Rights not always exhausted?

In the latest European judgment on the validity of keyword advertising, the Court of Justice of the European Union ("CJ") has issued an interesting ruling on the circumstances in which re-sellers are able to rely on the exhaustion of rights defence in Article 7 of the Trade Marks Directive, which appears to extend beyond the issue of keyword advertising.

The judgment states that brand owners can prevent re-sellers from relying on the exhaustion of rights defence where the re-seller's sale of other second-hand goods is "seriously detrimental to the reputation of the mark". Examples of detrimental use given by the CJ include where the re-seller also sells other second-hand goods which, by reason of their poor quality, presentation or volume, risk seriously damaging the image that the brand owner has succeeded in creating for its brand.

The ruling appears to go beyond the CJ's ruling in Copad (click here to view Taylor Wessing's coverage of this), which held that a licensee that breaches the terms of its licence by selling outside of a selective distribution network could be infringing the trade mark owner's rights. In such circumstances, consent would be held not to apply and the trade mark owner would not be considered to have exhausted its rights.

On the face of it, it appears that the CJ has extended the principles laid down in Copad to circumstances where there has been no breach of a selective distribution contract. For situations where the brand owner does not operate a selective distribution network, this might provide an avenue to attack a re-seller's reliance on the exhaustion of rights defence if, for example, they are selling goods in an 'undesirable' or discount environment which reflects badly on the brand.

Whether a brand owner will be able to rely upon the CJ's judgment will depend very much on the circumstances of the use, as the test is quite subjective. However, the judgment may be a useful tool for brand owners who wish to attack 'undesirable' or discount re-sellers who use the trade marks to advertise their businesses.

To read the full judgment, click:
Portakabin Limited and Portakabin B.V. v Primakabin B.V. (C558/08).

Lawyers Justine Wilkie, Jason Rawkins