Parallel imports – genuine branded products put on the market by a rights holder in one territory and subsequently imported into a different territory by a third party without the rights holder’s consent – can offer consumers the opportunity to purchase authentic quality products at lower prices and meet crucial gaps in consumer demand. They are also inherently positioned to undermine the legitimate interests of rights holders in controlling the exploitation of their brands.
There is no international consensus on the correct approach to balancing the interests of consumers, rights holders, and importers in determining at what point the brand owners’ trade mark rights should be considered “exhausted”. The “regional exhaustion” approach favours the idea that trade mark rights are only exhausted in the specific region in which the brand holder places them on the market, and goods cannot be imported/exported outside of the region without consent. The “international exhaustion” approach provides that goods placed on the market anywhere in the world my then be imported/exported freely between any country or region, without the brand owners’ consent.
The EU imposes a system of regional exhaustion within the EU only, which ultimately allows brand owners to retain control over the import and export of their products outside of the EU. However, this regional exhaustion within the EU is further limited insofar as brand owners retain the ability to object to further dealing in products already placed on the market within the EU, where they have a “legitimate reason” to do so. Not surprisingly, determining when such legitimate reason exists is not always straightforward.
In a recent decision, the Court of Justice of the EU has offered helpful guidance for both brand owners and importers in judging this issue: Junek Europ-Vertrieb v Lohmann & Rauscher International, Case C-642/16.
The case concerned a company (Lohmann) manufacturing sanitary preparations for medical purposes, retailed under the EU trade mark DEBRISOFT, which had been placed on the market in Austria. A third party (Junek) later imported such products from Austria to Germany. In doing so, they placed a small label on an unprinted part of the product packaging; stating the company responsible for the importation, its address and telephone number, a barcode, and a central pharmaceutical number. The label did not conceal the DEBRISOFT mark, or any other feature of the original packaging.
Lohmann claimed that despite their rights appearing to be exhausted within the EU, they still had a legitimate reason to object to this import, on the basis that the product had been “re-packaged”. Under well-established case law, a legitimate reason can include instances where the goods have been altered in such a way as to interfere with the ability of the trade mark (DEBRISOFT) to guarantee the origin of the product – which can include re-packaging. The issue here was whether the new label placed by Junek could be considered to interfere with the function of the trade mark, and specifically whether it should be considered as a “re-packaging” type case.
Previous cases have established specific requirements that must be met when repackaging products (largely in relation to pharmaceuticals, but also applied to non-pharmaceutical cases such as alcoholic beverages) in order to avoid interfering with the trade mark:
- the repackaging must not affect the condition of the product inside the packaging;
- the new packaging must state clearly who repackaged it and the name of the original manufacturer;
- the new packaging must not be liable to damage the reputation of the trade mark or owner; and
- notice must be given to the rights holder before putting the repackaged product on sale.
In this case, Junek had not complied with these requirements insofar as no notice had been given to Lohmann.
In its decision, the court made clear that the key issue is whether or not what has been done to goods has actually interfered with the ability of the trade mark to function as a badge of origin. Whilst specific criteria to assess this have been developed in relation to other cases (such as the re-packaging of sensitive products), ultimately the question will always be fact specific. In particular, this case was held not to fall within the “re-packaging” line of case law, as the nature of affixing the small label (without opening the packaging in any way) could not reasonably be regarded as re-packaging. For this reason, it was not determinative that Junek had not provided any notice to Lohmann. Ultimately, on the facts, the small factual label on the side of the box was not considered to interfere with the function of the DEBRISOFT mark, and in turn could not provide Lohmann with a legitimate reason to object to its further import within the EU.
This is a sensible decision, consistent with the underlying principle of regional exhaustion, and providing welcome clarity as to how far importers must go to stay within the EU exhaustion regime. If brand holders had the ability to object to, or require notice in respect of, even minor changes to packaging such as this, arguably the concept of exhaustion would become meaningless in practice – with importers being required to jump through unnecessary hoops. Equally, this should not have any material impact on brand owners’ ability to object in cases where they are liable to suffer detriment (i.e. through damage to their reputation, or dilution of their marks), as such cases remain subject to the existing safeguards.
For the time being, concerns around the scope of exhaustion are limited to the EU, but it remains to be seen what direction the UK will favour post-Brexit. Notably, if we do adopt a wider concept of international exhaustion, the circumstances in which legitimate reasons to object arise will become far more important to brand owners who trade globally.