Costco shoot-out ends in 4-4 draw

Here's just a quick note on Monday's US Supreme Court ruling in Costco Wholesale Corp v Omega SA, which ended in a 4-4 draw (Justice Kagan sat this one out).  The IPKat is hugely impressed with the commendable brevity of the Court's ruling (here) and wishes that all the cases he had to read were so short: the entire text of the per curiam judgment is shorter than "Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM)" ...

If you want to know what this dispute was all about, the AmeriKat summarized it here and reviewed the arguments on appeal here.

In essence, the story goes like this: retailers Costco bought a consignment of Omega watches outside the US which they imported and sold in California.  Each watch had an Omega globe design engraved on its back, this design being registered as a copyright work in the US. Omega sued Costco, saying that the sales of its watches constituted an unauthorised infringement of its importation and distribution rights.  Costco said it was entitled to import and sell the watches without Omega's permission: since the watches were genuine and had been put on the market by Omega, subsequent trade in them was permitted under the first sale doctrine (the US term for that Europeans call exhaustion of rights).

The trial judge held in favour of Costco, but Omega appealed successfully to the Ninth Circuit, which held that the first sale rule in the US copyright statute did not apply to foreign sales as a matter of law, since that statute lacked extraterritorial application. The Supreme Court agreed to hear Costco's appeal.  The rest is history.

It appears to the IPKat that, while there are respectable bodies of opinion both in favour of the Ninth Circuit's ruling and against it, the IP community on the other side of the Atlantic has not warmed to this non-result or its consequences. James L Bikoff, David K Heasley and Michael T Delaney (Silverberg Goldman & Bikoff LLP, Washington DC), writing for World Trademark Review, observe:

" ... [The ruling] creates uncertainties and disparities in copyright protection. Under the Ninth Circuit’s reasoning, which is left standing, “lawfully made under this title” ... limits the first sale exhaustion doctrine to goods sold in the United States. A copyright owner who uses a US company to manufacture its goods cannot, after the first sale, prohibit the re-importation of those goods into the United States. But a copyright owner who uses a foreign manufacturer can prohibit US distribution indefinitely. The disparity not only encourages the foreign manufacture of goods bearing US copyrights, it may also impair the ability for US-manufactured goods to compete in foreign markets that do not sustain US prices, because discounted goods sold abroad can be freely imported back into the United States and drive down the value of the product domestically. ...

With the United States importing more than $1 trillion of goods annually, Costco could affect global trade in any good bearing a copyrighted work. The affirmance of the Ninth Circuit’s approach could also affect the way foreign manufacturers prevent the importation of their goods in practice. Until the Supreme Court rules definitively on the subject, and resolves the uncertainties and disparities now pervading this area of the law, purveyors of foreign-made goods should adopt the mantra: caveat vendor".

Writing from Canada, Excess Copyright blogger and internationally respected commentator Howard Knopf suspects that legislative intervention may be on the way:

"This is a big setback for American retailers and consumers. It will be interesting to see if there is a push for Congress to weigh in here. However, given the maximalist mood in the USA, one cannot predict what Congress will do here. The lobbying would be intense on both sides. The USA might want to look at what we have in Canada - which is a separate regime for books that allows for exclusivity in order to protect Canadian publishers for cultural reasons".

Merpel adds, sadly, what it is a shame that international exhaustion of rights -- the most trade-related aspect of IP rights you can imagine -- is the bit that is explicitly excluded from the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Article 6 of which pathetically whimpers

"Exhaustion

For the purposes of dispute settlement under this Agreement, ... nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights".

Honda goes for Silver

Sometimes IP litigants just effortless breeze into court and, hey presto, whatever problem they have instantly vanishes. Japanese motor vehicle manufacturer is not such a litigant. Indeed, Honda Motor Co Ltd and another v David Silver Spares Ltd [2010] EWHC 1973 (Ch), a 28 July 2010 ruling by George Leggatt QC, sitting as a deputy judge of the Chancery Division (England and Wales), is the latest chapter in the long and often frustrating journey taken by Honda into the highways and byways of the English legal system in its attempt to stop the importation and sale in the United Kingdom of genuine Honda bikes that were first sold in all sorts of distant lands (see earlier IPKat posts here, here and here).

Right: unable to purchase grey goods spare parts for his Honda, the IPKat decided to resort to pedal power as an economy measure ...

