Levi’s won in the European Court

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Appendix 1: Cases in brands and trademarks referred to Parallel Imports

Levi Strauss v. Tesco and Costco stores (2001)¹

Tesco stores imported into the UK Levi’s 501 jeans. This case concerned Levi’s 501 jeans originally sold by Levi’s in Canada and Mexico. These jeans were sold onto Tesco who then wanted to offer them for sale in England. Levi’s were unhappy because not only did they apparently not want their trousers sold in Tesco at all (presumably because they thought that Tesco’s image was not right for their product), but by virtue of their sourcing in North-America Tesco were undercutting Levi’s authorised UK distributors.

Levi’s won in the European Court. Tesco are not allowed to sell 501s in their stores. The provision of trademark law that saw Levi’s prevail in this case was the following key aspect of trademark law: the owner of a registered trademark can stop others selling goods in the same class bearing the rights owner’s registered trademark. Since the jeans Tesco wanted to sell were original Levi’s which bore the 501 trademark there was no dispute that both these conditions (i.e. same goods, same trademark) were present in this case.

Tesco’s defence to the action was that Levi’s ,once they had placed the goods on the market had given up all trademark rights in the product which could thereafter be sold freely on the open market at a free market price. Tesco failed, because the European Court found that Levi had not placed the goods n the market in Europe and just by placing the goods on the market in North- America they had not exhausted their UK and European trademark rights. Had Levi expressly consented to those buying the goods in North-America selling them on to Europe, then their European trademark rights would have been exhausted. The Court set down some guidelines in relation to what constitutes giving such consent. The onus is on the “grey importer”(in this case Tesco) to show such consent had been given. A failure by the rights owner to specifically prohibit onward sale to Europe would not be deemed to constitute consent.

Zino Davidoff SA v. A&G Imports Ltd. (1999)²

A&G Imports imported into the UK and subsequently sold Davidoff Cool Water perfume that, although manufactured in France, was sourced in Singapore and came to A&G via

intermediaries, which A&G declined to identify. Identification codes on the product, which could have enabled Davidoff to trace the goods back to their original distributor, had been removed or obliterated. Davidoff sued for trademark infringement and passing off and applied for summary judgement.

The key points were that the issue was one of consent. Davidoff relied on a clause in its

distribution contract to show that it had not specifically consented to the onward sale of perfume into the EEA, but this was found to be insufficient to prevent sale further down the distribution chain. In the absence of a proper restriction, Davidoff was taken to have consented by default.

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Silhouette International Schmied GmbH v. Hartlauer Handelsgesellschaft mbH (1998)³

Silhouette, an Austrian sunglasses maker, sold 21,000 pairs of out-of-date stock to a Bulgarian company on the condition it would only distribute the glasses in Bulgaria or the former Soviet Union. Within months, though, the glasses had found their way back into Austria and were being sold by discount chain Hartlauer. Silhouette sued, and eventually the case found its way to the European Court of Justice, where Silhouette won.

The key points were that EU law states that where trade mark owners approve the sale of their goods in one EU country, they cannot use their rights to block free circulation of goods within the EU – a principle known as ‘exhaustion of trade mark rights’. This judgement means that this principle does not apply where goods are brought in from outside the EU.

The ruling favours branded goods makers by allowing them to prevent the sale of their products in the EU if these were sourced elsewhere without their authorisation. It also makes it more difficult for supermarkets and discount stores to sell branded goods at cut prices.

Christian Dior S.A. v. Evora BV (1998)⁴

Perfume maker Christian Dior won an important victory in a European Court of Justice

preliminary ruling, which allowed it to prevent a reseller of its perfumes using its trademarks in advertising on the grounds that the reseller’s advertising did not correspond to the image Dior wanted to portray. The court found that although a reseller (such as a department store) is allowed to use a proprietor’s trade mark for the purposes of bringing its own sales to the attention of the public, the proprietor may oppose the use of the mark if it fears serious damage to its reputation.

They key points are that in the light of these ruling, resellers should only use a mark sympathetically and in a way that reflects the cachet of the brand.

