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Can brand owners interfere with the free movement of goods in the EU?

4 Jun 2019 | 8 minute read

Once goods are placed on the EEA market by or with the consent of the trade mark proprietor, the trade mark proprietor is unable to interfere with the free circulation of those goods around the EEA. This is known as the exhaustion of rights, or first sale doctrine. Paul Cox, partner, provides further insight.

However, there is an exception to this principle; a trade mark proprietor may legitimately prevent the further commercialisation of goods where the condition of the goods has been changed or impaired after they have been put on the market.

The issue of whether or not the exhaustion of trade mark rights can be reversed was considered in a recent UK case where an Italian jewellery brand, Nomination, were trying to enforce their trade mark rights against a rival jewellery brand which interfered with the condition of the packaging of goods sold under the trade mark "NOMINATION".

Background

Nomination, the claimants (comprising an Italian company and an Italian partnership) marketed and sold composeable bracelets which consisted of individual links which could be detached and relinked in any order to suit the wearer.

Nomination owned three EU trade marks comprising two word marks and one device mark for 'NOMINATION'. The marks were registered in various classes including class 14 for precious metals, precious stones and jewellery. Nomination sold, inter alia, 'base links' which bore the device mark:

The defendants were husband and wife duo Mr and Mrs Brealey, operating under the partnership JSC Jewellery (JSC), who also sold composeable bracelets. JSC traded under the name "Daisy Charm" and conducted their sales through eBay. JSC accepted that Mr and Mrs Brealey were both jointly (and therefore personally) liable with the JSC partnership for any acts done by the partnership in relation to the dispute.

Between 2013 and 2018, JSC bought Nomination's 'base bracelets' from authorised Nomination retailers within the EU and disassembled the bracelets into individual links. In some cases, JSC were able to source the individual base links from these retailers. JSC repackaged Nomination's links bundled together with a single JSC link. The packaging consisted of either two blister packs, one for each of the Nomination and JSC Jewellery links, or a blister pack for the JSC jewellery link and a small plastic bag for the Nomination link stating "Manufactured by Nomination Italy Repackaged by JSC Jewellery UK". As indicated above, the base links also bore the NOMINATION device mark.

Nomination alleged that the advertising and sale of the bundled base links infringed its trade marks and that such sales passed off the goods as being those of Nomination.

Nomination's allegations of trade mark infringement fell into two parts:

use by JSC of the Nomination sign in relation to genuine, individual Nomination base links; and
use of the Nomination sign in relation to JSC's own links.

The starting point was common ground; the Nomination base links did bear the NOMINATION device mark and therefore a sign identical to all three of Nomination's trade marks. JSC's marketing of individual Nomination base links constituted use of the sign in relation to goods identical with those for which the trade marks were registered. As such, section 10(1) of the Trade Marks Act 1994 ('the 1994 Act') was engaged unless JSC had a statutory defence.

JSC's position was that by virtue of Nomination realising the economic value of its trade mark by selling the bracelet, Nomination's trade mark rights were exhausted.

Judge Hacon, sitting in the Intellectual Property Enterprise Court, had to consider whether or not Nomination's trade mark rights had been exhausted and if they had, were there legitimate reasons to oppose further dealings in the goods under Section 12 of the 1994 Act and Article 7 (now Article 15) of the Trade Marks Directive.

Section 12 says:

(1) A registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market in the European Economic Area under that trade mark by the proprietor or with his consent.

(2) Subsection (1) does not apply where there exist legitimate reasons for the proprietor to oppose further dealings in the goods (in particular, where the condition of the goods has been changed or impaired after they have been put on the market).

It was Nomination's position that it had not consented to the sale of the individual base links or, if it did, there were legitimate reasons to oppose JSC's further commercialisation of the links.

