The pallet of the European Pallet Association (‘EPAL-pallet’ also known as EUR-pallets) is the most well-known pallet in the European Union. The EPAL pallet is becoming more widely known, because of the trend of using recycled wooden pallets as furniture or as home decoration. However, changing the condition of EPAL-pallets is not without consequences. EPAL-pallets have to meet specific requirements: the pallet must use at least 78 nails in a prescribed pattern, a specific type of dry wood is used, the dimensions of the pallets are regulated by different standards and the pallet is marked by a branding iron bearing the EPAL trade mark. Only licensed producers and repairers, part of the EPAL network, are allowed to repair the EPAL-pallets. EPAL is thus willing to create a pool system in which the (properly repaired) EPAL pallets are exchanged. Because of the pool system EPAL tries to guarantee the consistent quality of the EPAL-pallets.

Exhaustion Doctrine

The rights of a trade mark holder are limited by the exhaustion doctrine, also known as the “first sale doctrine”. The general rule is that once the trade mark holder itself or a third party – with consent of the holder- has put its goods on the market, the trade marks rights are exhausted. The trade mark holder can therefore not use its IP rights to prevent parallel import or reselling of goods that have already been placed on the market in another EU member state by the IP right holder itself or with its consent.

Exhaustion of TM rights does not apply where there are legitimate reasons of the trade mark holder to oppose further commercialisation of the goods, especially where the condition of the goods is changed or impaired after the products have been put on the market (article 13 of the Directive 2015/2436).

Dutch court: legitimate reasons to oppose further commercialisation by PHZ

To return to the EPAL-pallets; once the EPAL-pallet is sold by EPAL, exhaustion applies and in general the IP rights will be exhausted. The Dutch court however declared otherwise in the EPAL/PHZ-case of 31 August 2016.

The Dutch company, PHZ, repairs used EPAL-pallets and resells the pallets to third parties. EPAL brought a legal action against PHZ, on the grounds CJEU PHZ is infringing the EPAL trade mark because the condition of the EPAL-pallets is changed and impaired by PHZ.

First, the Court found that the trade mark rights have not been exhausted, because PHZ did not argue that the products are placed on the market by or with consent of EPAL. Furthermore, the Court referred to the Viking /Kosan and the Portakabin/Primacabin cases of the CJEU and stated that the further commercialisation of repaired EPAL-pallets infringes the EU trade mark, because the commercialisation is carried out in such a way that PHZ is giving the impression that there is a commercial connection between PHZ and EPAL.

PHZ is not actively fostering the impression that it is part of the EPAL association. However, the Court found that it is insufficient that PHZ does not take a position on whether it is part of the EPAL association or not. PHZ needs actively to avoid and remove the impression that it is a integral part of the EPAL association. PHZ did not remove the impression that the repairing of the EPAL-pallets was supervised by the EPAL-association. For that reason, EPAL has legitimate reasons to oppose the further commercialisation by PHZ.

All in all a beneficial case for the trade mark holder. To successfully invoke the exhaustion doctrine, the alleged infringer has at least explicitly to state and substantiate that the products are put on the market by or with consent of the trade mark holder. Furthermore, the alleged infringer and repairer needs explicitly to state whether he and the trade mark holder are commercially connected or not.