Not Like Two Peas in a Pod - Parallel Importation is Okay if TMs Assigned Abroad, says CJEU

The global marketplace for goods is a very tough one, especially when products are sold in various countries under different entities, even if controlled by a central entity. This gets even more complicated if rights are cherry picked and sold to other companies. Advocate General Mengozzi looked at this conundrum this past summer (more on which here), with a focus on the exhaustion of rights when those rights are sold to another company. The matter finally landed on the CJEU's desk, which rendered their decision in late December.

As a short recap, the case of Schweppes SA v Red Paralela SL dealt with the sale of Schweppes' tonic water, for which the company owned several trademarks in many jurisdictions. In the UK the company assigned their rights to the name Schweppes to Coca-Cola in 1999, but remained the owner of the rights in other EU jurisdictions, including Spain. Red Paralela imported the beverage from the UK to Spain, which were put on the market by Coca-Cola. Schweppes subsequently took Red Paralela to court for trademark infringement.

The CJEU was asked four questions, which it dealt with together, asking in essence "…whether Article 7(1) of Directive 2008/95, read in the light of Article 36 TFEU, must be interpreted as precluding the proprietor of a national trade mark from opposing the import of identical goods bearing the same mark originating in another Member State in which that mark, which initially belonged to that proprietor, is now owned by a third party which has acquired the rights thereto by assignment".

What is important is whether Schweppes rights have been exhausted as a result of their assignment of rights in the UK for the importation of goods into another country where those rights remain.

The Court considered that the rights awarded by trademarks cannot be circumvented through the affixing of the relevant mark on the goods and selling in another territory, even if done legally through assignment. This is still, however, reliant on "…that each of those marks has, from the date of expropriation or assignment, independently fulfilled its function, within its own territorial field of application, of guaranteeing that the trade marked goods originate from one single source". The Court further set out that this condition would not be satisfied when the proprietor (without or without the third-party that was assigned the rights) promoted a global brand with no clear single origin. Through this the proprietor's trademark, as determined by the Court "…no longer independently fulfill[s] its essential function within its own territorial field of application, [and] the proprietor has himself compromised or distorted that function". The proprietor therefore loses their right to oppose the importation of those goods through this distortion.

However, should the parties be one and the same, or maintain an economic link, the prohibition of the importation of the goods might be possible.

Some parallel imports miss the mark

The Court set out that an economic link exists where "…the goods in question have been put into circulation by a licensee, by a parent company, by a subsidiary of the same group, or by an exclusive distributor". Through these relationships the proprietor can directly control the quality of the goods themselves. This is very important, as the actual exercise of control isn't needed, but merely the possibility of exerting control. The proprietor therefore takes responsibility over the goods' quality.

Following the Advocate General's opinion, the CJEU set out that an economic link also exists where "…[after] the division of national parallel trade marks resulting from a territorially limited assignment, the proprietors of those marks coordinate their commercial policies or reach an agreement in order to exercise joint control over the use of those marks, so that it is possible for them to determine, directly or indirectly, the goods to which the trade mark is affixed and to control the quality of those goods". There the prohibition of importation would not be justified to preserve the essential function of the trademark.

An economic link isn't dependant on the companies being formally dependant on each other for the joint exploitation of the mark, nor whether they take control of the quality of the goods or not. Assignment by itself will not create an economic link necessarily.

In summarising their decision, the CJEU set out that "… Article 7(1)... must be interpreted as precluding the proprietor of a national trade mark from opposing the import of identical goods bearing the same mark originating in another Member State in which that mark, which initially belonged to that proprietor, is now owned by a third party which has acquired the rights thereto by assignment, when, following that assignment; the proprietor, either acting alone or maintaining its coordinated trade mark strategy with that third party, has actively and deliberately continued to promote the appearance or image of a single global trade mark, thereby generating or increasing confusion on the part of the public concerned as to the commercial origin of goods bearing that mark; or there exist economic links between the proprietor and that third party, inasmuch as they coordinate their commercial policies or reach an agreement in order to exercise joint control over the use of the trade mark, so that it is possible for them to determine, directly or indirectly, the goods to which the trade mark is affixed and to control the quality of those goods".

The case is an important landmark in the partial assignment of rights for global trademarks. Should a proprietor want to maintain full control, they would have to assign the rights to an entity that they control, or have an economic link with, lest risk the loss of their capability to prevent parallel importation to a maintained jurisdiction. This makes sense, since the assignment of rights would lose their value if the original proprietor still maintained the capability to prevent importation when and where ever they wished.