Reviewing the (shrinking) principle of Trademark Exhaustion in the European Union (ten years later).

• Author: Calboli, Irene
• Position: International Intellectual Property Scholars Series

1. INTRODUCTION 258 II. RECENT DECISIONS OF THE COURT OF JUSTICE OF THE EUROPEAN UNION ON TRADEMARK EXHAUSTION 262 A. Makro Zelfbedieningsgroothandel v. Diesel S.p.A. 262 B. Copad SA v. Christian Dior Couture SA 264 C. Coty Prestige Lancaster Group GmbH v. Simex Trading AG 266 D. Portakabin Ltd. v. Primakabin, BV 268 E. L'Oreal v. eBay 270 F. Joined Cases Orifarm AS and Paranova AS v. Merck Sharp & Dohme 272 III. EEA-WIDE TRADEMARK EXHAUSTION UNDER ATTACK? 273 IV. CONCLUSION 280 I. Introduction

   Ten years ago, I published an article in the Marquette Intellectual Property Law Review titled, "Trademark Exhaustion in the European Union: Community-Wide or International? The Saga Continues.'" (1) In that article, I described the development of the principle of trademark exhaustion in the European Union (EU) and analyzed the interplay among trademark protection, trademark territoriality, and the treatment of the parallel importation of gray market products--unauthorized genuine goods imported from foreign countries--under Article 7 of the Trademark Directive (Article 7). Article 7 was the first provision that directly addressed the exhaustion of trademark rights in the EU and harmonized the national laws of EU Member States. (2) During the late 1990s, the main question in this area was primarily whether the language of Article 7(1) (3) permits the importation into a EU Member State of gray market products exclusively when the products have been put into the market in the European Economic Area (EEA) (4) or whether, instead, the provision also permits the importation of gray market products when the products have first been distributed outside the EEA. (5) Although Article 7(1) states that trademark rights have to be considered exhausted with respect to products that are "put on to the market in the Community" (Community-wide or EEA exhaustion), the provision does not expressly exclude, in fact, the possibility for individual Members States to extend this principle to products put into the market outside the EEA (International exhaustion). (6)

   As I described in my 2002 article, this ambiguity led to several years of heated debate over the geographical application--Community-wide or International?--of the principle of trademark exhaustion in the EU. (7) In turn, because of this ambiguity, national courts repeatedly referred questions to the Court of Justice of the European Union (CJEU or Court) to clarify the interpretation of Article 7(1), namely, whether individual Member States could apply the broader standard of international exhaustion within their national territories. (8) In the late 1990s and early 2000s, the CJEU then issued a series of decisions, in which the Court invariably stated that Article 7(1) had to be interpreted as establishing a general principle of Community-wide trademark exhaustion to be applied in all Member States. This principle, the Court repeated, was not just a minimum standard, but the exclusive standard for trademark exhaustion for all Member States, including those previously practicing international exhaustion within their national territories. (9) Despite these decisions, in the early 2000s European institutions and interested parties continued nonetheless to consider whether a change from EEA-wide exhaustion toward international trademark exhaustion could be possible or desirable within the EU (EEA). (10) Ultimately, however, after several rounds of consultations between European institutions, consumer associations, and representatives of the industry, no change was suggested to the text of Article 7(1). The principle of EEA-wide exhaustion was thus confirmed as the only applicable principle within the territory of the EEA (11) or, as it has often been defined by commentators, "Fortress Europe." (12)

   Hence, even if the CJEU's decisions seemed to resolve the issues related to the territorial application of the principle of trademark exhaustion in the EU (EEA), some important developments have continued to characterize this area. Notably, during the past decade, national courts have referred additional questions to the CJEU regarding the interpretation of Article 7, primarily with respect to the interpretation of the notion of "trademark owner's consent" in the language of Article 7(1). In particular, national courts have asked the CJEU to clarify under what circumstances trademark owners should be deemed to "have consented" to the distribution of the products into the EEA market under Article 7(1), and, thus, have exhausted the ability to enforce their trademark rights with respect to the further distribution of those products. (13) In addition, national courts have asked the CJEU to clarify the language of Article 7(2) of the Trademark Directive, and specifically what constitutes a "legitimate reason" under Article 7(2) to limit the application of the principle of trademark exhaustion and to oppose the further circulation of marked products after their first sale in the market, even in instances where the products have been first distributed into the market in the EEA. (14)

