The limits on the scope of trademark rights, more in particular which requirements must be met for a trademark holder to be able to control the way in which a legitimate product put in the market with his consent, may be subsequently commercialized by a third party purchaser, is a recurrent subject in trademark litigation proceedings.

The issue often arises in the context of trademark infringement actions brought by the holder of a trademark for luxury products (products having an aura of luxury), sold in the market through a selective distribution system against a third party reseller who does not belong to the system.

Now, the Court of Appeals of Madrid, in a decision dated 18th of March, 2016, which has just made public (Decision no. 106/2016, Perfumeria Miralls SL and Perfumería Internacional SL vs. Loewe SA, Parfums Chtistian Dior SA and others), addresses again the issue. The court accepts the appeal brought by the defendants Perfumeria Miralls SL and Perfumería Internacional SL., revokes the first instance decision and rejects the infringement claim brought against them.

The defendants in the case acted both, as distributors and retailers, of the claimants’ products. On one hand, as distributors, the court finds that the defendants were not responsible of the poor conditions on which the products were eventually sold to consumers by their client-retailer (i.e. Hiperlic SL, also defendant in first instance, had been found in first instance liable of trademark infringement, but had not appealed). On the other hand, as retailers, according to the court no evidence was brought about the conditions on which the defendants were selling the claimants’ products, and thus it could not be determined whether those conditions could justify the non-application of the exhaustion of rights’ principle.

The court declares that the fact that the defendants are not part of the selective distribution system put in place by the claimants is not enough to justify an exception to the exhaustion of rights of the later. If the trademark holder may enforce its trademark rights is not because the sale of the products outside its selective distribution system, but because the factual conditions on which the products are sold (e.g. the appearance of the premises, or of the employees, the way the products are advertised or displayed, etc.) may damage the prestige of the trademark.

Leaving aside the particularities of the case under appeal, the decision of the Appeals Court of Madrid does not deviate from a well-established jurisprudence that has acknowledged this situation (i.e. the commercialization of products outside the authorized commercial channels in conditions harmful to the image of the trademark), as one of the cases where the rights of the trademark owner are not exhausted (at EU level, for example, the sentence of the ECJ dated 23rd of April, 2009, C‑59/08, Copad v.Christian Dior).