In this action Honda was flexing the muscles of its Community and UK registered trade marks for the word HONDA in respect of motorcycles and parts for them. These muscles were being flexed in the direction of Silver, the biggest British supplier of Honda spare parts. Honda sued for trade mark infringing, saying that Silver was trading in spares that had not been first marketed in the European Economic Area (EEA) by Honda or with its consent. In these proceedings Silver demanded that this claim be struck out or at least that summary judgement should be granted in its favour on the ground that the claim was entirely speculative and lacking in particularity.

The Deputy Judge dismissed Silver's application.

• The effect of harmonised domestic European trade mark law was that, even where a trade mark proprietor puts goods on the market himself outside the EEA, he can still assert his trade mark right to prevent importation of those goods into the EEA without his consent.
  
  
• Such consent has to relate to each individual item of the trade mark-protected product in respect of which a defendant pleads exhaustion of rights. This consent must be expressed positively [it can also be implied if the evidence of the implication is uniquivocal, the IPKat reminds readers], it being for the trader alleging consent to prove it -- not for the trade mark owner to demonstrate its absence. Only if the defendant can establish that a real risk of partitioning of national markets exists will that burden of proof be reversed.
  
  
• In this case, Silver did not even begin to show that Honda's claim lacked any reasonable basis or had no real prospect of succeeding. There was therefore no need for Honda to show that the motorcycle parts which Silver was selling were first placed on the market by Honda or with its blessing outside the EEA. Honda only needed to assert on reasonable grounds that Silver had used its trade marks within the EEA for the goods for which they were registered and that it (Honda) had not consented to such use.

Says the IPKat, Honda's bike might go like a rocket but there was no rocket science in this case, just the straightforward recitation and application of principles enunciated by the Court of Justice of the European Union. With nothing more than a LexisNexis alert to go on, the Kat feels sure that there must have been some further significant factors that induced Silver to go for a strike-out or summary judgment: he wonders if any readers can oblige.

Why the market for motorbike spare parts is so valuable here and here

Silver the pirate here

Motion sickness: are motorbikes better or worse than cars?

If it's not for sale, it's not put on the market. Duh.

Article 7(1) of the First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trade marks in its original version provided:

‘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 or with his consent.’

(The Agreement on the European Economic Area merely replaced ‘in the Community’ by ‘in a Contracting Party’.) According to well‑established case‑law, Articles 5 to 7 of Directive 89/104 effect a complete harmonisation of the rules relating to the rights conferred by a trade mark and accordingly define the rights of proprietors of trade marks in the Union.

The question referred to the ECJ by the Oberlandesgericht Nürnberg in Coty Prestige Lancaster Group GmbH v Simex Trading AG was whether perfume testers, the packaging of which bears the information that the product is intended for advertising purposes and not for sale, which are made available to contracted distributors on an interim basis and without a transfer of ownership, are "put on the market" in the sense of Article 7(1) of Directive 89/104/Article 13(1) CTM Regulation. The perfume testers in the case at hand had been been obtained by a Coty dealer based in Singapore. It was therefore fairly clear that those testers had not been put on the market with Coty's consent within the EU. The ECJ did also address, however, the more interesting question whether perfume testers supplied by Coty under the conditions described above to retailers in the European Economic Area had been "put on the market" in the sense of the Directive.

There appears to be quite a market for "perfume testers", with the vendors claiming that "In many cases, the only difference between the original perfume you would buy, and the tester, is the outer box. In many cases people will just throw the boxes away when they open the perfume, so why pay extra?" (you can find pertinent sites by googling for "perfume testers"). Understandably, the trade mark owners have an interest in shutting down this secondary market, but can they?

The ECJ today ruled that they can. The decisive factor for the extinction of the trade mark rights was whether the "putting on the market" occurred with the consent of the trade mark owner. Such consent could be implied, which could be inferred from facts and circumstances prior to, simultaneous with or subsequent to the placing of the goods on the market outside or inside the EEA which, in the view of the national court, unequivocally demonstrate that the proprietor has renounced his rights (par. 38). The packaging of the perfume bottles in question was clearly labelled "not for sale". To quote (par. 43):

That statement [sc. "not for sale"], since it clearly reflects the intention of the proprietor of the trade mark concerned that the goods bearing it should not be sold, whether inside or outside the EEA, constitutes, in itself and in the absence of evidence to the contrary, a decisive factor precluding a finding that the proprietor consented to a putting on the market in the EEA within the meaning of Article 7(1) of Directive 89/104.

