Cesare Galli July 10 2017 Bulgari successfully enforces its selective dealership network following trademark violation IP Law Galli | Intellectual Property - Italy Cesare Galli Intellectual Property IntroductionFactsDecisionCommentIntroductionAn order issued on November 28 2016 (which has since become final) by the Court of Catania's IP Specialised Division ended the infringing and unfair competition activities of a former official dealer at the expense of the prestigious global trademark BVLGARI, which Italian and overseas court decisions had already held to be one of the most renowned Italian brands for jewellery and luxury goods and services.The Catania decision is noteworthy as it granted protection against the illegal use of Bulgari's trademarks by the former official dealer of its jewels and expressly acknowledged the legitimacy of the selective dealership system implemented by Bulgari.FactsAs owners of the Italian and EU BVLGARI trademarks, Bulgari Spa and Bulgari Italia Spa filed a preliminary injunction application against a former member of Bulgari's selective dealership network, which had:used the BVLGARI sign on its jewellery shop despite no longer being a part of its dealership network;continued to sell products bearing the BVLGARI trademark; andused promotional material bearing the trademark.Due to this situation, Bulgari had instructed a detective agency to ascertain the source of these products. The investigation discovered that the goods unlawfully sold had been ordered directly from Bulgari through an authorised dealer who had infringed his contractual duties under his agreement with Bulgari, which included the prohibition to sell Bulgari's products to business entities outside the selective dealership network.DecisionThe Court of Catania upheld all of Bulgari's claims and ordered the ex-dealer to:stop using the BVLGARI and BULGARI trademarks on its shop sign; andremove the shop sign from its store immediately.Similarly, the court enjoined the dealer not to use said trademarks on its website or social media and, more generally, prohibited the use of catalogues and brochures bearing the trademarks BVLGARI or BULGARI. Finally, the court ordered:the publication of an extract from the decision in the most widely read Italian newspaper, Corriere della Sera; andthe ex-dealer to refund Bulgari for the costs of the lawsuit and the publication of the article.Under Article 131 of the Industrial Property Code, the court's decision was provided as a matter of urgency and at the end of an extremely fast proceeding. As the decision has not been appealed, it has been 'stabilised', meaning that it keeps its effects even if none of the parties start proceedings on the merits. This is a significant benefit of Italian preliminary injunction proceedings.With reference to the merits, the Court of Catania agreed fully with EU law and European Court of Justice (ECJ) case law regarding 'selective dealership systems', defined by Article 1(e) of the EU Exemption for Vertical Supply and Distribution Agreements Regulation (330/2010) as systems:"where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorised distributors within the territory reserved by the supplier to operate that system."This system also allows the manufacturer of highly reputed luxury goods to control in advance the sales channels of its goods to the final consumer, safeguarding the prestige and reputation of the relevant trademarks.In this case, the court held that "Bulgari [had] proved the use of a selective dealership system in order to supply its own products", which was fully consistent with EU rules. The court therefore ruled that:"The sale by a non-authorised dealer… causes harm to the message of prestige and exclusivity conveyed by the Bulgari trademarks to the customers, since he [said dealer] did not respect any of the standards set by the Bulgari companies for their authorized dealers."The ex-dealer's behaviour was deemed to be unlawful by the Court of Catania with regard to the infringement of Bulgari's trademarks and other distinctive signs (ie, the company name and shop sign). In particular, the court stated that the defendant's use of signs that were identical to those owned by Bulgari had created unacceptable harm to Bulgari's trademarks and signs and gave undue advantage to the defendant, since it had parasitically exploited the reputation linked to said trademarks. In particular, the court stated that:"As the trademark 'BVLGARI' is renowned, its unauthorised use by third parties provided them an undue advantage by leveraging the trademark awareness and creating a parasitically coupling to the renowned trademark which gave them unfair advantage at the expense of the trademark's owner who sees the distinctive character of its trademark weakened."As a result, the implementation of a selective dealership network fully consistent with the relevant EU rules gave Bulgari the opportunity to oppose successfully the defendant's illicit activities, as they amounted to an 'legitimate reason' pursuant to Article 7 of EU Trademarks Directive (2008/95/EC) to exclude the application of the EU trademark exhaustion principle following the commercialisation of a product on the EU or EEA market. This principle, where applicable, would have otherwise made lawful the purchase and resale of products which, from a material point of view, can be said to be original. In this regard, EU case law has stated that:"The fact that the trade mark is used in a reseller's advertising in such a way that it may give rise to the impression that there is a commercial connection between the reseller and the trade mark proprietor, and in particular that the reseller's business is affiliated to the trade mark proprietor's distribution network or that there is a special relationship between the two undertakings, may constitute a legitimate reason within the meaning of Article 7(2) of the directive. Such advertising is not essential to the further commercialisation of goods put on the Community market under the trade mark by its proprietor or with his consent or, therefore, to the purpose of the exhaustion rule laid down in Article 7 of the Directive. Moreover, it is contrary to the obligation to act fairly in relation to the legitimate interests of the trade mark owner and it affects the value of the trademark by taking unfair advantage of its distinctive character or repute. It is also incompatible with the specific object of a trade mark which is, according to the case-law of the Court, to protect the proprietor against competitors wishing to take advantage of the status and reputation of the trade mark."(1)Further, ECJ Case C-59/08 (April 23 2009) stated that:"It is conceivable that the sale of luxury goods by the licensee to third parties that are not part of the selective distribution network might affect the quality itself of those goods, so that, in such circumstances, a contractual provision prohibiting such sale must be considered to be falling within the scope of Article 8(2) of the Directive."In this regard, the Court of Catania stated that "there is consequential damage from the unfair use of the renowned trademark by the defendants in order to take advantage from both the distinctive character of the mark and its awareness", thus confirming the consolidated guidance of Italian case law, which considers parasitical exploitation to be equivalent to likelihood of confusion in the protection of renowned trademarks.The court also defined the ex-dealer's activities to be unlawful in terms of unfair competition. In particular, the court stated that inducing a dealer that was part of Bulgari's selective dealership network to violate its contractual obligations was an unlawful breach of contractual obligations. In Italy, this is a typical case of unfair competition.CommentSelective distribution was therefore confirmed to be an effective tool to protect a renowned trademark and an assurance of the good quality of products covered by these trademarks.For further information on this topic please contact Cesare Galli at IP Law Galli by telephone (+39 02 5412 3094) or email ([email protected]). The IP Law Galli website can be accessed at www.iplawgalli.it.Endnotes(1) See ECJ, February 23 1999, Case C -63/97, par 51-52.