By Richard Taylor, DLA Piper, Sheffield


Trade marks and border controls - part one

Owners of trade marks can use those rights to control the flow of goods under the marks across certain borders. Although the key legal points are now fairly well established, the value and volume of international trade means that the field is still heavily litigated.



Article 5.1 of the European Trade Marks Directive (89/104) provides that the proprietor of a registered trade mark is entitled to prevent all third parties not having consent from using the registered trade mark in the course of trade. Without more, this broad right would enable a trade mark owner to stop anyone from selling goods under his mark without permission. For example, unless consent were expressed or could be implied, it could stop indirect purchasers of the goods from trading in the goods.



But article 5.1 is balanced by article 7, which provides that 'the trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the community under that trade mark by the proprietor with his consent'. This is the doctrine of 'exhaustion of rights' - that when the owner of a trade mark puts his goods under his trade mark on the market in one European economic area (EEA) member state, he exhausts his trade mark rights in the EEA and he cannot then use those rights to stop the goods being re-sold or imported into other EEA member states. Article 7 stands behind the 'grey market' in the EEA, in which parallel importers are entitled to exploit price differentials between different European states by purchasing cheap products in one state and importing them to another state for resale and undercutting the sellers' higher prices there.



However, the exhaustion of rights doctrine does not generally apply to goods placed on the market outside the EEA. The leading case is Zeno Davidoff v A&G Import [2001] ECR I-8691. The European Court of Justice (ECJ) held that if a trade mark owner places goods under the trade mark on the market outside of the EEA, that does not exhaust the owner's right to oppose the importation of those goods into the EEA without his consent. That is why Levi Strauss jeans can be sold more cheaply in the US than in the UK - Levi Strauss is entitled to use its trade mark to stop third parties from importing cheap jeans from the US under that mark, and so it is easier for it to charge a different price for the branded goods (Levi Strauss & Co v Tesco Stores [2002] EWHC 1625).



The ECJ in Davidoff added that the trade mark owner would only have exhausted his right to stop re-importation into the EEA if he had 'unequivocally' demonstrated an intention to renounce that right. The court set the bar high: consent cannot be inferred from the 'mere silence' of the trade mark proprietor, or from the fact that the goods might not carry a warning against placing them on the market within the EEA, or from the fact that the trade mark owner had not imposed contractual restrictions against importing the goods into the EEA, or the fact that that the property right transferred gives the buyer an unlimited right of resale.



As a matter of good practice, companies putting their goods on the market outside the EEA will frequently place contractual restrictions on the purchaser against importing the goods into the EEA, or will mark their goods 'not for import into the EEA'. But the rule is tough on buyers. Even a purchaser in good faith, who did not realise that he needed or had not been given trade mark authority, can be prevented by the trade mark holder from selling the goods within the EEA.



Since Davidoff, there have been at least eight reported cases in the UK alone where trade mark holders have been allowed to stop importers from outside the EEA selling their goods here, and a number of arguments dismissed. For example, placing the 'CE' mark on goods was held not of itself to imply consent (Roach v Kent [2006] WL 361 0045); the fact that trade marks are not visible at point of sale was held not to mean that those marks were not infringed (Kabushiki Kaisha Sony v Nuplayer [2005] WL 168 6862); and it was held not to constitute consent if a dealer or distributor sells the goods in breach of its licence (Honda v Neesam [2006] WL 690 570).



The Court of Appeal's recent judgment in Master Cigars Direct Limited v Hunters & Frankau Limited [2007] EWCA Civ 176 therefore stands out as a rare decision that has gone the other way. Corporacion Habanos is a Cuban company which owns a number of famous trade marks applied to cigars, such as H Upmann and Punch. Hunters & Frankau is its sole and exclusive distributor in the UK to import, sell and distribute the cigars. However, Corporacion Habanos also had a policy that, at its outlets in Cuba, it could sell up to $25,000 worth of cigars in single lots. It would provide export documentation to purchasers, including in English, Spanish and, crucially, German (this was important because German is only really spoken in Germany, which suggests that Corporacion Habanos knew that the cigars might be imported into Europe). A commercial quantity of cigars, below the $25,000 limit, was purchased by Master Cigars Direct. Hunters & Frankau sought to take action under its exclusive trade mark rights, to prevent Master Cigars from selling these cigars in the UK under the Corporacion Habanos brand.



In accordance with Davidoff, Lord Justice Jacob had to consider whether Corporacion Habanos had given 'unequivocal consent' to the use of its marks on these cigars inside the EEA. Reviewing the evidence, he said it was 'blindingly obvious' that the trade mark holder was allowing small commercial quantities to be purchased by foreigners within Cuba for export abroad. Its acts were consistent with having given the necessary 'unequivocal consent' to the marks being used.



The judgment also warns trade mark owners that a requirement by the trade mark owner not to resell inside the EEA should not be a mere facade which covers up activity that is in fact encouraged. The judge said that setting a limit for a single purchase by third-party exporters as high as $25,000 would point to the conclusion that resale under the mark is allowed, although he made no finding on the point.



The message for trade mark proprietors is, perhaps, not to be too clever. If goods are really meant to be kept outside the EEA, then they should be kept so, both with a blizzard of markings and contractual provisions against EEA importation, and in reality - 'back door' commercial sales to third parties should be avoided. At the same time, in the light of this reversal of the usual trend of decisions, expect to see importers taking courage and arguing their cases with renewed vigour.



The case also emphasises the need for indemnities, insurances and other protections for those involved in international trade. Importers from vendors outside the EEA will want an indemnity against the goods infringing third-party intellectual property rights inside the EEA. Trade mark licensees will want assurances that the licensor will not assist with the importation into the licensed territory of commercial quantities of licensed goods.



Next week: using Customs & Excise to prevent infringing imports across Europe.