Bayerische Motorenwerke AG v. Ronald Karel Deenik⁵

A case somewhat similar to the Dior case, although in this case the advertising was for second hand cars and for the repair and maintenance of BMW cars. The advertising stated that Deenik

“specialised in BMW’s”. Deenik was not an authorised BMW dealer, but had in fact specialised in BMW’s. So far as the question of advertising the second hand cars was concerned, the court reached the same conclusion as in the Dior case. In this case, the court pointed out that the trademark owner might have legitimate grounds for objection if the form of the advertising might lead the public to believe that there is a commercial relationship between the reseller and the owner of the trademark.However, the mere fact that the use of the mark might "lend an aura of quality" to the reseller's business was not a legitimate ground for objection. Nor was a genuine statement that the reseller specialised in BMW's. On the question of the advertisements relating to maintenance and repair, the court found that the provisions of Article 7 of the directive relating to exhaustion of rights did not apply since the acts being advertised did not

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affect the further commercialisation of the goods in question. Such acts did, however, fall within the provisions of Article 6 of the directive which permits the use of a trademark by persons other than the owner or those having the owner's consent "where it is necessary to indicate the intended purpose of a product or service ... provided ...(the use is) ... in accordance with honest practices ...". Therefore this use was also legitimate since use of the mark was the only way open to Deenik to describe the services he rendered.

Sebago Inc. v. GB-Unic SA⁶

This case also related to the application of Article 7 of the directive. In this case, the defendant in a trademark infringement action, who had acquired genuine goods bearing the trademark in question outside the EU and imported them into the EU, argued that notwithstanding the Silhouette case, its actions were not infringements because the trademark owner had granted a consent to its actions. The basis for claiming consent was that the trademark owner had

consented to the sale of one batch of similar goods that had been imported from outside the EU.

The defendant claimed therefore that the trademark owner had by doing this consented to all imports of goods of the type in question. The court would have none of this and held that for there to be consent such that the exhaustion provisions of Article 7 applied, that consent had to be given in relation to "each individual item of the product in respect of which exhaustion is pleaded".

1 http://www.bevan-ashford.co.uk/library/news/jeansnews.html

2 For further information, visit http://www.inta.org/policy/res_consent.shtml

3 For further information, visit http://www.duanemorris.com/publications/printer/ppub49.html

4 http://www.ladas.com/BULLETINS/1999/0899Bulletin/EU_TrademarkCases.html

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Appendix 2: Overview of International Trademark Rights

The Paris convention

Under the Paris Convention for the Protection of Industrial Property, which has been signed by more than 150 countries, a trademark owner may have trademark rights "backdated" in a foreign country to the date of initial filing in its home country if application is made in another treaty country within six months of filing in the home country.

As of January 1, 2000, Paris Convention member countries not listed on the chart were:

Albania, Algeria, Armenia, Aruba, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Benin, Bolivia, Botswana, Burkina Faso, Burundi, Cambodia, Cameroon, Central African Republic, Chad, Congo, Cuba, Cyprus, Dominica, Ecuador, El Salvador, Equatorial Guinea, Gabon, Gambia, Georgia, Ghana, Grenada, Guinea, Guinea-Bissau, Guyana, Haiti, Holy See, Honduras, Iceland, Iran, Iraq, Ivory Coast, Jordan, Kazakhstan, Kenya, Kyrgyzstan, Laos, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Macedonia, Madagascar, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Monaco, Mongolia, Morocco, Mozambique, Netherlands Antilles, Nicaragua, Niger, North Korea, Papua New Guinea, Paraguay, Rwanda, Saint Kitts and Nevis, Saint Vincent and the Grenadines, San Marino, Santa Lucia, Sao Tome and Principe, Senegal, Sierra Leone, Sri Lanka, Sudan, Suriname, Swaziland, Syria, Tajikistan, Tanzania, Togo, Trinidad and Tobago, Tunisia, Turkmenistan, Uganda, Uzbekistan, Zaire, Zambia and Zimbabwe.

The European Community Trademark

Beginning April 1, 1996, it became possible for anyone to obtain protection in all member countries of the EU (currently 15) with a single application filed with the Community Trade Mark (CTM) office in Alicante, Spain. It is anticipated that the costs of obtaining a CTM are generally less than half the cost of otherwise seeking registration in each individual member country.

However, if the application encounters difficulties during examination or is opposed by a successful challenger and the applicant choose the option of converting the CTM application to individual country applications, the costs likely would be significantly higher than they otherwise would have been had the applicant directly applied in the individual countries initially.

The Madrid agreement

The Madrid Agreement is the second major exception to the need for registration on a country- by-country basis. Under this increasingly popular convention, once a national of a member

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country has registered a trademark in its home country, the trademark may be registered in all member countries by depositing its certificate of registration with the Central Registration Bureau in Berne, Switzerland. Nationals of countries that are not members of this convention may not obtain such "international registrations" unless they have a "real and effective industrial or commercial" presence in a member country through which they can obtain the necessary home country registration.

