Parallel Imports and Exhaustion of Rights: EU or International?
Trade Marks, Copyright and related rights
The European Court of Justice is now having to decide whether to uphold international or EU exhaustion of rights. In recent decisions, in trade mark cases at least, it had seemed to be heading towards international (or global) exhaustion, which could have substantial implications for rights owners' global marketing strategies. Briefly:
- International exhaustion means that once a product has been put on the market anywhere in the world by a trade mark owner, or with his consent, the trade mark owner cannot use his trade mark to prevent its import into a state allowing international exhaustion. The question in the EU is whether that product may then circulate freely throughout the EU, even into states which do not allow international exhaustion.
- EU exhaustion is limited to the position where the product has been put on the market within the EU by the trade mark owner or with his consent. The owner cannot then use his trade mark rights to stop the circulation of that product throughout the EU. He can, however, use his rights to stop the import of products into the EU, even where they are legitimately on the market outside the EU.
- Previous case-law from the ECJ shows that the different levels of protection offered by national legislation in the different member states could justify a restraint on parallel imports (see Keurkoop v Nancy Kean Gifts (Case 144/81), and EMI v Patricia (Case 341/87, para 12). Otherwise, member states applying international exhaustion would represent wide open back doors through which parallel imported goods could find their way into the whole EU market.
- Article 7.1 of the First Trade Mark Directive provides for the exhaustion of trade mark rights within the EU, but it is not clear whether that is the whole extent of exhaustion, or merely the minimum permitted. The question has arisen in cases in Austria, Sweden, Denmark and France, the Austrian case being the most important. (see also the report on harmonisation of Trade Mark Law: p7).
In this ECJ case (Case C355/96, Silhouette International Schmied v Hartlauer Handelsgesellschaft GmbH) referred from Austria, the question is whether products may be imported into an EU member state without the consent of the trade mark owner, not whether they may then circulate throughout the EU.
The plaintiff, Silhouette, produces fashion spectacles under the trademark "Silhouette". The defendant, Hartlauer, sells cut price spectacles in Austria and is not an approved Silhouette distributor.
In October 1995, Silhouette sold 21,000 "out of fashion" frames to a purchaser who was instructed to sell them only in Bulgaria or the states of the former Soviet Union and not to export them to other countries. Hartlauer subsequently acquired the frames - it is not clear from whom - and offered them for sale in Austria. Silhouette sought to stop their sale, and the Austrian Supreme Court referred the question to the ECJ for a preliminary ruling as to whether international or EU exhaustion applies. (Austria has traditionally applied international exhaustion.)
The Advocate General's opinion, issued on 29th January, recommends that the member states should be obliged to apply EU/EAA exhaustion, not international exhaustion.
Before its accessions to the EEA and the EC, Sweden applied international exhaustion of trade mark rights. This principle was firmly established in case law.
The situation in Sweden contrasts with the position in Denmark. The Danish High Court has upheld an interim injunction against a parallel importer of products from the USA carrying trademarks infringing Danish trademarks. The judgement is not final, but it is interesting to note that the High Court expressly refers to the harmonisation aspects of the EU Trademark Directive as a reason for upholding the injunction given by the Court of First Instance.
Following this judgement, the principle of international exhaustion of rights, which has been a cornerstone of Danish trade mark law for many years, has been replaced by EU exhaustion.
The Danish Court did not even apply EU exhaustion in a copyright case. It granted an interim injunction to stop the rental in Denmark of laser video discs imported from the UK because there was no rental right consent from the rights holder. The question of whether a rental consent in one EU member state may have effect in another member state has been referred to the European Court of Justice for preliminary ruling under Article 177 of the EEC Treaty.
Will member states applying international exhaustion represent wide open back doors through which parallel imported goods could find their way into the whole EU market? Would the ECJ allow import into one member state, but not circulation from that state to others which did not apply international exhaustion? What would happen if the importer imported into several (or all) member states allowing international exhaustion? Will the ECJ find in favour of Silhouette in the Austrian case, and uphold purely EU exhaustion?
The answers to these questions may have a significant impact on global marketing strategy for businesses with global trade marks. Might the EU single market become, in trade mark terms, part of a global single market?
[Note the position in the BBS Wheels case in Japan, a patent case, where the Japanese Supreme Court said that international exhaustion would be presumed to apply in Japan, but this presumption could be overcome by restrictions in the contract of sale.]