A victory for the legitimate interests of consumers

This article was included in the winter 2011/12 issue of snIPpets - the intellectual property newsletter.

On 14 July 2011 the Court of Justice of the European Union gave its decision in Case C-46/10 Viking Gas A/S v Kosan Gas A/S.  The facts of the case could have come straight out of an exam question:  Kosan sold bottles of gas which were protected by a variety of trade mark registrations; the composite gas bottles were, by design, reusable and Kosan would refill them for a charge; Viking, a competitor of Kosan, offered a service by which consumers could have their empty composite bottles refilled or exchanged for full ones, the refilled bottles being identified with stickers, although the original Kosan Gas trade marks remained visible.  Kosan had sued for trade mark infringement.

The case turned on the impact of trade mark exhaustion on these facts.  Kosan took the view that the ‘product’ sold under the trade mark was, in fact, the gas contained in the containers and so while a purchaser would be free to resell an unused bottle of gas, they were not free to reuse what was in effect the packaging of Kosan’s product.  Similarly, a competitor was not free to reuse Kosan’s packaging for its own product.

By contrast, Viking asserted that the trade mark rights were exhausted in relation to the composite bottle itself, as well as in relation to the gas contained, once sold. 

The Court began by looking at the legitimate interests of the parties and consumers involved.  The composite bottles were distinguished from typical packaging, which has little value independent of the product contained, in that the composite bottle was worth considerably more than the gas contained.  This was reflected in the price.  The consumer therefore had a legitimate interest in refilling and reusing their composite bottle a large number of times in order to recoup their initial outlay. 

Forcing consumers to return to Kosan for refills would limit their freedom to utilise the purchased bottle and would unduly restrict competition in the downstream market for gas refills.  While Kosan did have a legitimate interest in exploiting the various marks, this interest was satisfied by the fact that they charged for the value of the bottle in each sale.  The composite bottles, being more technically effective than traditional steel bottles, already represented a successful product allowing initial sales of gas-filled composite bottles to command a substantial premium compared to sales of gas in traditional bottles.

The Court held that since the composite bottle itself was a distinct product, the trade mark rights associated with that product were exhausted on the first sale:  Kosan could not, in principle, contest the refilling of used composite bottles by Viking. 

However, the Court also noted, following the established law, that the rights would not be exhausted where Kosan has a legitimate reason to oppose further commercialisation of the goods.  This would include cases where third party use potentially damaged Kosan’s reputation or created an erroneous impression of a commercial connection with Kosan.  It would be for the national court to decide this issue given the circumstances surrounding the exchange of the bottles and the labelling used.

Overall, the case is a refreshing reminder of the underlying rationale behind trade mark law.  By putting the legitimate interests of consumers at the centre of its analysis of exhaustion law, the Court reminds us that the core purpose of a trade mark is to assist consumers in accessing goods and services from trusted providers and to assist those providers in competing fairly to build effective relationships with consumers.

Hastings Guise, senior associate, IP Protection and IP Enforcement and Litigation at Fieldfisher.