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Schweppes parallel imports case continues to fizz – CJEU ruling

Heidi Hurdle
10/01/2018
Last autumn the Advocate General gave his opinion on the trade mark exhaustion dispute about SCHWEPPES branded goods (which we discussed in an earlier blog). We now look at the CJEU's ruling published in late December.

Last autumn the Advocate General gave his opinion on the trade mark exhaustion dispute about SCHWEPPES branded goods (which we discussed in an earlier blog). We now look at the CJEU's ruling published in late December.

Brief recap of the facts

Cadbury Schweppes was for many years the sole owner of a large portfolio of SCHWEPPES marks in the EEA until 1999, when it sold the rights to those marks in 13 member states (including the UK) to The Coca-Cola Company, retaining ownership in the rest of the EEA.

In 2014, Schweppes SA (the Spanish subsidiary with exclusive rights to use the SCHWEPPES marks in Spain) brought trade mark infringement proceedings against several Red Paralela companies over the importation from the UK and sale in Spain of bottles of SCHWEPPES tonic water. Schweppes claimed that the parallel imports were unlawful because the bottles had been put on the UK market by Coca-Cola, which it argued had no connection with Schweppes.

The defendants argued that Schweppes had exhausted their trade mark rights; they claimed that there were legal and economic links with Coca-Cola in the common exploitation of SCHWEPPES as a universal mark.

The Barcelona Commercial Court referred a series of questions to the CJEU asking whether or not EU law (namely Article 7 of the Trade Marks Directive (2008/95/EC) and Article 36 of the Treaty on the Functioning of the EU) prevented Schweppes SA from invoking its exclusive rights to oppose the parallel imports. In doing so, it noted that Schweppes, despite now only owning the marks in part of the EEA, had promoted a global image of the brand, which Coca-Cola had contributed to maintaining.

Advocate General's opinion

The details of Advocate General Mengozzi's opinion are discussed in our earlier blog. In essence he considered that EU law did preclude a trade mark owner from relying on its exclusive rights, where due to the economic links between it and the trade mark owner in the exporting state, it was clear that the marks were under unitary control.

CJEU ruling

The CJEU ruled that EU law did prevent the owner of a national trade mark from opposing the import of identical goods bearing the same mark originating in another member state, in which it had assigned that mark to a third party, when after that assignment:

  • The trade mark owner, 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 to relevant consumers as to the commercial origin of goods bearing that mark; or
  • Economic links exist between the owner and that third party, inasmuch as they coordinate their commercial policies or reach an agreement to exercise joint control over the use of the trade mark, so that they can determine, directly or indirectly, the goods to which the trade mark is affixed and to control the quality of those goods.

In reaching this conclusion, the CJEU referred to the essential function of a trade mark, namely to guarantee the identity of the origin of the branded product to consumers. It considered that this function was compromised or distorted when a trade mark owner behaved in a way (as set out in the first bullet above) that meant that the trade mark no longer independently fulfilled its essential function within its own territorial field of application. In such circumstances, the trade mark owner could not oppose the parallel imports. The court commented that merely continuing to evoke the historical geographical original of the national parallel trade marks did not amount to such a distortion or compromise of the origin function.

The CJEU went on to explain that even if the owner has not promoted the image of a single global trade mark, it could not oppose the parallel imports where there were economic links between it and the third party as set out above (see second bullet.) This was a further way in which the economic link criterion (set out in earlier case law) could be fulfilled, in addition to links between a brand owner and licensee or exclusive distributor.

Comment

This CJEU ruling shows that following the sale of part of a trade mark portfolio, the exact nature of any continued relationship with an assignee might affect a brand owner's ability in the future to prevent parallel imports within the EEA; this is something to take into account during such negotiations.

The judgment builds upon the existing case law in this area and in particular the CJEU's landmark ruling many years ago in the Ideal Standard case (IHT Internationale Heiztechnik and Danzinger (C‑9/93)) concerning the complex issue of trade mark exhaustion within the EEA in the context of the voluntary fragmentation of parallel rights, coming from the same origin.

It is now over to the Spanish courts to apply the ruling and determine from all the circumstances whether the conditions for exhaustion have been met in this case. Watch this space for more fizz…!

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