The European Court of Justice (“ECJ”) recently rendered two important judgments supporting broad protection of trade marks with a reputation. One case concerned the sale of “look-alike” products (L'Oreal v. Bellure, C-487/07) while the other dealt with the resale of luxury goods to unauthorised distributors (Dior v. Copad, C-59/08).

L'Oreal v. Bellure concerned the sale of look-alike products sold under trademarks similar to certain well-known L’Oreal brands and the use of so-called comparison lists by the retailers of these look-alikes. L'Oreal filed suit under the UK Trade Marks Act 1994, which transposes the Trade Marks Directive (Directive 89/104/EEC) into national law. Section 10(3) Trade Marks Act 1994 allows the owner of a mark with a reputation to oppose the use of its mark, or a similar sign, when such use would take unfair advantage of, or be detrimental to, the reputation or distinctive character of the trade mark. The UK Court of Appeal submitted a request for a preliminary ruling to the ECJ regarding the notion of “unfair advantage”.

The ECJ stated that the unfair advantage relates not to the harm caused to the trade mark or the trade mark holder but rather to the advantage which the defendant gains from using the identical or similar sign. The ECJ further stated that this concept covers, in particular, cases where the identical or similar sign can free ride on the well-known trade mark by reason of the transfer of the image of the mark or of the characteristics which its projects onto the goods identified by the identical or similar sign. The ECJ clarified that the owner of the trade mark does not need to prove that the use of the identical or similar sign is detrimental to the distinctive character or reputation of its trade mark or itself.

Thus, it is now clear that the unfair use of a sign which is identical or similar to a trade mark with a reputation is actionable and that the trade mark owner need not prove harm to itself or to its mark or a likelihood of confusion. The national court must consider the totality of circumstances in order to determine whether the use in question is unfair. In the case at hand, the ECJ stated that the national court should, in particular, assess whether the use of packaging and bottles similar to those of L’Oreal’s fragrances was intended to take unfair advantage of the distinctive character and reputation of L’Oreal’s trade marks. The ECJ added that when a party tries to free ride on the reputation of a trade mark in order to benefit from its power of attraction, reputation and prestige, and to use, without having to pay anything in return and without being required to make any efforts of its own, the marketing efforts expended by the owner of the mark in order to create and maintain the mark’s image, the resulting advantage must be considered unfair.

In L'Oreal v. Bellure, the ECJ was also asked to issue a preliminary ruling on the application of the infringement criteria set forth in Article 5(1)(a) and (b) of the Trade Marks Directive. This question was submitted in connection with the inclusion of L’Oreal’s trade marks on a so-called comparison list used by the defendants. (Such lists can constitute unlawful comparative advertising.) The UK Court of Appeal requested clarification as to the circumstances under which the trade mark holder can rely on Article 5(1)(a) of the Directive when the defendant’s use of its mark is not capable of jeopardising the mark’s essential function, namely to guarantee the origin of goods or services. The ECJ ruled that Article 5(1)(a), which prohibits the use of an identical sign to identify goods or services identical to those for which the trade mark is registered, is intended to ensure that trade marks can fulfil their functions and therefore a trade mark owner should only be allowed to rely on its exclusive rights under this article when a third party’s use of an identical sign affects or is liable to affect the trade mark’s functions. The ECJ expressly stated that these functions include not only the essential function of a trade mark (i.e., to guarantee the origin of goods or services) but also other functions such as guaranteeing the quality of the goods or services as well as communication, investment and advertising functions. In short, the ECJ clearly recognised that a trade mark has many functions, all of which may be protected under the Trade Marks Directive.

Finally, the ECJ confirmed that if products are expressly or implicitly advertised as imitations of brands with a reputation, this constitutes unlawful comparative advertising within the meaning of the applicable rules.

The second case, Dior v. Copad, concerned the resale by a licensee of luxury corsetry goods bearing the Christian Dior trademark to downmarket traders. The license agreement provided that in order to maintain the reputation and prestige of the trade mark, the licensee would not sell to particular companies, such as discount stores. Indeed, the luxury corsetry goods were to be distributed through a selective distribution network. The owner of the Christian Dior trade mark objected to the resale by the licensee to discount stores and filed suit before a French court. The court referred a request for a preliminary ruling to the ECJ regarding the scope of Article 8(2) of the Trade Marks Directive, which provides that the owner of a trade mark may invoke its rights against a licensee that violates any provision in the license agreement with regard to its duration, the form covered by the registration in which the trademark may be used, the scope of the goods or services for which the license is granted, the territory in which the trademark may be affixed, or the quality of the goods manufactured or the services provided by the licensee. If the licensee violates any of these provisions, the trade mark owner can claim trade mark infringement.

The ECJ ruled that the list of provisions included in Article 8(2) of the Directive is exhaustive. More importantly, the ECJ found that the quality of luxury goods results not just from their physical characteristics but also from their allure and prestigious image, which confer on them an aura of luxury. Therefore, any impairment of that aura of luxury is likely to affect the actual quality of the goods. In the case at hand, the ECJ held that it is up to the national court to determine whether the sale by the licensee of luxury goods to discount stores which do not form part of the selective distribution network constitutes such an impairment. The ECJ also pointed out that the characteristics and conditions of a selective distribution network can, in themselves, preserve the quality of luxury goods and ensure their proper use. Furthermore, setting up such a network enhances the reputation of the goods and therefore helps to sustain the aura of luxury surrounding them. The ECJ stated that the sale by the licensee of the claimant’s luxury goods to parties that do not belong to the selective distribution network could conceivably affect the quality of these goods. In determining whether this is the case, the national court should take into account the nature of the luxury goods concerned, the volumes sold, whether the licensee sells the goods to discount stores regularly or only occasionally, the types of goods normally marketed by the discount stores in question and the marketing message normally used in the sector.

As many luxury and prestigious consumer goods have exclusive distribution networks, the makers of such goods will undoubtedly be encouraged by this judgment, which strengthens the protection of the trade marks used for luxury brands by expressly recognising that the image and prestige of these brands are important aspects of their quality and that undermining their allure and prestigious image can constitute trademark infringement.

If the national court finds, based on the circumstances of the case, that the licensee has committed trademark infringement by engaging in acts such as those described above, it must conclude that any further resale is done without the trade mark owner’s consent and therefore does not exhaust the trade mark rights.