GUIDANCE NOTE

TRADE MARK INFRINGEMENT AND THE DOCTRINE OF EXHAUSTION

Introduction
The purpose of this note is to help us understand the circumstances where a distributor of branded goods may,
or may not, need a trade mark licence where it sells products displaying third party trade marks.
Summary
The offering for sale of goods bearing a sign which is identical/similar to a registered trade mark constitutes use
of the trade mark so there is infringement if this is done without the proprietor’s consent.
The exhaustion of rights is a defence under s.12 TMA and applies where the goods have been put on the market
in the EEA under a trade mark by the proprietor or with his consent.
However, where the goods have been put on the market outside the EEA but not yet within the EEA, the defence
of exhaustion has been held not to apply.
1. Trade mark infringement (“use” of a trade mark)
s.10 TMA sets out the ways in which a person infringes a trade mark.
s.10(1) states that trade mark infringement occurs where (i) a registered trade mark is used without the
proprietor's consent; (ii) the sign used by the infringer is identical to the registered trade mark; and (iii) the sign
is used in relation to goods or services which are identical to those for which the trade mark is registered.
Other ways of infringing trade marks (e.g. by using a sign which is similar but not identical to the registered
trade mark) are set out in s.10 TMA but these are not relevant here.
s.10(4) specifies: “For the purposes of this section a person uses a sign if, in particular, he-
(a) affixes it to goods or the packaging thereof;
(b) offers or exposes goods for sale, puts them on the market or stocks them for those purposes under the
sign, or offers or supplies services under the sign; or
(c) uses the sign on business papers or in advertising.”
So the answer to the first question “is this use of the trade mark under the TMA?” is “yes”.
2. Defences (exhaustion)
ss.11 and 12 TMA set out various defences to trade mark infringement.
s.11 includes use by a person of his own name, use of indications concerning the kind, quality, geographical
origin and other characteristics of goods or services, or use of a trade mark where it is necessary to indicate the
intended purpose of a product or services. In order to rely on the defences under section 11 of the TMA, the use
must be in accordance with honest practices in industrial or commercial matters. None of these are relevant here.
s.12 concerns exhaustion of rights conferred by registered trade mark:
(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 EEA under that trade mark by the proprietor or with his consent.
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(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).
Position regarding parallel trade within EEA (s.12(1) TMA)
The s.12 defence stems from the free movement of goods rules, which provide that goods which are placed on
the market in one EU member state can be freely exported by third party distributors and sold in other member
states (parallel trade).
Consequently, it is not an infringement of a trade mark where it is used on goods which have been put on the
market in the EEA by the trade mark owner or with his consent. Under these circumstances, the trade mark
rights are said to be "exhausted".
An action for trade mark infringement cannot be brought where the goods have been put on the market in the
EEA by the trade mark owner or with his consent. However, there may be ways in which trade mark owners can
restrict parallel trade within the EU without falling foul of the law, for example, by limiting supplies to distributors
to the amounts needed for local use. Provided that this is a unilateral decision on the part of the trade mark
owner, it does not necessarily amount to an export ban and an abuse of a dominant position by the trade mark
owner. Imposing restrictions with a view to eliminating parallel trade will only be permitted in limited
circumstances, and trade mark owners therefore need to be extremely careful in imposing such restrictions so as
not to breach competition law.
Position regarding parallel trade outside EEA (s.12(1) TMA)
The question of whether the "exhaustion" principle extends to goods marketed outside the EU and EEA countries
is more complicated and has been considered in a number of cases.
The question of extending the "exhaustion" principle beyond the EEA to the international community was first
considered in Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgellschaft GmbH (Case C-
355/96, 16 June 1996).
 Silhouette, an Austrian producer of designer spectacles sold under the trade mark SILHOUETTE,
commenced proceedings against Hartlauer, an Austrian distributor, to prevent the sale in Austria of a
large quantity of these spectacles purchased by Hartlauer from outside the EEA.
 The issue that arose was whether Silhouette had "exhausted" its rights. The ECJ confirmed the Advocate-
General's opinion and ruled that, as national laws which provide for international exhaustion were
unenforceable, Silhouette's rights had not been exhausted.