This Kat thinks the ECJ got it right, but well-argued comments to the contrary are always welcome.

JUDGMENT OF THE COURT (Fourth Chamber) in Case C‑127/09.

Letter from AmeriKat - Costco Wholesale v Omega SA

Last Friday night the AmeriKat, in true display of her geekiness, was at the Royal Albert Hall for the cinematic screening of the Lord of the Rings Two Towers with live soundtrack played by the London Philharmonic Orchestra. Besides entertaining herself by listing the number of IP works and permissions in and required for execution of the performance, the performance itself was simply breathtaking. The amount of precision and timing required by the conductor and musicians to ensure the scoring was keeping time to the film was incredible. It was challenging of course to determine where to keep one's attention - the screen where Legolas was looking extremely pretty or the orchestra and choir who were booming ferociously away? (picture left - the AmeriKat becomes cross-eyed after trying to watch two things at once) In the end the AmeriKat managed to implement a duel-attention action plan which, although not most effective, enabled her to get the best of the artistry occurring in parallel.

Supreme Court to hear copyright parallel importation case

Artistry occurring in parallel will also be subject to attention soon, but this time judicial attention. Last Monday the US Supreme Court granted the writ of certiorari in the Costco Wholesale Corp v Omega SA case. The Supreme Court will have to decide whether Costco can be held liable for copyright infringement for re-selling luxury Swiss watches including the Omega Seamaster line (picture bottom right - an example of a Seamaster watch) that Costco obtained through third-party sources.

In 2004 Omega, owned by The Swatch Group Ltd, brought copyright infringement proceedings against Costco alleging that by selling Omega Seamaster watches obtained from a New York-based third-party who had imported them into the US, Costco had violated US copyright law. The Omega Seamaster watch includes an engraved emblem of a globe on the back of the watch. Omega had registered this emblem with the US Copyright Office. Costco then went on to sell the watches for $1,299 - $700 less than Omega's suggested retail price. Costco argued that Omega was unable to impose limits on the manner in which its watches are re-sold after Omega makes its first sale of the watches.

At first instance a Californian federal judge agreed with CostCo's reasoning, but Omega appealed to the Court of Appeals for the Ninth Circuit. Costco argued that precedent that should have been relied upon was the Supreme Court ruling of Quality King Distributors v L'Anza Research International (1998) which held that copyright owners do not have a right to control the market of their goods that have been imported and re-sold in the US. The Court of Appeals disagreed and overturned the lower court's decision in 2008 holding that copyright owners did have the right to control the manner in which their goods are imported and sold in the US irrespective of the first-sales doctrine (a.k.a. the exhaustion rule) enshrined in section 109(a) because this did not apply to goods manufactured abroad. The Court of Appeals decision relied substantially on section 602(a) of the Copyright Code which deals with infringing importation of copies and the case of BMG Music v Perez (1991) where BMG Music was able to prohibit a reseller's business.

In particular, the appeals court refused to overrule BMG Music by virtue of the Supreme Court's decision in Quality King because they felt that the latter case was concerned with "round trip" importation and not the type of importation at issue in Omega's case. In addition the appeals court held that to benefit from the exemption in section 109 the watches had to be "lawfully made under this title". "Lawfully made made under this title", the court held, meant "lawfully made in the US" and because the watches were made overseas Costco could not rely on this section and the doctrine of first-sales. Unhelpfully, Justice Stevens dicta in the Quality King case appeared to help support this definition, but other commentators believe that the case actually left this issue unresolved.

Costco then appealed to the Supreme Court citing that the appeals court's ruling was inconsistent with the plain language of copyright law and the implication of the appeal's court decision was too onerous on retailers. The question that the Supreme Court will have to answer is:

Whether the Ninth Circuit correctly held that the first-sale doctrine does not apply to

imported goods manufactured abroad.

Several business groups and companies such as eBay have filed amicus curiae briefs in support of Costco's appeal but the US Department of Justice (DoJ) argued that the Supreme Court should reject Costco's appeal because the legal position was apparently clearly in Omega's favor. eBay's filing stated that the lower court's ruling

"could have a detrimental effect on the ability of buyers and sellers of secondary-market goods to engage in commerce in the United States."

