Parallel sales and the principle of trade mark exhaustion.
Can unauthorised distributors make parallel sales? When can the principle of trademark exhaustion be invoked? The Amazon, Sisley and L'Oréal cases.
Like
has already been explained (cf. La
selective distribution. A brief overview: risks and benefits), the
selective distribution has the function of protecting the marketing of
products which, depending on their characteristics, require a
resale more selected and cared for than consumer products.
In
such cases, the producer is inclined not so much to focus on the breadth and
capillarity of its sales network, as much as to favour a limitation of
commercial channelspreferring to entrust their products to a small
number of specialised dealers, chosen according to certain criteria
objective dictated by the nature of the products: professional competence (for
as far as would-be distributors are concerned),[1] quality
of the service offered, i.e. prestige and care of the premises in which the
retailers will have to carry out their activities.[2]
This system, regulated by the EU Regulation 330/2010 on Vertical Agreements,[3] complies with Art. 101 § 3 of the Treaty (and therefore does not fall under general prohibition laid down in § 1 of that Article), essentially if:
- "the choice of dealers is made according to objective criteria of a qualitative nature, concerning the professional qualification of the dealer, his staff and his facilities'.,
- which "these requirements are required indiscriminately for all potential resellers".,
- and that "are assessed in a non-discriminatory manner".[4]
With
reference to the type of products for which it may be
justified the use of a selective system, even though the Regulation
330/2010 makes no mention of this, as it merely gives a definition
of this system, it is considered that it is only reserved for products of
luxury, high quality and technologically developed.[5]
One
of the essential elements linked to selective distribution, it is certainly
related to the fact that, in such a system, the producer can impose the obligation of
not sell to parties (other than end users) not belonging to
to the network (formerly Article 4 (b) (iii)).[6]
According to
advantage is related to the limits that can be imposed on members of the system
selective, regarding the possibility of selling products online. On
point, European case law has stated that, while a
manufacturer of a non-selective system, it cannot prevent its distributors
to sell online,[7]
in a selective system, the producer is authorised to impose on its
distributor a clause allowing products to be sold through internet, a
provided that such sales activity online is
realised through an 'electronic shop window' of the authorised shop and that
thus preserving the aura of luxury and exclusivity of these
products.[8]
Moreover, case law[9] considered legitimate a contractual clause that prohibits authorised distributors of a selective distribution system to make recognisable use of third-party platforms for the Internet sale of contractual products, provided that this is aimed at safeguarding the image of those products and that it is established indiscriminately and applied in a non-discriminatory manner.
1. Parallel distribution by unauthorised distributors.
In any case, it is highly common in practice that, even if the manufacturer creates a selective system, parallel distributions develop within the market itself. This may be due to the fact that very often manufacturers only distribute 'selectively' in the most important markets, while reserving a 'classic' system (i.e. through an exclusive, non-selective importer) for the other areas, thus allowing (and facilitating) the 'classic' distributors to sell products also to parallel distributors within a selective market.[10]
Read also Parallel Sales in the EU. When and to what extent can a manufacturer control them? e Selective and exclusive distribution: the mixed system selective.
What
therefore happens if the manufacturing company takes over the unauthorised sale of
their products on a platform e-commerceby a
distributor/intermediary outside the selective distribution network?
È
clear, in fact, that in such a situation the relationship between producer and third party is
of a non-contractual nature and one must therefore understand what (and if any) instruments
legal provisions enabling the manufacturer to defend itself against such extraneous sales
to the selective system.
In order to answer this question, it is necessary to take a brief step back.
2. The principle of Community exhaustion.
As is well known, the European legal system guarantees the (fundamental) freedom of movement of goods; the child of this freedom is the principle of Community exhaustionintroduced with European Directive 2008/95/EC in Article 7 and transposed into Italian law by thearticle 5 c.p.i.[11]
According to
this principle, once the holder of one or more property rights
industry enters directly or with its own consent[12]
(e.g. by the licensee) to market a good in the territory of the Union
the European Union, the latter loses its exclusive rights.
The exclusive
is therefore limited to the first act of marketingwhile none
exclusivity may subsequently be claimed by the holder of the design,
on the circulation of the product bearing the mark.
The
principle of exhaustion, however, has an important exception: the second
paragraph of Article 5 c.p.i. contains, in fact, a safeguard rule that, with
reference to the trade mark, allows the proprietor, even when he has placed the
product on the market and, therefore, 'exhausted' the right, of prevent the
patent suffers a decrease in attractiveness and value.