Similarly, in Sebago Inc v GB Unic SA, Case C173/98, 8 November 1999, which related to the importation of
genuine Sebago shoes from outside the EEA into Belgium, the ECJ held that individual member states could not
legislate for the international exhaustion of rights outside the EEA. In addition, the court ruled that a trade mark
owner's consent to importation from outside the EEA had to relate to the specific item for which exhaustion of
rights was pleaded, and not similar goods or other batches of identical goods.
The Davidoff case in the English High Court involved the importation of perfumes sold outside the EEA (with
Davidoff's consent) into the EEA (Zino Davidoff SA v A&G Imports Ltd [2000] Ch 127).
 The trade mark owner, Davidoff, brought a case for trade mark infringement, arguing that there had
been no exhaustion of their rights following the reasoning in Silhouette.
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 The High Court considered that Davidoff had exhausted its rights by giving implied consent to the
imports. Mr Justice Laddie ruled that a trade mark owner will be presumed to have consented if "he has
agreed, expressly or impliedly, to such entry or he has, directly or otherwise, placed the goods in the
hands of a third party under conditions which give the third party a right to distribute and onward sell
them without restriction."
 In Mr Justice Laddie's view, the absence of full and explicit instructions to distributors outside the EEA to
restrict imports into the EEA could amount to consent.
However, the judge referred this and a number of related questions for a ruling by the ECJ. Similar questions had
also been referred by the High Court to the ECJ in proceedings taken by the manufacturer of Levi jeans against
the retailers Tesco and Costco. The ECJ gave judgment on these issues in the joined cases of Zino Davidoff SA v
A&G Imports Limited; Levi Strauss & Co Limited and Levi Strauss (UK) Limited v Tesco Stores Limited and Tesco
plc; Levi Strauss & Co and Levi Strauss (UK) Limited v Costco Wholesale UK Limited (Joined Cases C-414 to
416/99, 20 November 2001).
On the question of whether the consent of a trade mark owner to the marketing within the EEA of trade-marked
goods that have previously been put on the market outside the EEA may be implied, the court held that consent
must be expressed in such a way that the owner's right to renounce his rights is "unequivocally demonstrated".
 The court stated that such an intention will normally be inferred from an express statement of consent,
but that in some cases it may be inferred from facts and circumstances arising before, during or after the
placing of goods on the market outside the EEA which demonstrate unequivocally that the owner has
renounced his rights.
 On the question of whether implied consent can be inferred from the mere silence of a trade mark
owner, the court held that it is not for the trade mark owner to demonstrate absence of consent, but
rather for the trader alleging consent to prove it. Therefore, implied consent to the marketing within the
EEA of goods put on the market outside the EEA cannot be inferred from the mere silence of the trade
mark proprietor. Nor can implied consent be inferred from the fact that:
o The trade mark owner has not communicated his opposition to the marketing of the goods within the
EEA;
o There is no warning carried on the goods that they must not be put on the market within the EEA; or
o The trade mark owner has transferred ownership of the goods in question without imposing
contractual reservations, or that, according to the governing law of the contract, the property right
transferred would, in the absence of such reservations, include an unlimited right of resale, or at
least a right to market the goods subsequently within the EEA.
 The court also held that it was not relevant to the issue of exhaustion of rights either:
o That the importer of goods bearing the mark is unaware that the owner objects to their being
marketed in the EEA or sold there by traders other than authorised retailers; or
o That the authorised retailers and wholesalers have not imposed contractual reservations on their own
purchasers, setting out the trade mark proprietor's objection to marketing in the EEA, even though
they have been informed of such objection by the trade mark owner.
Following the ECJ's judgment, Levi Strauss was successful in its application to the English High Court for
summary judgment against Tesco and others in its original trade mark infringement action.
