Can unauthorised distributors make parallel sales? When can the principle of trademark exhaustion be invoked? The Amazon, Sisley and L'Oréal cases.

As has already been explained (cf. The selective distribution. A brief overview: risks and benefits), the selective distribution has the function of protecting the marketing of products that, due to their characteristics, require a more selected and more selected and careful resale system than for consumer products.

In such cases, the manufacturer is inclined not so much to focus on the vastness and capillarity of its sales network, but to favour a limitation of commercial channelspreferring to entrust their products to a small number of specialised dealers number of specialised dealers, chosen according to certain objective criteria objective criteria 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 are 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 the use of a selective system may be justified the use of a selective system, although Regulation Regulation 330/2010 makes no mention of this, as it merely gives a definition of such a system, it is considered that it is reserved only for products of luxury, high quality and technologically developed products.[5]

One of the essential elements linked to selective distribution, is certainly related to the fact that, in such a system, the manufacturer can impose an obligation not to not to sell to parties (other than end users) not belonging 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 selective system, on the possibility of selling products online. On point, European case law has stated that, while a manufacturer of a non-selective system cannot prevent its distributors from selling online,[7] in a selective system, the manufacturer is authorised to impose on its distributor a clause allowing it to sell products through internet, a provided that such sales activity online either realised through an 'electronic shop window' of the authorised shop and that the aura of luxury and exclusivity of these products is thus preserved. 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 happens if the manufacturing company detects the unauthorised sale of its own 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 an extra-contractual nature and it is therefore necessary to understand what (and if any) legal instruments are legal instruments that allow the producer to defend himself against such sales outside 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 owner of one or more property rights industrial property rights directly or with his own consent[12] (e.g. by the licensee) to market a good in the territory of the European Union, the European Union, the latter loses the relevant design right.

The exclusivity is therefore limited to the first act of marketingwhereas no exclusivity can subsequently be claimed by the owner of the design, on the circulation of the product bearing the trade mark.

The principle does, however, have an important exception: the second paragraph of paragraph 2 of Article 5 of the IPC contains 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, to prevent the patent from suffering a loss of attractiveness and value.

At in order to avoid that the trade mark proprietor can arbitrarily restrict the free movement in the Community market, the derogation to the principle of the exhaustion of the trade mark is limited to the occurrence of conditions that make it necessary to safeguard the rights that are the specific subject matter of the property. property: Article 5(2) of the IPC provides that there must exist

"grounds legitimate for the holder himself to oppose the further marketing of the products, in particular when their condition is changed or altered after they have been placed on the market".

The Community case law[13] confirmed that the existence of a selective distribution network can be included among the 'legitimate grounds' preventing exhaustion, provided that the product marketed is an article of luxury or prestige that legitimises the choice to adopt a selective distribution system.

It will be up to to national judgetherefore called upon to judge whether there are 'legitimate reasons' for the trade mark proprietor to oppose further commercialisation of its goods and, therefore, verify whether the selective distribution contracts comply with the law antitrust European.[14] This consists (to simplify, but far from trivialising) in ascertaining:

  • the lawfulness of the distribution system 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 by the third party does not respect the standard requested and are detrimental to the trade mark of the manufacturer, such 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 2018 the Court was called upon to decide on the following question: Landoll, company leader in the field of research, development and marketing of professional cosmetic products and owner of several brands, provided selective distribution of its products, based on standard quality chosen, aimed at protecting the image of luxury and prestige. The applicant noted the unauthorised offer for sale of its products on a platform e-commerceattributable to the defendant. The applicant therefore sought an injunction against the respondent to continue the activity of sale.