It will not come as a surprise that high-end retail companies actively try to control distribution of their products to ensure that they do not retail for less or are sold in otherwise undesirable channels. However, these companies may often offer their products at a cheaper price to distributors based in countries other than where the product is inevitably retailed. Retailers such as Costco will buy the products from these overseas distributors and import them into the US to sell at a discount. This secondary market, so to speak, is known as the "gray market". According to a 2008 study by KPMG and the Alliance for Gray Market and Counterfeit Abatement represents $58 billion in products in just the technology industry alone and an overall potential loss of $10 billion annually. [The AmeriKat has been trying to find some recent data in regards to the gray market's impact on the fashion industry - please let her know if you know where any resides!] Richard Galanti, Chief Financial Officer for Costco however states that "vast majority" of what Costco buys is "directly from the manufacturers" and that goods from the gray market only account for a small proportion of their $70 billion revenue (which is still a large sum!).

The Supreme Court's decision will have a substantial impact on what goods retailers, especially those on-line retailers such as eBay or Amazon, can sell and import into the U.S. If luxury brands and companies are concerned to control the distribution and retail prices of their goods, then they should be charged with ensuring that their contract with the distributor stipulates that the subsequent retail price is set in stone and/or restricted to non-US countries or just cut out the middle man and sell straight to the retailer or consumer. To hold otherwise would in essence allow companies to overly control trade channels through the guise of copyright law (and you can just predict the increased litigation if the Supreme Court were to uphold the 9th Circuit's ruling).

(picture top right - if the AmeriKat had a Seamaster watch, it would let her know it was nap-time)

The AmeriKat is hopeful that the doctrine of first-sale should come out fighting strong. There are too many interests, commercial and consumer alike, that could be severely affected if the Supreme Court held otherwise. The oral arguments are expected to be heard this September.

Big news for brand owners: TM rights may, or may not, be impliedly exhausted

It nearly sneaked past everyone without being spotted, but the European Court of Justice ruling in Case C-324/08 Makro Zelfbedieningsgroothandel CV, Metro Cash & Carry BV and Remo Zaandam BV v Diesel SpA, a reference for a preliminary ruling from the Hoge Raad der Nederlanden (Netherlands), was handed down earlier today. The IPKat caught a glimpse of it and is pleased to serve it up to his readers.

In short Diesel owns the trade mark mark Diesel in the Benelux countries. A Spanish business called 8 Distributions Italian Fashion SA ('Difsa') was the distributor of Diesel branded goods in Spain, Portugal and Andorra. In September 1994 Difsa entered into an exclusive distribution agreement with another Spanish company Flexi Casual SA (‘Flexi’), under which Flexi received exclusive selling rights in Spain, Portugal and Andorra for Diesel shoes. Under Article 1.4 of this agreement Flexi was permitted to conduct ‘market tests’ on Diesel shoes, offering them for sale to its customers with a view ‘to reliably determining market requirements’. Two months later Difsa granted to Flexi a licence to make and sell shoes of its own design in order to test the market, so that those goods could be offered to Diesel for distribution or for the ‘assignment of the manufacturing licence’.

The plot thickened in October 1997 when a manager of Flexi licensed another company, Cosmos World SL (‘Cosmos’), to make and sell shoes, bags and belts bearing the Diesel trade mark. Under this agreement Cosmos could thus make and sell Diesel brand shoes without the express approval of any kind from Difsa or Diesel. At this point one suspects that the story may not have a happy ending.

In the summer of 1999 pile-them-high-and-sell-them-cheap retailers Makro offered for sale a quantity of shoes bearing both the word and figurative marks Diesel. These shoes came via two Spanish undertakings which had bought them from Cosmos. Diesel, claiming that it had never consented to the marketing of the shoes in question by Cosmos, sued Makro and one of its partners for trade mark and copyright infringement, seeking both injunctive and financial relief. The trial court (the Rechtbank te Amsterdam) granted most of Diesel's requests in a judgment that was affirmed on appeal by the Gerechtshof te Amsterdam. The defendants then appealed to the Hoge Raad, claiming that the rights conferred by the Diesel trade mark were exhausted because Cosmos had marketed the shoes in question with Diesel’s consent, within the meaning of Article 2.23(3) of the Benelux Convention on intellectual property and Article 7(1) of Directive 89/104. Was there implied consent on Diesel's part to the manufacture and sale of these shoes? It wasn't clear to the Hoge Raad so that court asked the Court of Justice of the European Communities to rule on the following questions:

‘(1) ... where goods bearing a trade mark proprietor’s mark have first been placed on the market within the EEA, but not by him or with his express consent, must the same criteria be applied in determining whether this has occurred with the (implied) consent of the trade mark proprietor, within the meaning of Article 7(1) of [Directive 89/104], as are applied in the case where such goods have previously been placed on the market outside the EEA by the trade mark proprietor or with his consent?

