Copad SA v Christian Dior couture SA and Société industrielle lingerie (SIL)

Case C-59/08, 23 April 2009

Following a reference from the French Cour de Cassation, the European Court of Justice ("ECJ") has ruled that the sale of luxury goods to discount retailers may damage the reputation of a mark and impair the quality of the goods.

SIL was licensed by Dior to sell Dior corsetry in France.  The licence agreement prohibited sales to discount stores in order to "maintain the repute and prestige" of the trade mark.  However, on facing economic difficulties, SIL asked Dior for permission to sell the goods to French discount stores which were outside of the selective distribution network.  Dior refused this request.  Notwithstanding this refusal, SIL sold the goods to Copad, who operate a discount retailer business.

Article 8(2) of the Trade Marks Directive (89/104/EEC) provides that a trade mark proprietor can sue a licensee for infringement where the licensee breaches a term of its licence regarding "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 licensee argued that although selling to a discount house might be breach of contract, it was not trade mark infringement because Article 8(2) was exclusive and distribution methods were not covered by that clause.

In its judgment, the ECJ accepted that the quality of luxury goods is not just the result of their material characteristics, but also the allure and prestigious image which bestows on the goods an aura of luxury.  If the aura of luxury is damaged, the quality of the goods may be damaged too.  Selling luxury goods outside a selective distribution network may therefore damage the quality of the goods and fall within Article 8(2), which the ECJ held is an exclusive list.

The ECJ said that it is up to a national court to decide whether the quality of the luxury goods is affected through impairment of the luxury image of the goods.  Factors to be taken into account include:

• The nature of the luxury goods, the volumes sold and whether the licensee sells the goods to discount houses that are not part of the selective distribution network regularly or only occasionally.
• The nature of the goods normally marketed by those discount stores, and the marketing methods normally used in that sector of activity.

Under EU law, generally a licensee will be regarded as putting goods on the market with the proprietor's consent and accordingly a re-seller cannot be prevented from marketing the goods further in the EEA under the exhaustion of rights doctrine.  However, if a breach of contract falls within Article 8(2), consent will be held to be withdrawn and therefore the rights of the proprietor will not be exhausted under Article 7(1)

Even if the proprietor is deemed to have consented, it may still be able to prevent further marketing.  The sale of luxury goods to discount stores may damage the reputation of the mark and impair their quality, although this is unlikely where the discount store is reselling the goods using methods which are customary in its sector of trade.

Lawyers Christopher Benson, Justine Wilkie