   In this Essay I continue to explore, ten years after my 2002 article, the development of the principle of trademark exhaustion in the EU. (15) In particular, I analyze the recent jurisprudence of the CJEU on the application of Article 7 and recount the most relevant trends in the recent CJEU's decisions in this area. Although the focus of this Essay is primarily descriptive, I offer some critical considerations in the light of recent CJEU's decisions. I thus argue that in its recent line of cases, the CJEU seems increasingly willing to shrink, de facto, the application of the principle of trademark exhaustion not solely to products imported from outside the EEA, but also to intra-EEA trade. Most notably, I highlight that the CJEU seems to have accepted a narrow interpretation of the notion of trademark owners' "consent" under Article 7(1) of the Trademark Directive. I also argue that the CJEU seems to have adopted an alarmingly broad interpretation of what can constitute a "legitimate reason" to oppose trademark exhaustion under Article 7(2), especially to protect famous marks and luxury goods against unauthorized trade by third party importers, still within the EEA. This trend, I conclude, is troubling and may negatively impact the principle of free movement of goods within the EU/EEA. Furthermore, it grants trademark owners (primarily the owners of famous marks) an increasingly absolute right to control the distribution of their marked products in the after-sale market--precisely what the principle of trademark exhaustion is supposed to prevent--to the detriment of consumers and market competition.

2. Recent Decisions of the Court of Justice of the European Union on Trademark Exhaustion

   In this Part, I offer an overview of the most recent decisions issued by the CJEU on the interpretation of Article 7 of the Trademark Directive with particular attention to the notion of "trademark owner's consent" under Article 7(1) and the concept of "legitimate reasons" that trademark owners can raise to oppose the further commercialization of the marked products after their distribution into the EEA under Article 7(2).

   1. Makro Zelfbedieningsgroothandel v. Diesel S.p.A.

      As I pointed out in my 2002 article, (16) the CJEU first addressed the interpretation of "consent" under Article 7(1) of the Trademark Directive in Sebago (17) and Zino Davidoff and Levi Strauss (18) in the late 1990s and early 2000s. These cases addressed the question of whether trademark owners could be assumed to have consented to the (unauthorized) importation of their products into the EEA after the same products had been put into the market with trademark owners' consent outside of the EEA. (19) In both cases, the CJEU denied that trademark owners had consented to the importation of the goods into the EEA even if they had consented to the distribution of the products abroad. (20) In 2009, in Makro Zelfbedieningsgroothandel, the CJEU addressed the meaning of "consent" under Article 7(1) again, this time in the context of intra-EEA trade. (21) To briefly summarize the facts, Distributions Italian Fashion S.A., (Difsa), the distributor of Diesel products in Spain, Portugal, and Andorra, granted Flexi Casual the exclusive right to sell Diesel products in those countries. (22) Flexi, however, without the approval of Difsa or Diesel, entered into a separate licensing agreement with Cosmos World S.L. to distribute Diesel products. Cosmos then sold Diesel shoes to Makro, who in turn began selling the shoes in the Netherlands. (23) Diesel brought suit against Makro alleging copyright and trademark infringement on the grounds that Diesel did not consent to Cosmos' marketing of the shoes. Both the Dutch trial court and the Court of Appeals ruled in favor of Diesel. (24) Makro appealed to the Hoge Raad, asserting that Diesel's trademark rights were exhausted under Article 7(1) of the Trademark Directive because Cosmos had marketed the shoes in question with Diesel's consent. (25) Unclear on how to proceed, the Hoge Raad referred to the CJEU to clarify whether consent could be "implied" in "the case where [the] goods ... have first been placed on the market within the EEA, but not by [the trademark owner himself] or with his express consent." (26) Responding to the Hoge Raad's question, the CJEU first repeated, as it had pointed out in Sebago and Zino Davidoff and Levi Strauss, that consent "constitutes the decisive factor" (27) when determining whether a trademark owner's rights are exhausted under Article 7, and that such consent should be "unequivocally demonstrated." (28) The Court also indicated that, contrary to the facts in this case, consent "will normally be gathered from an express statement." (29) The CJEU admitted, however, that in certain instances, such as in the presence of licensing agreements, consent may be inferred "from the facts and...