The Court recognised that the infringement of the appellant's appellant's rights to its registered trade marks, was evident from the

 "assessment of the existence of an actual detriment to their image of luxury and prestige resulting from an examination of the how products are presented to the public [...] either on an e-commerce platform, and on its websitewhich manifest in their their presentation flatly assimilated to any generic product of the sector, even of lesser quality."[15]

It has therefore prevented the respondent from further advertising, marketing, offering for sale of the applicant'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 to prohibit Amazon from marketing in the Italian territory with products bearing the Sisley trade marks, taking the view that the manner of placing marketing used by the defendant infringed the standard requested by Sisley to its authorised distributors. The device states that on the Amazon portal

"Sisley products products are displayed and offered mixed with other items, such as household and products, such as household and cleaning products, which are in any case low-profile and of little economic value. economic value. Even in the section 'Luxory Beauty' [...] the Sisley brand is Sisley is placed alongside low-end brands with a much lower quality, reputation and price, or far less prestigious. inferior or far less prestigious."

The judgment continues:

"Where consider that, in its contracts, Sisley explicitly requires that its its products to be sold in luxury perfumeries or in specialised specialised perfumery and cosmetics departments of department stores, with qualified qualified staff, in a given urban context, appears undoubtedly inadequate, compared to the required standards, the sale of the products in question alongside microwave containers, floor cleaning products 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.

As seen condition because the exhaustion formerly art. 5 c.p.i. takes place is that the first placing on the market is made by the holder (or with his consent) and that this placing on the market takes place within the single market.

Different the situation where the first placing on the single market is carried out by unauthorised third parties: the case law of the Court of Justice since 1982 decided that if the marketing of the protected good is carried out by the outside the Community, the proprietor may rely on his right to oppose importation into the Union by a distributor non-Community distributor.[17]

Applying these principles, the Court of Milan[18] has 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.

Given that the first placing on the market within the EU had not been by the proprietor (or with his consent), he continued to held, under Articles 5 and 20 of the IPC, the right to object to parallel importation parallel importation from non-EU countries without his consent.

Different issue would be where the trade mark proprietor consents to the marketing market in a certain EEA Member State; in this case he exhausts his intellectual property rights and, therefore, can no longer prohibit importation in a different Member State.

[1] Consider the decision Grundig approved in 1985 by the Commission, in which required the presence of "of qualified staff and an external service with the necessary technical expertise to assist and advise customers', as well as 'the technical organisation necessary for the storage and timely supply of purchasers"; "presenting and displaying products Grundig products 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] which defines selective distribution selective as: "a distribution system in which the supplier undertakes to undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of criteria specified criteria and in which these distributors undertake not to sell such goods or services to unauthorised resellers in the territory which the supplier has reserved for that system."

[4] Metro I judgment, 25.10.1977 and Case C-31/80, L'Oréal v PVBA. This orientation was confirmed also by the Commission Guidelines at No. 175, which state that "In general, selective generally considered that selective distribution based on purely qualitative criteria is not qualitative criteria does not fall within the scope of Article 101(1), as it does not lead to anti-competitive effects, provided that three conditions are fulfilled. conditions are fulfilled. Firstly, the nature of the product in question must render a selective distribution system necessary in the sense that such a system must be a legitimate requirement, having regard to the characteristics of the product in question, to preserve its quality and ensure its proper use. Secondly, the choice of dealers Secondly, the choice of dealers must be made 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 must not must not 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 retailers'.

[7] Case Pierre Fabre, judgment of 13.10.2011.

[8] Case Coty Germany, judgment of 6.12.2017.

[9] Cf. previous footnote.

[10] In that case, the manufacturer may not impose a ban on passive sales, vis-à-vis resellers in areas where the selective system does not exist, but only prohibit selective system, but only prohibit him, pursuant to Art. 4(b)(i), from selling active sales.

[11] Art. 5, paragraph 1, c.p.i. (Exhaustion), "The exclusive faculties granted by this code to the code to the owner of an industrial property right are exhausted once once the products protected by an industrial property right have been 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 the European Economic Area. European Economic Area."

[12] The practice decision-making practice and European case law have clarified that consent is given when the marketing has been carried out by an undertaking controlled by by the intellectual property right holder or by an undertaking, usually a licensee, authorised to do so by the owner. Exhaustion occurs when the protected product has been put on the market by the holder of the right holder "with his consent or by a person linked to him by ties of dependence legal or economic dependence'. (sent. Keurkoop, cit., no. 25). On this point Cf. Pappalardo, The law competition law of the European Union, 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.