(previously featured in MCV Magazine)
In a previous article we discussed how manufacturers of
various products often sell their products at different prices in different
countries, in order to take advantage of the different market conditions that
exist around the world. We also learnt how a distributor could import and
repackage goods from one EU country into another, provided it complied with
five key rules, details of which are repeated below.
In this article, we learn how the rules for those
distributors wanting to import and sell goods from outside into the EU
(sometimes called "grey imports") differ radically from the rules
relating to imports from another EC country.
Distributors have for a long time capitalised on the
disparate price differentials which exist around the world. They do this by
purchasing cheap games consoles in one country before repackaging them and
selling them below market price in another country, usually at a reasonable
profit. As this practice of "parallel importation" interferes with
the manufacturers' carefully formulated pricing policies, it is not surprising
that the manufacturers often go out of their way to keep their markets
partitioned by making life difficult for both parallel and grey importers.
As we learnt in Part 1, one favoured method of making life
difficult for the entrepreneurs is to threaten them with legal proceedings for
trade mark infringement. In parallel importation (ie. contained within the EU),
this issue typically arises because the parallel importer needs to open up
boxed consoles to replace certain components, such as the power lead, in order
to make the products suitable for consumers in the new intended country of
sale. The process of opening and closing boxed consoles amounts to
‘repackaging' in legal terms and it is this which can lead to potential trade
mark infringement on the part of the importer.
How to avoid trade mark infringement within the EU
Readers will recollect from Part 1 that an importer of goods
from one EU country to another can escape the allegation of trade mark
infringement if it complies with the following conditions:
1. The repackaging must not affect the original condition of
the consoles.
2. The new packaging must clearly state who was responsible
for repackaging the consoles as well as the name of the manufacturer.
3. If the importer adds any additional items to the consoles
(such as power plugs or RFU adaptors) then it must make it very clear that the
manufacturer is not responsible for these items.
4. The importer must give the trade mark owner advance
notice of its plans to put the repackaged consoles on sale, at least 15 working
days before the repackaged products are put on the market.
5. The repackaging itself must actually be necessary in
order for the importer to successfully market the consoles.
Importing consoles from outside the EEA
(a) No exhaustion of rights
If an importer intends to bring consoles into the UK from
outside the EU (or European Economic Area ("EEA")1), then simply
following the five rules on repackaging will not provide a sufficient defence
to a claim of trade mark infringement. In this situation, different legal
principles come into play.
EC law has a principle known as ‘exhaustion of rights',
which applies to a trade mark owner which has put its goods on the market in
one EEA Member State. If a manufacturer puts its games consoles on sale in
Germany, then under EC law that manufacturer will have ‘exhausted' its ability
to use its trade mark rights to prevent parallel importers from reselling the
consoles in other EEA Member States, as long as the importers comply with the
five rules above.
The European Court of Justice ("ECJ") has,
however, made it clear that there is no corresponding principle of
‘international exhaustion' of rights under EC law. (By ‘international' the
court means here a movement of goods from outside to inside the EEA).
Furthermore, the ECJ has ruled that no EU Member State can introduce national
legislation providing for the international exhaustion of trade mark rights, as
this would allow grey importers to import goods from outside the EEA into that
Member State and from there into the rest of the EEA. This would effectively
allow the international exhaustion of rights on the whole of the EEA
indirectly.
So if, for example, Italy attempted to enact laws which
allowed Italian grey importers to import products which had been put on sale in
Taiwan, regardless of any EU or Italian trade mark rights of the manufacturer,
then those laws would be held by the ECJ to be contrary to EC law, which takes
precedence over Italian law.
(b) The issue of consent
The issue of the international exhaustion of rights has been
considered by the ECJ and the British courts on several occasions, particularly
in the cases of Silhouette (1998), Sebago (1999), Davidoff (2001), Levi Strauss
(2002) and Quicksilver (2004). The following principles have emerged from these
cases.
If a manufacturer puts its consoles on sale outside the EEA,
the only way in which that manufacturer could be said to have exhausted its
trade mark rights within the EEA in relation to any importer of those consoles
from outside the EEA is if the manufacturer had ‘consented' to those consoles
being resold in the EEA.
It is up to the grey importer to prove that such consent has
been unequivocally given by the trade mark owner. Consent can be inferred by
the particular facts and circumstances in which the manufacturer has put the
consoles on the market - but it is important to note that consent will not be
implied where the manufacturer has simply remained silent on the issue.
Suppose that a manufacturer was selling its consoles to a
distributor in Mexico, and that the distribution agreement between the parties
was silent on the issue of whether the manufacturer consented to the consoles
being resold into the EEA. In such a case, consent would not be implied and any
grey importer who buys consoles from that Mexican distributor for ultimate sale
in the EEA will find it very difficult to rely on the ‘consent' defence in a
trade mark infringement lawsuit brought against it by the manufacturer.
Of course, if the distribution agreement happened to contain
an express provision stating that the manufacturer did consent to the consoles
being resold in EEA territories then the grey importer would be in a much
better position, assuming that it is able to produce a copy of this agreement
in any potential court case. However, console manufacturers are highly unlikely
to give this kind of express consent in their contracts, as they will no doubt
be well aware that this would damage their ability to partition markets.
The test for consent is therefore a tough one, and it seems
that the only reliable ways for a grey importer to prove that express consent
has unequivocally been given are (i) to ask the manufacturer to grant its
express consent in return for a fee, or (ii) to ask the distributor for a copy
of its distribution agreement with the manufacturer if this happened to contain
an express consent provision.
It is crucial that the consent is obtained from the owner of
the trade mark itself. In this article, we have assumed that the manufacturer
owns the trade mark in question, but in practice this may not always be the
case. The grey importer must therefore carefully investigate the ownership of
any relevant trade marks. In addition, there may be complex chains of
distribution at work, and it is important that the grey importer does not rely
on any consents given by distributors alone. While a distributor may have a
licence to use a trade mark for selling consoles in certain territories, the
question of whether that distributor consents to the consoles being resold in
the EEA is irrelevant. What matters is the consent of the trade mark owner, and
this can only be given by the trade mark owner itself.
Conclusion
Any grey importer who is considering importing games
consoles into the EEA from a country outside the EEA and in which the consoles
have already been put on the market must ensure that it is able to prove, one
way or the other, that the trade mark owner has given its express and
unequivocal consent to those consoles being resold in the EEA. If the importer
is aware that the manufacturer actively objects to the consoles being marketed
in the EEA, then it should not proceed with its plans. Likewise, if the
importer is unaware of the manufacturer's stance, then it would be ill-advised
to proceed.
The grey importer who ignores the issue of the
manufacturer's consent, like the parallel importer who ignores the five rules
on repackaging, runs the very real risk of being on the wrong end of a lengthy
and costly trade mark infringement lawsuit.
© Brian Miller, solicitor. This article may not be
reproduced without the prior written permission of the author. This article reflects the current law and practice. It is
general in nature, and does not purport in any way to be comprehensive or a
substitute for specialist legal advice in individual circumstances.
Brian can be contacted at Stone King Solicitors. For further news and information on legal
topics of interest, please visit Brian's other blogs:
1 The EEA comprises all of the EU Member States together
with Iceland, Liechtenstein and Norway.
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