2) If the answer to Question 1 is in the negative, what criteria – whether or not derived (in part) from the judgment of the Court of Justice in Case C-9/93 IHT Internationale Heiztechnik and Danzinger [1994] ECR I‑2789 – must be applied in the first case referred to in that question in order to determine whether the trade mark proprietor has given (implied) consent within the meaning of the First Directive relating to trade marks?’

The Court today ruled as follows:

"Article 7(1) ... must be interpreted as meaning that the consent of the proprietor of a trade mark to the marketing of goods bearing that mark carried out directly in the European Economic Area by a third party who has no economic link to that proprietor may be implied, in so far as such consent is to be inferred from facts and circumstances prior to, simultaneous with or subsequent to the placing of the goods on the market in that area which, in the view of the national court, unequivocally demonstrate that the proprietor has renounced his exclusive rights".

The IPKat admires the clarity and succinct nature of the way in which the Court, just five years after the proceedings were instituted, simply summarises the existing law without either adding to or subtracting from it. Oh, and this is a wonderful example of how-not-to-do-it brand management too ...

Merpel says, did you think the Court would do anything else? Once it dispenses with the Advocate General's Opinion, you know the judges are not about to hatch some brand new doctrine or issue any earthshaking pronouncements.

How Diesels work here

Is Pakistan worth patenting in?

I received a email recently from Danish cats Tono and Scala, who were surprised by a rather thought-provoking email from Pakistan.

(right: one of Pakistan's most famous exports, Nusrat Fateh Ali Khan, has a fit about the price of medicines)

In the email, Miss Naeema Sadaf, the Head of Patent & Trademark Division at PakPat World Intellectual Property Protection Services (pakpat@pakpat.com.pk), writes [with some added Kat comments]:

"Exclusive right to sell the patented product or at least the direct product of a patented process is one of the important rights given to the holder of a patent (product or process) in Pakistan [Section 30]. To define the boundaries of such rights section 30(5)(a) of the 2000 Ordinance provides that where the patented product is first put on the market anywhere in the world- i) by the owner of the patent itself; or ii) someone else with his consent; or iii) by an authorized person; or iv) in any other legitimate manner such as compulsory licenses, he has no control over the subsequent sale, import and/or export of the product (second sale). This is the so-called principle of the "International Exhaustion of Patent Rights (IEPRs)" which was set forth in place of the national exhaustion in 2000 in Pakistan.

According to the principle of national exhaustion of rights, exclusive right to sell the patented product ends upon first sale, within the country. This means that a patentee may not enforce the patent against Parallel Imports (PI) whereas under the principle of IEPRs upon first sale, anywhere in the world, of the patented product (or other article embodying the invention such as intermediate of a final product), the exclusive right to sale ends and the patentee may not place further reliance on the patent to prevent PI.

For the sake of clarity, if a patentee or his licensee has first placed a patented product onto the market outside Pakistan, he may not be able to enforce the national patent rights against importer of the patented product into Pakistan as the right to prevent importation is limited by the principle of IEPRs. If, however, there were no principle of IEPRs, then import into Pakistan of the product sold outside may well be ranked as infringement.

IEPRs, Implied License and the Community-wide Doctrine of Exhaustion of Rights

The principle of IEPRs in Pakistan differs from the common-law doctrine of implied license as applied in UK, but generally corresponds to the doctrine of exhaustion of rights created under the [European] community law. [The last time this Kat checked, Pakistan was not a member of the EU or EEA]

According to the common-law doctrine of implied license, in the absence of any limitation to the contrary, where the patented product is sold by the patentee, he may not place further reliance on the patent to prevent subsequent sale of the product [within the EEA] as the presumption that the first sale carries with it an implied license to keep, use and resale the product comes into play. However, where there is an express limitation - this will bind the receivers of the goods with the notice of that limitation. On the other hand, under the community-wide doctrine of exhaustion of rights, where the patented product is put on the market in the European Economic Area (EEA) with the patentee´s consent, further disposal of the product is beyond the patentee´s control and any express limitation in this regard (say importation into or resale in another member state) being in contravention to the provision of Article 28 EC is considered as void.