At
in order to circumvent the fact that the trade mark proprietor may arbitrarily restrict the
free movement on the Community market, the derogation from the principle
of trade mark exhaustion is limited to the occurrence of conditions that
make it necessary to safeguard the rights that are the specific subject of the
property: the second paragraph of Art. 5 of the IPC provides that they must
exist
"reasons
legitimate for the holder himself to object to the further
marketing of products, particularly when the state of these is
modified or altered after being placed on the market".
La
community case law[13]
confirmed that the existence of a selective distribution network can be
included among the 'legitimate reasons' preventing exhaustion, provided that
the marketed product is a luxury or prestige item that
justifies the decision to adopt a selective distribution system.
It will be up to
at national judgetherefore, called upon to judge whether
there are 'legitimate reasons' for the trade mark proprietor to oppose it
further marketing of its products and, therefore, check whether the
selective distribution contracts comply with the law antitrust
European.[14] This
is (to simplify, but far from trivialising) to ascertain:
- the lawfulness of the
products, assessing their nature (i.e. whether they are luxury goods or,
high quality or technologically developed products); - that the third party respects the standard which
the manufacturer requires from its authorised distributors.
In
If not, then if the marketing methods used of the
third do not respect the standard required and are damaging to the trade mark
of the producer, this activity will be exempt from the principle of exhaustion.
In order to give some practical examples and thus try to make this issue as clear as possible for the reader, three recent (and very interesting) judgments of the Court of Milan are given below.
The case of Landoll s.r.l. v MECS s.r.l.
In the
2018 the Court was called upon to decide the following question: Landoll,
company leader in research, development and commercialisation
of professional cosmetics and owner of several brands, provided
selective distribution of their products, based on standard qualitative
selected, aimed at protecting the image of luxury and prestige. The applicant
detected the unauthorised offer for sale of its products on a
platform e-commerceattributable to the defendant. The applicant has therefore
sought an injunction against the respondent to continue its activity
of sale.
The
Court recognised that the infringement of the
appellant on its registered trade marks, it was inferred from the
"assessment of the existence of a
effective harm to their image of luxury and prestige that follows
from examination of the how products are presented to the public [...] is
on an e-commerce platform, which on its websitemanifested in the
their presentation to be plainly assimilated to any generic product of the
even lower quality sectors."[15]
Ha
therefore prevented the respondent from further advertising,
marketing, offer for sale of the plaintiff's products.
Case Sisley Italia s.r.l. v. Amazon Europe Core s.a.r.l.
In
this dispute,[16] Sisley
Italia s.r.l., a company also leader in the cosmetics sector and
organised through a selective distribution system, brought an action for
the Court of Milan prevented Amazon from marketing in the territory
Italian products bearing the Sisley trademarks, considering that the manner in which they are placed
commercially used by the defendant violated the standard required
by Sisley to its authorised distributors. The device states that on the
Amazon portal
"Sisley products
are displayed and offered mixed with other items, such as products for the
household and cleaning products, which are however low-profile and of little value
economic. Also in the 'Luxory Beauty' section [...] the Sisley brand is
approached to low-end brands of very high quality, reputation and price
inferior or far less prestigious."
La
judgment continues:
"Where you
consider that, in its contracts, Sisley explicitly requires that the
their products are sold in luxury perfumeries or in departments
specialising in perfumery and cosmetics in department stores, with staff
qualified, in a given urban context, undoubtedly appears
inadequate, compared to the required standards, the sale of products
in question next to microwave containers, cleaning products for the
floors and for pets,'
The Court of Milan therefore recognised that the marketing and promotion of such products on the same internet page as products of other brands - even of lower market segments - was "detrimental to the prestige and image of the Sisley brand. "
But what happens if products are imported from a non-EU country? The L'Oréal Case.
Like
condition because the exhaustion formerly article 5 c.p.i.
takes place is that the first marketing was carried out by the
holder (or with his consent) and that such entry is made
within the single market.
Different
the situation where the first entry into the single market is made by
Unauthorised third parties: the jurisprudence of the Court of Justice since 1982
decided that if the marketing of the protected good is carried out by the
holder outside the Community, the latter may assert his right
to oppose importation into the Union by a distributor
non-EU.[17]
Applying
these principles the Court of Milan[18]
prohibited IDS International Drugstore Italia s.p.a. from offering for sale
and marketing, in any manner or form, including the use of internet
and of social mediaof products L'Oréal. These products
had indeed been purchased by IDS from a non-EU distributor,
who had bought them directly from the manufacturer.
Place
that the first marketing within the EU had not been
carried out by the owner (or with his consent), he continued to
hold, pursuant to arts. 5 and 20 c.p.i., the right to oppose importation
parallel from non-EU countries without his consent.