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These cases appear to have left few, if any, loopholes for parallel importers to exploit. The difficulty of showing
that consent was implied has been demonstrated in several cases including, for example, Roche Products Limited
v Kent Pharmaceuticals Limited [2006] EWHC 335 . In order for the court to find that there was implied consent,
the trade mark owner must have actively facilitated the parallel importation. For example:
 In Mastercigars Direct Ltd v Hunters & Frankau Ltd [2007] EWCA Civ 176, 8 March 2007 , a combination
of circumstances (including the variety of languages used on invoices, the trade mark owner's degree of
control over the defendant's supplier, and the size of the consignments sold to that supplier) convinced
the court that the trade mark owner had been aware that the goods in question might find their way
back to the UK.
 In Honda v KJM [2008] EWHC 338 (Ch), the High Court similarly found that the claimant had impliedly
consented to parallel importation. In that case, one of the key factors was the long relationship between
the claimant and the customer to whom it sold its motorbikes. The claimant knew that this customer was
a dealer within the trade and was not selling motorbikes to individual customers for private use. The
court did find that the implied consent was withdrawn when the claimant began asking for information
about the ultimate destination of the goods.
Legislative change would appear to be necessary if a principle of international exhaustion of trade mark rights is
to be recognised.
Since Davidoff, the UK High Court has held, on the issue of consent, that where a licensed distributor of the trade
mark owner consents to the goods in question being put on the market in the EEA, this would not bind the trade
mark owner if the distributor had only a licence to apply the marks in specified countries outside the EEA
(Quiksilver PTY Ltd and another v Charles Robertson (Developments) Ltd, High Court, 26 July 2004).
Further, the trade mark owner could not be held to have consented to the placing of its goods on the market in
the EEA by failing to monitor the activities of the distributor, and by failing to make any claims against the entity
further down the distribution chain which actually sold the goods into the EEA. This case highlights the need for
trade mark owners to ensure that the scope of its licensees' right to negotiate with third-party purchasers
(including territorial limitations) is clearly defined and documented.
The ECJ has also considered what is meant by the words "put on the market in the EEA" and has held that this
has to involve a sale of goods, and not just an importation or offer for sale (Peak Holding AB v Axolin-Elinor AB,
Case C-16/03, 30 November 2004). This case gives useful guidance on how to assess the point at which trade
mark rights can be said to be exhausted, and has been interpreted as meaning that brand owners may offer
goods for sale within the EEA and yet retain their rights in respect of any goods which remain unsold. Those
goods can be sold to buyers outside the EEA, in the knowledge that the trade mark owner will be able to prevent
re-importation into and sale in EEA countries.
Repackaging (s.12(2) TMA)
The principle of exhaustion does not apply where there exist legitimate reasons for the proprietor of a trade mark
to oppose further dealings in the goods, particularly where the condition of the goods has been changed or
impaired after they have been put on the market (section 12(2), TMA).
Recent decisions of the ECJ (in cases concerning parallel trade in pharmaceutical products) have confirmed that,
to avoid an infringement claim, a parallel importer must show that:
 The assertion of the trade mark rights by the trade mark owner will contribute towards artificially
dividing markets in member states. However, the importer does not have to show that the owner of the
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trade mark deliberately sought to achieve this effect. It is important to note that an assertion of trade
mark rights may be found to divide markets artificially where the same product is marketed under
different trade marks in different territories.
 Any repackaging by the parallel importer (to conform to national laws relating to the marketing of goods)
is not capable of affecting the original status of the product marked.
 The new packaging clearly states who it is responsible for carrying out the repackaging.
 The presentation of the repackaged product will not harm the reputation of the trade mark or its owner.
 The parallel importer has given prior warning of its intention to repackage the goods and import them.
 Where the trade mark in the territory of export has been replaced with that of the state of import, that
this was "objectively necessary" to market the product (as defined in Pharmacia & Upjohn SA v
Paranova, Case C-379/97, 12 October 1999).

Yasmin Joomraty
Laurence Kaye Solicitors
© Laurence Kaye 2008
T: 01923 352 117
E: laurie@laurencekaye.com
www.laurencekaye.com
http://laurencekaye.typepad.com/

This guidance note is not intended to be exhaustive and it does not constitute or substitute legal
advice, which should be sought on a case by case basis.
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