Member countries of the Madrid Agreement, as of January 1, 2000, were: Albania, Algeria, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cuba, Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, Italy, Kazakhstan, Kenya, Kyrgyzstan, Latvia, Lesotho, Liberia, Liechtenstein, Luxembourg, Macedonia, Moldova, Monaco, Mongolia, Morocco, Mozambique, Netherlands, North Korea, Norway, Poland, Portugal, Romania, Russia, San Marino, Sierra Leone, Slovak Republic, Slovenia, Spain, Sudan, Swaziland, Sweden, Switzerland, Tajikistan, Ukraine, United Kingdom, Uzbekistan, Vietnam and Yugoslavia.

The Madrid Protocol, which ultimately will replace the Madrid Agreement and is expected to provide a truly international centralised trademark application system, became effective April 1, 1996. The United States, Japan, Canada and other key jurisdictions have indicated that they will not join until a disagreement over procedure —voting rights for intergovernmental

organisations, such as the EC —is resolved. Because of this dispute, nationals of the United States and other non-member countries essentially are excluded from taking advantage of the Madrid Protocol's centralised filing option.

Members of the Madrid Protocol, as of January 5, 2000, were: Austria, Belgium, China, Cuba, Czech Republic, Denmark, Finland, France, Georgia, Germany, Hungary, Iceland, Japan (effective March 14, 2000), Kenya, Latvia, Lesotho, Liechtenstein, Lithuania, Luxembourg, Moldova, Monaco, Morocco, Mozambique, Netherlands, North Korea, Norway, Poland, Portugal, Romania, Russia, Sierra Leone, Slovak Republic, Slovenia, Spain, Swaziland, Sweden, Switzerland, Turkey, Turkmenistan, United Kingdom and Yugoslavia.

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Appendix 3: Possibility of International Exhaustion of Trade Mark Rights in the EU¹

The EU trade mark regime, established by Council Directive 89/104/EEC, is based on the system of Community exhaustion, whereby a trade marked good may be sold in any member state once it has been put on the market elsewhere within the internal market.

This contrast with international exhaustion, whereby a trade marked good could be marketed in any member state once it has been put on the market anywhere else in the world. There are number of arguments put forwards for and against the extension of trade mark fro EEA to international. The bulk of these arguments can apply to most sectors with exceptions.

Arguments against extending Exhaustion

The arguments against extending exhaustion and retaining the status quo emphasize the following negative effects of international exhaustion:

Lower returns for trademark owners which would inhibit investment in new brands, encourage firms to retina certain products from the market and lead to reduced quality and choice.

Higher prices in markets outside the EEA and the possible withdrawal of products from those countries.

Possibility of higher prices in the EEA if firms exit from lower margin markets so that fixed costs can no longer be spread over a wide volume of sales.

Reduced effectiveness of trade marks in assuring the quality and identifying origin.

Difficulty in enforcing common technical or safety standards within the EU.

Adverse impact on the future economic development of advanced economies, which rely heavily on products with substantial IP content.

Reduced ability to detect and prevent counterfeits.

Arguments for international exhaustion

The dominant argument in favour of international exhaustion was, unsurprisingly, lower prices.

Parallel imports provide additional competition, reduce the ability of the trademark owner to exploit its position by setting higher prices in some markets than others and increase competition in the distribution of products.

The fundamental function of a trademark is to protect consumers, no to create elements of monopoly in the market.

International exhaustion is consistent with the trend towards liberalization of international trade.

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New trends such as purchasing over the Internet will make it increasingly difficult to sustain the existing regime.

Parallel importers would have the same incentives to offer good service as authorized distributors.

Consumers would be prepared to forgo certain benefit in return for lower prices.

Technical and safety standards will restrain parallel imports in many sectors.

Counterfeit problems should be attacked directly by effective detection and deterrence and not by inhibiting legitimate competitive activity.

1 House of Common, Trade and Industry. 8^th report, www.paliament.the-stationery-office.co.uk

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Appendix 4: Trade Barriers

Trade barriers may be broadly defined as government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. There are some government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services¹. They include:

Import policies: tariffs and other import charges, quantitative restrictions, import licensing, and custom barriers.

Standards, testing, labelling and certification, including unnecessarily restrictive application of sanitary and phytosanitary standards and environmental measures, and refusal to accept manufacturers' self-certification of conformance to foreign product standards.

Government procurement: "buy national" policies and closed bidding.

Export subsidies.

Lack of intellectual property protection: inadequate patent, copyright, and trademark regimes.

Services barriers: limits on the range of financial services offered by foreign financial institutions, regulation of international data flows, and restrictions on the use of foreign data processing.