In contrast with the community-wide exhaustion of right, section 30(5)(a) of the 2000 Ordinance is world-wide in scope as it operates against marketing of the patented product anywhere in the world. However, in line with the EC doctrine of exhaustion of rights, an express limitation on further disposal of a patented product may contravene the provisions of section 37 of the 2000 Ordinance and thus be void if it is meant to require the patentee´s license to subsequent uses and sale.

Principle of Exhaustion Extends to Sales under Compulsory Licenses

To apply the principle of exhaustion, it is well-recognized that voluntary and free marketing of the patented product by the holder of the patent, or his voluntary consent when sold by others, is essential. If it is lacking, the principle may not apply. This is why, under the UK, USA, EP etc. laws, patented products which are first sold under the compulsory licenses, the principle of exhaustion has been held inapplicable as the voluntary consent of the patentee is lacking. In contrast to this, under the provisions of the 2000 Ordinance, the principle of exhaustion may extend to patented products sold under the compulsory licenses in Pakistan and also to cases where the patentee is legally bound under the national law to sell its product (say where public interest, health, safety etc. so require). This suggests that the patentee may not be able to enforce the patent rights against export and/or resale of the patented product sold under the compulsory licenses in Pakistan; or in any other legitimate manner to some other country except where the law of the importing country prohibits the import and marketing of a product which has been manufactured and sold under a compulsory license in another country. The patent law of Pakistan is thus quite stringent in this respect.

Impact of IEPRs on National Economies and Consumers

The principle of IEPRs in Pakistan may be regarded as an extension of the community-wide exhaustion of rights, which is the result of the desire to establish a single European market with no national barriers to trade [It isn't really, though, is it, if it applies to first sales anywhere in the world?]. This is reflected in Articles 28 and 30 EC. Whilst Article 28 EC prohibits "quantitative restrictions" on trade and any provisions that have "equivalent effect", it allows such restrictions where they are necessary to protect industrial property, in particular, to protect the rights that constitute the "specific subject matter" of the industrial property. To this end, the principle of exhaustion was devised to facilitate parallel imports so as to reduce price differentials of identical goods, especially pharmaceuticals, between countries in the community through arbitration process, yet it does not appear to work for all. For instance, in Centrafam v Sterling case [(1976) F.S.R. 164], the real beneficiary was the parallel importer who sold the drug nalidixic acid (Negram) twice the price in England, not the final consumer or the patent holder. Again, in Merck v Stephar [(1982) F.S.R. 57], the parallel importer (Stephar) was benefitted by the importation of the drug ("Moduretic") from Italy into Holland. The same appears to be true in the case of Merck v PrimeCrown case [(1997) F.S.R. 237].

Given this, a world-wide regime of International Exhaustion allowing parallel imports with hope that it could result in reduction of prices for identical goods in various markets thus benefitting the final consumers so far seems to be a far fetched [Not half.]. On the other hand, the principle of IEPRs seems to be favoring parallel importers permitting them to take a free ride on the marketing expense of the patent owners or their licensees, which may result in unfair competition. Parallel importing in its present form appears to operate against the final consumers and economies with small markets in that-

- parallel imports may result in reduction of the profit margins of the research-based companies thereby reducing their return for investments in research and development programs and ultimately in the new drug developments;

- increase the risk of diversion of foreign investments from countries accepting parallel imports;

- force the patent owners to refuse supply products to countries with small markets.

As is well-appreciated by economists that "economies with large markets and inelastic demand face higher prices than economies with small markets and elastic demand", a uniform price regime set by parallel importing may result in an even greater increase in prices for consumers from developing countries (say Pakistan) than under price differentials."

I don't know very much about getting patents in Pakistan, but if all this is correct it doesn't look like Pakistan is a particularly friendly place in which to enforce patent rights. The law on exhaustion seems to be a bit poorly thought-through and unlikely to achieve its aims, if these are about getting lower prices for patent-protected medicines. Can any readers shed further light? Is it even worth bothering to file a patent application in the country?

Copad ruling brings joy to trade mark litigators

After a period of relative tranquility which coincided with the Easter holidays, the Court of Justice of the European Communities has just got busy again. Today the Court gave its ruling in Case C‑59/08 Copad SA v Christian Dior couture SA, Vincent Gladel, as liquidator of Société industrielle lingerie (SIL) and Société industrielle lingerie (SIL), a reference for a preliminary ruling from the Cour de Cassation in France in February 2008.

