ensure that that rule is complied with by its distributors or retailers’.
SIL had sold the goods in contravention of the License to Copad International, a company operating a discount store business, who in turned sold them to third parties.
Dior had initiated the proceedings alleging trademark infringement proceedings against SIL and other parties, contending that the sale of the goods in contravention of the license had an effect on the quality of the goods manufactured.
In essence, they submitted that Dior were prestigious luxury goods typically not sold through discount stores, and the manner of distribution of the goods had the practical effect of calling into question their nature as luxury goods.
The French Court had held that the trade mark owner has exclusive rights only in relation to goods put on the market without their consent. In this case, entering into the License Agreement meant that the trademark owner had given the necessary consent, and therefore the defendant’s actions did not constitute trademark infringement.
The Court held that the appropriate remedy was breach of contract, not reliance upon trade mark rights.
In the French Court’s opinion, the trade mark rights are granted in order to guarantee the possibility of control over the quality of goods, and didn’t extend to the actual exercise of that control.
Any control they have over the goods must be exercised by contractual means not by virtue of trade mark law and they could not use contractual law to prevent the resale of the goods by third parties.
However the European Court of Justice has ruled in favour of Dior on appeal, holding that Dior could oppose the resale of the products on the basis of trademark law.
Although in this case there was no change in the physical condition, or re-packaging of the goods, the Court found that the manner of distribution caused damage to the reputation of the mark, meaning the Defendants had no valid defence under the exhaustion of rights doctrine.
The ECJ ruled that “the quality of luxury goods is not only the result of their material characteristics but also of the allure and prestigious image which bestows on them an aura of luxury.”
It is not entirely clear what kind of evidence or in what other situations a Court would find that such a scenario would result in similar damage, and how the words “allure”, “prestigious image” and “luxury” will be evaluated in future cases.
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