In Red Paralela and another v Orangina Schweppes Holding BV and others (Case C-291/16), 20 December 2017, the European Court of Justice has ruled that Schweppes cannot prevent the importation into Spain of Coca-Cola-manufactured Schweppes tonic from the UK.

Back in 1999, Cadbury Schweppes sold part of its portfolio of "Schweppes" marks in 13 European countries (including in the UK) to The Coca-Cola Company (Coca-Cola). It held on to its rights in Spain via its Spanish subsidiary, Schweppes SA. Then in 2014, Schweppes SA brought infringement proceedings against Red Paralela to try to prevent Red Paralela from importing bottles of Schweppes tonic water from the UK into Spain for sale. The tonic water had first been put on the market in the UK by Coca-Cola.

Red Paralela argued that Schweppes had consented to the importation and marketing because of its legal and economic links with Coca-Cola in the course of their common exploitation of the sign "Schweppes" as a global mark, whereas Schweppes claimed to have no connection with Coca-Cola.

The Spanish court stayed the proceedings and referred four questions to the ECJ relating to exhaustion of rights in the context of close commercial relationships such the one that existed between Coca-Cola and Schweppes. The questions focused around whether the owner of a trade mark provides consent to an assignee of a mark marketing goods bearing that mark in a territory in which rights in the mark are retained.

The ECJ found that by assigning part of a trade mark portfolio in respect of certain territories only, this can lead to exhaustion issues if the assignor and assignee agree to continue to promote the appearance of a single brand. The ECJ ruled that a proprietor cannot enforce its trade mark rights if, following the assignment, it has:

(i) actively and deliberately (acting alone or with the assignee) continued to promote the appearance of a single global trade mark (creating or exacerbating public confusion about commercial origin); or alternatively

(ii) continued to have economic links with the assignee which make it possible for the proprietor to determine both the goods to which the mark is affixed and the quality of those goods.

Previous case law had established that a proprietor’s consent includes situations in which the trademarks are held by ‘economically linked’ entities (IHT Internationale Heiztechnik). This shows that the ECJ has developed the principle of exhaustion from branded products whose trade marks are held by ‘economically linked’ entities to simply where entities have actively and deliberately continued to promote the appearance of a single global trade mark. This arguably could be seen as further erosion of international trade mark rights.