Right: a Dior corset dress

What was this case about? Back in 2000 Dior made a trade mark licence agreement with SIL to make and sell "luxury corsetry goods" bearing the CHRISTIAN DIOR trade mark. By clause 8.2(5) of that agreement,

"in order to maintain the repute and prestige of the trade mark the licensee agrees not to sell to wholesalers, buyers’ collectives, discount stores, mail order companies, door-to-door sales companies or companies selling within private houses without prior written agreement from the licensor, and must make all necessary provision to ensure that that rule is complied with by its distributors or retailers".

In 2002, being faced with economic difficulties, SIL asked Dior for permission to market goods sold under the CHRISTIAN DIOR trade mark outside its selective distribution network. Dior said no. Notwithstanding that refusal, and in breach of its contractual obligations, SIL sold CHRISTIAN DIOR goods to Copad, a company operating a discount store business.

Dior sued SIL and Copad for trade mark infringement. The Tribunal de grande instance de Bobigny held that SIL’s contravention of the licence agreement did not constitute infringement but merely merely gave rise to contractual liability. The Cour d’appel de Paris dismissed Dior's appeal, ruling that sales by SIL did not infringe since

"compliance with the provision in the licence agreement concluded between SIL and Dior relating to conditions governing distribution did not fall within the scope of the national provisions on trade mark law that transposed Article 8(2) of the Directive [The proprietor of a trade mark may invoke the rights conferred by that trade mark against a licensee who contravenes any provision in his licensing contract with regard to its duration, the form covered by the registration in which the trade mark may be used, the scope of the goods or services for which the licence is granted, the territory in which the trade mark may be affixed, or the quality of the goods manufactured or of the services provided by the licensee]".

The Cour d’appel de Paris, considered, though, that those sales did not imply exhaustion of Dior’s trade mark rights, for the purposes of the national legislation transposing Article 7(1) of the Directive [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 or with his consent. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market]. Copad then appealed to the Cour de Cassation, which referred the following questions to the Court of Justice for a preliminary ruling:

"1. Must Article 8(2) of [the Directive] be interpreted as meaning that the proprietor of a trade mark can invoke the rights conferred by that trade mark against a licensee who contravenes a provision in the licence agreement prohibiting, on grounds of the trade mark’s prestige, sale to discount stores?

2. Must Article 7(1) of that directive be interpreted as meaning that a licensee who puts goods bearing a trade mark on the market in the [EEA] in disregard of a provision of the licence agreement prohibiting, on grounds of the trade mark’s prestige, sale to discount stores, does so without the consent of the trade mark proprietor?

3. If not, can the proprietor invoke such a provision to oppose further commercialisation of the goods, on the basis of Article 7(2) of [the Directive]?".

This morning the First Chamber of the ECJ ruled as follows:

"1. Article 8(2) ... is to be interpreted as meaning that the proprietor of a trade mark can invoke the rights conferred by that trade mark against a licensee who contravenes a provision in a licence agreement prohibiting, on grounds of the trade mark’s prestige, sales to discount stores of goods such as the ones at issue in the main proceedings, provided it has been established that that contravention, by reason of the situation prevailing in the case in the main proceedings, damages the allure and prestigious image which bestows on those goods an aura of luxury.

2. Article 7(1) ... is to be interpreted as meaning that a licensee who puts goods bearing a trade mark on the market in disregard of a provision in a licence agreement does so without the consent of the proprietor of the trade mark where it is established that the provision in question is included in those listed in Article 8(2) of that Directive.

3. Where a licensee puts luxury goods on the market in contravention of a provision in a licence agreement but must nevertheless be considered to have done so with the consent of the proprietor of the trade mark, the proprietor of the trade mark can rely on such a provision to oppose a resale of those goods on the basis of Article 7(2) of Directive 89/104 ... only if it can be established that, taking into account the particular circumstances of the case, such resale damages the reputation of the trade mark".

The IPKat can almost feel the mounting excitement among trade mark litigation lawyers across the length and breadth of the European Union as they consider, among other things, the meaning of the words "the allure and prestigious image which bestows on those goods an aura of luxury". How will "allure", "prestigious image", "aura" and "luxury" be defined?

Left: corsets for Kats?

What is the nature of the evidence that will establish that these criteria have been satisfied? Does this test apply only to consumer goods or does it also apply to brands in niche sectors such as office furniture, computer parts or food ingredients? Should the fact that goods are purchased as presents rather than for solely for personal consumption make a difference? This could be fun ...!
Curia press release on this decision, available in 10 official languages of the EU but not in English (read it in Hungarian here).

It's those repackagers again...