Investment barriers: limitations on foreign equity participation and on access to foreign government-funded research and development (R&D) programs, local content and export performance requirements, and restrictions on transferring earnings and capital.

Anti-competitive practices with trade effects tolerated by foreign governments:

including anti-competitive activities of both state-owned and private firms that apply to services or to goods and that restrict the sale of products to any firm, not just to foreign firms that perpetuate the practices.

Trade restrictions affecting electronic commerce: tariff and non-tariff measures, burdensome and discriminatory regulations and standards, and discriminatory taxation.

Other barriers, that encompass more than one category: bribery and corruption

1 U.S. Department of Commerce, www.mac.doc.gov/tcc/data/commerce_html/countries/nte2001/

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Appendix 5: Interview

Introductie

Ik ben een laatstejaars student Bedrijfskunde aan de Rijksuniversiteit Groningen. Op dit moment ben ik bezig met het schrijven van mijn afstudeerscriptie met het onderwerp: “Parallel Imports and the Single European Market”. Dit wordt beschreven vanuit de visie van de parallelimporteur. Het doel van mijn scriptie is tweeledig: een beschrijving geven van de oorzaken en gevolgen van parallelimport en bekijken wat de ontwikkelingen zijn op de Europese markt. Hierbij concentreer ik mij op consumentengoederen. Dit interview wordt gehouden om data te verzamelen voor mijn afstudeeronderzoek.

Het interview zal ongeveer dertig minuten duren en wordt volledig anoniem verwerkt. Tijdens het interview zou ik graag een voicerecorder gebruiken. Heeft u daar problemen mee of heeft u nog andere vragen?

Standaard vragen

1. Voor wat voor bedrijf werkt u? (producten, geschiedenis etc.) 2. Wat is uw functie bij dit bedrijf en hoe lang werkt u er al?

3. Waarom heeft u voor dit bedrijf gekozen?

More focused topics

1. Wat zijn volgens u de belangrijkste oorzaken van parallelimport?

2. Welke factoren bevorderen parallelimport?

3. Prijsverschillen

• Welke soorten zijn er?

• Volgorde van belangrijkheid?

• Let u op de retailprijs of de fabrieksprijs?

• Wanneer is een prijsverschil groot genoeg om interessant te worden voor parallelimport?

4. Distributiekanaal

• Waarom willen distributeurs meewerken aan parallelimport?

• Hebben de soorten distributiekanalen die worden gebruikt door de fabrikant invloed op de hoeveelheid parallelimport? Welke?

• Hebben de soorten distributiekanalen die worden gebruikt door de parallelimporteur invloed op de hoeveelheid parallelimport? Welke?

• Het free-ride probleem wordt door fabrikanten aangegeven als een belangrijke oorzaak van parallelimport. Dit betekent dat er gebruik wordt gemaakt van de

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services en marketinginspanningen van de fabrikant zonder dat de fabrikant daarvoor gecompenseerd wordt. Wat vindt u hiervan?

• Waarop baseert de consument in uw doelgroep zijn aankoopbeslissing?

5. Productkenmerken

• Wat zijn de kenmerken van producten die geschikt zijn voor parallelimport?

• Brand awareness?

• Uniformiteit van de producten?

6. Verkrijgbaarheid van producten

• Speelt de mate van verkrijgbaarheid van producten ook een rol?

7. Toegankelijkheid van informatie

• Wat is de rol van informatie in deze business?

8. Nieuwe markten

• Hoe worden nieuwe markten gevonden?

• Wat zijn de selectiecriteria?

• Wat beïnvloedt het besluit om de nieuwe markt ook echt te betreden? (financiële situatie, netwerk, dynamiek van de organisatie, etc.)

9. Eenwording van de Europese markt

• Hoe heeft de eenwording van de Europese markt parallelimport vergemakkelijkt of bemoeilijkt? (Transparante markt, lagere transactiekosten, geen wisselkoersen)

• Is hierdoor de hoeveelheid parallelimport toegenomen of afgenomen?

• Zijn de merkhouders zich anders gaan gedragen door de eenwording van de

Europese markt? (Andere prijsstrategie, meer differentiatie in kwaliteit, verpakking, kleur, garantie, service, distributiekanalen?)

• Zijn bepaalde producten interessanter geworden na de eenwording? Waarom?

• Wat is uw verwachting voor parallelimport op de Europese markt in de toekomst?

Afsluiting

Hartelijk bedankt voor uw medewerking aan dit interview. Zou u graag een exemplaar van het uiteindelijke rapport ontvangen?