The key points from the judgment were as follows:

Exhaustion of rights in relation to the Nomination links

Judge Hacon confirmed the previous law as set out in Davidoff that the Defendant needed to show that the Claimant had consented to the goods being put on the market. Nomination was unable to convince Judge Hacon that it had not consented to the sale of the individual base links on the market in the EU. There were no contractual restrictions on its retailers to prevent the sale of the individual base links. Further, there was evidence that Nomination had consented to some of its retailers selling the individual links. Judge Hacon found that the evidence did not demonstrate that Nomination would certainly have objected to the sale of single links at the relevant time. On this basis, Judge Hacon stated that "as a matter of general principle, it is not clear to me why Nomination should have a sound basis for objecting to the onward sale under the Trade Marks of links taken from their bracelets unless there are legitimate reasons for doing so, in which case art.7(2) applies. Nomination can certainly not object to their bracelets being disassembled by purchasers. There would be nothing misleading, of itself, about a purchaser of a Nomination bracelet stating on eBay that a link taken from such a bracelet is a Nomination link."
Nomination advanced several 'legitimate reasons' for objecting to the onward sale of its links. A number of these reasons fell within the conditions as set out in Bristol-Myers Squibb v ParanovaA/S (known as the BMS conditions) in which the CJEU ruled that pursuant to art.7(2) a trade mark owner may legitimately oppose the sale of its products where they have been repackaged by an importer unless: "(1) enforcing the trade mark would contribute to the artificial partitioning of the market between member states; (2) repackaging cannot affect the original condition of the product; (3) the new packaging clearly states who repackaged the product and the name of the manufacturer; (4) the presentation of the repackaged product is not liable to damage the reputation of the trade mark and of its owner; and (5) the importer gives notice to the trade mark owner before the repackaged product is put on sale".
Having been shown the packaging which Nomination used to sell its charm bracelet, Judge Hacon agreed that the impression given by the packaging is that its contents are luxury and of high quality. Judge Hacon stated that no one would consider that JSC's packaging conveyed an impression of quality. Therefore, he gave significant consideration to BMS condition (4) (and indicated that the remaining grounds relied upon were not made out in this case).
In terms of its packaging, the difficulty for Nomination was that it had allowed its retailers to use similar packaging to that used by JSC. However, Judge Hacon held that the image of quality had already been conveyed to the consumer in the bracelet's original packaging. He stated that it was likely that JSC's packaging would damage the reputation of Nomination's trade marks on the basis that Nomination's high quality packaging conveys an image of luxury which bolsters the reputation of the trade mark. The use of the small blister packs/plastic bags for Nomination links would likely damage that reputation.
On this basis, Judge Hacon held that Nomination did have a legitimate reason to oppose the further commercialisation of its links by JSC because the sale of Nomination's links in the manner adopted by JSC was likely to damage its reputation and therefore the sales infringed Nomination's trade marks.

Defendant's own goods

Judge Hacon then considered how JSC advertised Nomination's links when they were bundled together with its own links and found that a reasonable reader would have received a "blurred message" regarding the commercial source. Further, evidence was presented to the Court demonstrating that customers had gone to authorised retailers requesting that the non-genuine item be fitted to genuine Nomination bracelets and when the retailer explained this would affect the warranty as the product was not genuine, customers wouldn’t accept that the product was not genuine. They thought they originated from Nomination. This led Judge Hacon to find that the advertising and supply of the bundled links led to confusion as to the source of the links. As such, use of Nomination's mark in relation to JSC's own charms infringed Nomination's trade marks.
Having found infringement of the trade marks by use of the Nomination sign in relation to JSC's own charms, the passing off claim succeeded and Judge Hacon found that JSC had passed off its own goods as being those of Nomination.

Paul Cox, partner in the Intellectual Property team says: "At a time when online retail is booming, the repackaging of goods for online sale is becoming more prolific. This decision confirms that the rights of trade mark owners do not necessarily end once the products bearing the brand are sold; it is possible to prevent further sales where specific conditions are met to ensure that the reputation of the brand continues to be protected."

To read the Nomination judgment, please click here.

For further information, please contact Paul Cox, partner on +44 (0)2380 172 212 or [email protected].