The European Court of Justice (ECJ) has decided that the quality of luxury goods is one of their material characteristics and part of the prestigious image that gives them an aura of luxury. As a result, an impairment of that image is likely to affect the quality of these goods. Therefore, a contractual provision which prohibits the sale of such goods to unauthorised retailers must be considered to be falling within the scope of Article 8(2) of the Trade Mark Directive and must be upheld.

The case concerns an agreement between Dior and Société industrielle lingerie (SIL) whereby Dior granted SIL a licence to manufacture and distribute luxury corsetry goods bearing the Christian Dior trade mark. Under this agreement, SIL had agreed to not distribute these goods to discount stores without the prior consent of Dior. In contravention of this provision, SIL sold these products to Copad, a company operating a discount store business. In response, Dior brought an action for trade mark infringement. The French Supreme Court (Cour de Cassation) referred a question to the ECJ asking whether such a provision in a licence agreement, on the grounds of the prestige of the trade mark, falls within the scope of Article 8(2) of the Trade Mark Directive.

The ECJ decided that it is for the national court to determine whether SIL’s breach of the agreement had damaged the aura of luxury of the contract goods and thus affected their quality.