[Pharm-policy] Story on EU Trademark Law and Parallel Imports

[James Love]

-------- Original Message --------
Subject: Story on EU Trademark Law and Grey Market Goods
Date: Wed, 25 Jul 2001 12:26:28 +0100
From: David Banisar <dbanisar@privacy.org>
To: ip@tacd.org

©2001 Law.com
Page printed from: http://www.law.com
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Levi's Blues
Brand owners beware: A recent ruling may wash the European import market gray
Steve Seidenberg
IP Worldwide

July 25, 2001

The saga began when two English department store chains had the 
temerity to sell jeans. But these were not just any jeans -- these 
were Levi's 501s, and they were being sold without the approval of 
Levi Strauss & Co.
Tesco Stores PLC and Costco Wholesale UK Ltd imported the jeans from 
various sources in North America, and these mass market stores sold 
them in the U.K. at prices that were far lower than were offered at 
authorized Levi's dealers in Europe. So Levi Strauss made some 
threatening noises to Tesco and Costco. In October 1998 Tesco 
responded by suing for "unjustified threat." Levi Strauss' lawyers, 
Baker & McKenzie, sprang into action and filed a trademark 
infringement suit against Tesco later that month, and the cases were 
joined. Shortly thereafter, Levi Strauss brought a separate suit 
against Costco for trademark infringement.
In both cases, the U.K. courts have refused to side with Levi 
Strauss, but the cases have now gone up to the European Court of 
Justice. Meanwhile, these lawsuits have fueled a larger political 
debate that threatens to strip all trademark owners in the European 
Union of the rights to control imports of their branded goods.
LEVIS AND CONSENT
Levi Strauss says it should be able to control the distribution and 
sale of its products. And European Union law supports this position, 
up to a point.
The E.U.'s Trademark Directive mandates that a trademark owner's 
rights in its goods are exhausted upon the first authorized sale of 
those particular goods within the E.U. At least, that's how the 
European Court of Justice interpreted the directive in its landmark 
Silhouette case, Case C-355/96, (1998) ECR I-4799.
So once Levi Strauss puts a pair of jeans on the market in any part 
of the E.U., the jeans maker can't use its trademark rights to 
prevent those jeans from being resold throughout the E.U. But if Levi 
Strauss initially puts its jeans on the market outside the E.U., say 
in the United States or Thailand, the company can prevent those jeans 
from being imported into the E.U. Such parallel, or gray market, 
imports would violate Levi Strauss' trademark rights. Levi Strauss 
could have the offending goods seized and destroyed. (Levi Strauss 
cannot, however, claim a trademark violation on jeans it sold to 
authorized dealers within Europe.)
To date, the jeans maker has been unable to prevent Tesco and Costco 
from importing and selling 501s because these stores have mounted a 
clever argument. They claim that Levi Strauss has consented to the 
jeans being sold on the E.U. market. Specifically, the two stores 
acquired the 501s from manufacturers in North America, and Levi 
Strauss' contracts with these manufacturers contained no explicit 
prohibition against the finished goods being exported to Europe. The 
contracts were silent on this point. And Tesco and Costco claim that 
silence equals consent. Both the Tesco and Costco cases were before 
Justice Nicholas Pumfrey of the English High Court of Justice, which 
is noted for hearing IP cases in the U.K. And Pumfrey declined to 
reject the retailer's defense. Instead, he said this was a question 
that needed to be decided by the ECJ, so he sent up a series of 
questions, including the issue of consent, for that court to answer.
Meanwhile, a similar case was on the burner before Justice Hugh 
Laddie, also of the English High Court. Zino Davidoff SA had sued A & 
G Imports Ltd. for importing bottles of "Davidoff Cool Water" 
perfumes into the E.U. Davidoff's contract did not explicitly 
prohibit resales into Europe. Laddie ruled that Davidoff, by its 
silence, had consented to the sale. But Laddie, too, sent the ECJ a 
series of questions on consent.
It was, notes Philip Atkinson, an IP partner at London's Eversheds, 
"a broad view" of consent. The ECJ is hearing all three cases 
together in an attempt to clarify the standard for determining 
"consent" under the Trademark Directive.
"Laddie publicly said that he expected his decision to be shredded," 
says Barbara Cookson, an IP partner in London's Nabarro Nathanson, 
which represented Costco in the suit. Laddie made that statement at 
an English legal function, according to firm lawyers.
SOMETHING FOR EVERYONE
On April 5 the ECJ handed down its interim ruling by the court's 
advocate general. The court generally follows these advisory 
opinions. The AG did not shred Laddie's and Pumfrey's rulings, but 
didn't support them either. The full implications of the ruling are 
unclear, but it may well give the trial courts enough wiggle room to 
find in favor of Tesco and Costco. And for now, Tesco and Costco are 
still selling 501s.
The AG's long and complex opinion, which examined such things as the 
"teleological construction" of consent, ruled that there should be a 
single, E.U.-wide standard for determining consent. But the ruling 
failed to delineate what that standard should be. If the ECJ adopted 
the AG's advice, says Atkinson, "no one would be any the wiser about 
what 'consent' means."
Actually, the AG's opinion provides a little guidance about how 
consent should be interpreted -- and that allowed each side to claim 
the ruling was a victory. Levi Strauss said they were the victors 