Different
issue would be where the trade mark proprietor consents to the marketing
on the market in a given EEA Member State, in which case he exhausts
its intellectual property rights and, therefore, can no longer prohibit the importation
in a different Member State.
[1] Consider the
decision Grundig approved in 1985 by the Commission, in which
presence was required "of qualified personnel and an external service
with the technical expertise to assist and advise customers',
as well as 'the technical organisation necessary for the storage and
timely supply of buyers'; 'present and display products
Grundig in a representative manner in special rooms, separate from other
departments, and whose appearance reflects Grundig's market image'.
[2] On this point cf.
PAPPALARDO, The Competition Law of the European Union, p. 409, UTET,
2018.
[3] defining distribution
selective as: "a distribution system in which the supplier
undertakes to sell the goods or services covered by the contract, either directly or
indirectly, only to distributors selected on the basis of criteria
specified and in which these distributors undertake not to sell such
goods or services to unauthorised resellers in the territory that the supplier has
reserved for such a system."
[4] Metro Judgment I,
25.10.1977 and Case C-31/80, L'Oréal v PVBA. This orientation was confirmed
also from the Commission's Guidelines at No. 175, which state that "In
gender, it is considered that selective distribution based on purely
quality does not fall under Article 101(1) because
does not lead to anti-competitive effects, provided three
conditions. Firstly, the nature of the product in question must make
selective distribution system in the sense that such a system
must be a legitimate requirement in view of the
characteristics of the product in question, to preserve its quality and
ensure their proper use. Secondly, the choice of dealers
must take place according to objective criteria of a qualitative nature established
indiscriminately and made available to all potential resellers and
applied in a non-discriminatory manner. Thirdly, the criteria established do not
must go beyond what is necessary."
[5] In any case, an answer can be found in the Commission's Guidelines, where in No. 176, it is stated that: "if the characteristics of the product do not require selective distribution [...], such a distribution system does not generally lead to efficiencies that outweigh a significant reduction in intra-brand competition. If appreciable anti-competitive effects occur, the benefit of the Block Exemption is likely to be withdrawn". See also, n. 25, case Coty Germany, judgment of 6.12.2017, which provides:
[6] In this regard, one
recalls what the Court of Justice stated in the case Metro-Saba
IJudgment of 25.10.1977, at para. 27 ".Any sales system
based on the selection of distribution points inevitably implies -
otherwise it would make no sense - the obligation for wholesalers who are part of the
network, to supply only authorised dealers'.
[7] Case Pierre Fabre, judgment of 13.10.2011.
[8] Case Coty Germany, judgment of 6.12.2017.
[9] Cf.
previous note.
[10] In that case, the
manufacturer may not impose a ban on passive sales, in the
resellers in areas where the system does not exist
selective, but only prohibit it, pursuant to Art. 4(b)(i), from selling
active.
[11] Art. 5,
paragraph 1, c.p.i. (Exhaustion), "The exclusive faculties conferred by this
code to the holder of an industrial property right are exhausted one
once products protected by an industrial property right are
put on the market by the holder or with his consent in the territory
State or in the territory of a Member State of the European Community or of the
European Economic Area.'
[12] The practice
decision-making and European case law have made it clear that one has the consent
when the marketing was carried out by a controlled undertaking
by the intellectual property right holder or an enterprise, as a rule
a licensee, authorised to do so by the holder. Exhaustion occurs
when the protected product has been placed on the market by the holder of the
right "with his consent or by a person bound to him by ties of dependence
legal or economic' (sent. Keurkoop, cit., no. 25). On this point Cf. Pappalardo, The right
European Union competition, p. 875, 2018, UTET.
[13] Case Copad SA, judgment of 23 April 2009, "Where the marketing of luxury goods by the licensee in breach of a clause in the licensing contract is nevertheless to be regarded as having taken place with the consent of the proprietor of the trade mark, the latter may rely on that clause to oppose a resale of those goods on the basis of Article 7(2) of Directive 89/104, as amended by the Agreement on the European Economic Area, only if it is established, having regard to the circumstances of the case, that such resale damages the reputation of the trade mark. "
[14] On this point, cf. Fratti, Selective distribution of luxury cosmetics: the Court of Milan clarifies the prerequisites for the exclusion of the principle of trade mark exhaustion.
[15]
Court of Milan, Order of 18.12.2018. See previous footnote.
[16] Court of Milan, order of 3.7.2018
[17] Cf. Pappalardo,
op. cit., p. 878.
[18]
Court of Milan, Order of 19.11.2018, see footnote 12.