Yet another installment in Boehringer Ingelheim v Swingward and friends (and it's not the last one either). The Court of Appeal's judgment in February adjourned the case, pending the outcome of an Austrian reference to the ECJ concerning repackaging. The parties were left at liberty to apply for an order for costs to date and now they have done so.

The Court of Appeal made the order. Jacob LJ, delivering the leading judgment of the court, said:

"Unfortunately the result of the Austrian reference is still some way off. It is too far away for it to be right for us simply to await that result. We think it right to make a ruling now, but one that allows for the possibility (which we think unlikely) that the reference would make a difference to the result".

Just to add to the difficulties, Dowelhurst has gone into administration, so the Court had to work on the assumption that any costs paid to it would not be returned, even if the Austrian reference meant that a different apportionment was appropriate. Thus Dowelhurst was granted 80% of its costs, with the other 20% payable if the Austrian reference makes no difference to the judgment.
The IPKat says that there's a bigger problem here. On controversial subjects, there's often an ECJ reference waiting around the corner and there's a limbo period where it's known that the judgment is coming, but often it's a very long time off. Part of doing justice is doing it efficiently and with due speed, yet there is the real risk that the law will 'change' in the light of a pending reference. What are the courts to do in this situation? Proceeding isn't satisfactory, but neither is waiting.

eBay loses another French trade mark case

The IPKat has been a little slow in reporting on Monday's decision of the Paris Commercial Court to order eBay to pay 40 million euros to Louis Vuitton, Christian Dior Couture and various perfume brands owned by the LVMH group (see the Times article here). The main reason appears to be damage to the reputation of the various trade marks caused by the sale of counterfeit products. The court pointed to 'serious faults' in the way eBay ran the site. eBay has said it will appeal.

The dispute concerning the perfumes was somewhat different as there the argument was that eBay shouldn't allow genuine products to be sold on its sites because this would interfere with LVMH's exclusive distribution network.

The IPKat would dearly love to know how the sums for the damages were calculated. Surely there aren't so many people in France who would have bought a genuine Louis Vuitton bag but decided not to because of the eBay alternative? If the damage was for harm to Louis Vuitton's reputation, does this mean that the French court has stumbled on the secret for calculating how much damage harming a mark's exclusivity does? As for the the perfumes, the IPKat is scratching his head as to how this accords with the rules of exhaustion of rights (assuming that is that the eBay perfume originates in the EU).

Boehringer Ingelheim v Swingward decision: and the show's not over yet...

The Court of Appeal has delivered its verdict in Boehringer Ingelheim v Swingward. (Readers will be excused if they have a sense of deja vu as they read those words). This is in the light of the ECJ's reponse to the second set of questions referred to it in this case. The ultimate result is Jacob LJ's statement "what I would do for the present is hold that the defendants have complied with BMS condition 4 and in particular that their activities by way of re-boxing and re-labelling have not caused and will not cause damage to the reputation of the claimants' trade marks.". The for now element is a result of a request from the claimants that the Court of Appeal hold off from making its final decison in the light of the fact that there is a pending Austrian reference to the ECJ asking the following questions:

1(a) Are Article 7 of the Trade Marks Directive [full title set out] and the case-law of the Court of Justice of the European Communities which has been pronounced on it to be interpreted as meaning that proof that reliance on the trade mark would contribute to an artificial partitioning of the market must be furnished not only as regards the repackaging in itself, but also as regards the presentation of the new packaging?

If the answer to this question is in the negative:

(b) Is the presentation of the new packaging to be measured against the principle of minimum intervention or (only) against whether it is such as to damage the reputation of the trade mark and its proprietor?

The IPKat can only agree with Jacob LJ's introductory comments:

Notwithstanding the two references to the ECJ and its answers, each "side" claims to have won...That is a sorry state of affairs. European trade mark law seems to have arrived at such a state of uncertainty that no one really knows what the rules are, outside the obviously core case of straightforward infringement (the use of a mark as a trade mark for the defendant's goods which is the same as or confusingly similar to a plaintiff's registered mark registered for the same or similar goods). Big brand owners want bigger rights; smaller players, no change or less. The compromises which have emerged have very fuzzy lines. So it is that in this case, notwithstanding two references (and a host of cases about relabelling parallel imports going back at least 30 years...), there is still room for argument. There is indeed a yet further reference about the subject still pending before the ECJ, see below.

The only winners here seem to be the lawyers (and of course the academics who get to write about the whole sorry mess).