because the AG required some factual basis for finding consent; a 
court cannot presume that mere silence constitutes consent. Tesco and 
Costco said they won because the AG recognized that consent could be 
granted in a variety of ways; it need not be written, explicit 
consent.
But on another, more profound issue, the AG seemed to side with 
parallel importers. "This is the first case to say there may be 
something more than just trademark law to be considered here," says 
David Flint, an IP partner at London's MacRoberts Solicitors. The AG 
states that consumer, safety, and public policy issues may also need 
to be taken into account. For instance, the fact that E.U. consumers 
are paying more for jeans than consumers elsewhere may be weighed in 
the balance, along with the rights of trademark owners.
According to Flint, "The advocate general seems to be suggesting that 
the current law needs to be reconsidered at the political level" in 
order to decide whether the E.U. should adopt exhaustion of trademark 
rights. Under that standard, trademark rights are exhausted once a 
brand owner puts that item on the market anywhere in the world.
THE WINNER IS ...
So how much weight should be given to the AG ruling? "I think the ECJ 
will follow the AG ruling," Flint says. "There is something in it for 
everybody. Brand owners say, 'We have the right to give consent or 
not' [on imports into the E.U.]. Consumers point to court language 
that other factors should be taken into account."
Cookson expects the ECJ ruling "will be quite delayed" -- possibly 
for months -- because they need to develop the standards for 
determining consent. "Otherwise the court will get the question back 
again," she says. "The court is already very busy; it doesn't want to 
address the same issue again and again. So they've got to give it as 
final an answer as they can."
After the ECJ issues its ruling, the case will go back to the trial 
courts so they can apply the law to the facts. Atkinson says that 
Laddie, at least, is probably inclined to find that the facts are 
favorable to the parallel importers: "[Laddie] would perhaps either 
say there is consent, or other factors would come up and he would 
allow imports on those factors."
Things are thus looking pretty good for Tesco and Costco. Not only do 
they have a decent chance of winning their lawsuit, but the 
high-profile case has given the retailers lots of good PR, allowing 
them to stand as champions of low prices for consumers. Plus the 
companies are selling Levi 501 jeans like mad.
How is Levi Strauss taking all this? The company and its counsel in 
this case have not responded to repeated inquiries by IP Worldwide. 
(Unlike Laddie, the careful reader should not infer anything from 
Levi's silence.)
POLITICS AND PARALLEL IMPORTS
Europe's courts have not been the only ones grappling with the issue 
of parallel imports. In late April the governments of Sweden and the 
United Kingdom released a five-country survey, which showed that the 
prices for many consumer items are significantly lower in the United 
States than in many E.U. countries. The report showed, for instance, 
that a pair of Levi's jeans cost 70 percent more in England than in 
the United States.
The report was issued shortly before a European conference of 
consumer ministers in May. At the conference, representatives from 
the U.K. and Sweden pointed to the report as evidence that E.U. law 
should be changed in order to allow more parallel imports. They 
called for the Trademark Directive to be altered to recognize the 
international exhaustion of trademark rights, instead of just 
E.U.-wide exhaustion.
The British government began calling for this change during the 
run-up to a general election, and some, like London lawyer Flint, 
think this is no accident. He says, "There is a belief that consumers 
are being ripped off by big business. Whether that belief is correct 
or not is unimportant. It is a good political issue for the [U.K.] 
government to hang their hat on."
Perhaps that is part of the reason why the U.K. Secretary of trade 
and industry Stephen Byers wrote an article for the April 27 issue of 
the Guardian newspaper, stating that "companies were abusing European 
trademark legislation to keep prices artificially high in some 
countries."
Regardless of their political motives, the U.K. and Swedish 
governments appear keen to change the Trademark Directive. Belgium, 
Finland, Ireland, Denmark, and the Netherlands also support this 
proposal, according to Emma Ward, a spokesperson for the U.K. 
Department of Trade and Industry.
France and Italy strongly oppose any change in existing E.U. rules -- 
as does E.U. internal market commissioner Frits Bolkestein. They 
point to a 1999 study indicating that if the E.U. adopted 
international exhaustion of trademark rights, there would be no 
significant short-term change in overall European prices. The 
remaining E.U. countries are undecided.
So what are the prospects for change? Flint says, "There are fairly 
strong trademark lobbies in both the U.S. and the U.K., and they're 
not afraid to flex their muscles at the slightest opportunity. It is 
likely they will push hard for retention of the status quo. So the 
question is what the consumer lobby can do to bring about change." He 
adds, "At the end of the day, [I think] the Trademark Directive will 
be revised."
Which would be good news for European consumers looking for a cheap 
pair of jeans. But it spells bad news for brand owners, who would 
find it harder to sell their goods at premium prices in Europe.
-- 
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David Banisar (Banisar@privacy.org)
Deputy Director        
Privacy International
London, UK
http://www.privacyinternational.org/