The German Federal Supreme Court has recently ruled on the exhaustion of trademark rights in a case where the manufacturer and trademark owner handed over a batch of shirts to the carrier on his premises that were to be shipped to a purchaser with its seat in Mexico. The carrier was commissioned by the purchaser. Place of dispatch of the goods was Genoa in Italy. The shirts were re-imported from Mexico to Germany by a third party and distributed by a discounter. The crucial point was whether the goods had been out on the market within or outside the European Economic Area (EEA) (Decision of 27 April 2006, Case I ZR 162/03 – ex works). Only in the latter case would the trademark owner have been entitled to prohibit the import of the shirts based on its trademark rights.
According to Section 24 paragraph 1 of the German Trademark Act (Art. 7 paragraph 1, Harmonization Directive), the trademark owner is not entitled to prevent a third party from using a trademark for goods that he has put on the market in a contracting state of the European Economic Area (EEA). The Court held that a product has been put on the market if the trademark owner has deliberately transferred the power of disposition of the goods to the purchaser. On the other hand, an internal transfer of goods between various establishments of the trademark owner or a transfer of goods to an affiliated group does not give rise to the exhaustion of rights. If the power of disposition has been transferred to the purchaser within the EEA, the trademark owner can no longer dispose of the further distribution of the goods and, as a consequence, cannot control whether the purchaser complies with the provisions of the purchasing agreement concerning the destination of the goods.
The German Federal Supreme Court held that in a case where the freight contract has been concluded between the purchaser and the transport company, the power of disposition is deliberately transferred from the seller to the purchaser at the moment of handing over the goods to the carrier. On receipt of the goods by the carrier, the purchaser has acquired the full power of disposition of the transported goods.
The case, however, was complicated by the fact that the trademark owner was wrongly described as the “consignor” in the bill of lading. According to Art. 12 paragraph 1 of the Convention on the Contract fir the International Carriage of Goods (CMR), the consignor has the right of disposition. Despite the fact that the bill of lading wrongly specified the trademark owner as the consignor of the goods, the Court held that the bill of lading was irrelevant because the trademark owner was not party to the freight contract with the carrier who was commissioned by the purchaser.. Therefore, in fact, the trademark owner was not the consignor and had no power of disposition vis a vis the carrier. As a result, the power of disposition of the shirts lay exclusively with the purchaser as the contracting party of the freight contract.
The “ex works” case of the German Federal Supreme Court continues with the ECJ’s decision in Peak Holding (case C-16/03 of 30th November 2004) as long as the principle of regional exhaustion (ECJ, Silhouette) prevails, the question of where the goods are put on the market is of paramount importance. To avoid the exhaustion of trademark rights it is crucial to ensure that the power of disposition is not transferred to the purchaser within the EEA. It is not necessary that the trademark owner himself ships the goods to the purchaser, but it is important that he retains the power of disposition as long as the goods are within the EEA. Against this background, accurate drafting of the freight contracts is of vital importance. In the long term it is certainly more reasonable and efficient for the trademark owner to instruct the shipping company himself than to suffer from grey imports from outside the EEA.