This article first appeared on WTR Daily, part of World Trademark Review, in October 2017. For further information, please go to www.worldtrademarkreview.com.
The ECJ was asked a series of questions on exhaustion of trademark rights in different EEA member states
The opinion confirmed exhaustion occurs where trademark owners in exporting and importing states are economically linked
Despite Coca-Cola being neither a licensee nor an exclusive distributor of Schweppes, the two were found to have a commercial agreement
The SCHWEPPES trademark was first used in 1783. Cadbury Schweppes was for many years the sole owner of a large portfolio of SCHWEPPES marks in the European Economic Area (EEA) until 1999, when it sold the rights to those marks in 13 member states (including the United Kingdom) to The Coca-Cola Company, retaining ownership in the remaining 18 member states, including Spain.
Schweppes SA – the Spanish subsidiary with exclusive rights to use the SCHWEPPES marks in Spain – brought trademark infringement proceedings in 2014 against several Red Paralela companies over the importation from the United Kingdom and sale in Spain of bottles of SCHWEPPES tonic water.
Red Paralela argued that Schweppes had exhausted its trademark rights and that there were legal and economic links with Coca-Cola in the common exploitation of SCHWEPPES as a universal mark. The Spanish court found on the facts that Schweppes had promoted a global image of the SCHWEPPES trademark, which Coca-Cola had contributed to maintaining.
The Barcelona Commercial Court referred a series of questions to the European Court of Justice (ECJ) concerning exhaustion of rights.
Four questions were referred to the ECJ, which were condensed into one by Advocate General Mengozzi, as follows:
"Does Article 36 of the Treaty on the Functioning of the EU and Article 7(1) of the Trade Marks Directive (2008/95) preclude the licensee of the proprietor of a national trademark from invoking the exclusive rights enjoyed by it (under the law of the member state in which the trade mark is registered) to oppose the importing into and/or marketing in that state of goods bearing an identical trade mark which come from another member state, one in which that trade mark, which was once owned by the group to which both the proprietor of the mark in the importing state and its licensee belong, is owned by a third party which has acquired the rights to it by assignment?"
The advocate general considered that the answer to the above question should be ‘yes’. In his opinion, EU law precluded reliance on an exclusive right where:
the goods (with an identical trademark) came from a third party in another member state which acquired the rights to the trademark through assignment;
the trademark was once owned by the group to which both the trademark owner in the importing member state and its licensee belonged;
the economic links existing between the trademark owner in the importing member state and the owner in the exporting state made it clear that the marks were under unitary control; and
the trademark owner in the importing state had the possibility of determining, directly or indirectly, the goods to which the trademark in the exporting state could be affixed and of controlling their quality.
The advocate general considered that in principle the burden of proof was on the parallel importer to prove the existence of coordination between the owners of parallel marks leading to unitary control. It would then be up to the trademark owner, seeking to oppose the parallel imports, to prove that it has not reached any agreement.
Therefore, some 20 years after its landmark ruling in the Ideal Standard case, the ECJ has been asked to revisit the complex issue of exhaustion of trademark rights in the context of the voluntary fragmentation of parallel rights which have the same origin, but have arisen in a number of different EEA member states.
The advocate general has confirmed the principles set out in that case where the ECJ ruled that exhaustion occurs where the trademark owners in the exporting and importing states were the same, or economically linked. He appears to have extended the meaning of ‘economically linked’ to include situations where there is unitary control, which can encompass situations beyond those considered in the Ideal Standard case. In his view, the nature of the relationships between the entities is of less importance than the result of those relationships by which the trademark happens to be under unitary control. In this case, none of the classic situations applied – Coca-Cola was neither a licensee nor an exclusive distributor of Schweppes in the United Kingdom and there was no group relationship between the two companies. However, they appeared to have reached an agreement to exploit their trademarks jointly and had adopted a commercial strategy to promote a global image of the SCHWEPPES mark.
It will be interesting to see if the ECJ follows the recommendations of the advocate general. If it does it will then fall to the Spanish court to determine, from all the evidence (including the assignment agreement between Schweppes and Coca-Cola and other relevant documents), whether the conditions for exhaustion have been met.