On 23 April 2009, the European Court of Justice ruled that, given certain circumstances, trademark holders may enforce their trademark rights against licensees that breach the terms of their licence, as well as their resellers.1

Société industrielle lingerie (SIL) produced and distributed luxury corsetry goods under a licence agreement with Christian Dior. To protect the repute and prestige of the Dior trademark, the licence agreement provided that SIL would not sell products bearing the Dior trademarks to discount stores without Dior’s written consent, and that SIL would take all necessary steps to ensure that its retailers also complied with this provision.

When the economic tide turned, SIL did sell its Dior products to Copad, a discount retailer. Dior sued both SIL and Copad. The Court de Cassation (the French court of last instance) referred three preliminary questions to the ECJ regarding the interpretation of articles 7 and 8 of the Trademark Directive2.

In its judgment, the ECJ argued that the quality of (luxury) goods manufactured by a licensee, as referred to in article 8(2) of the Trademark Directive, results not only from its material characteristics, but also its image. Selective distribution may contribute to that image.

Therefore, a trademark holder may enforce its trademark rights against a licensee who breaches a provision in the licence agreement prohibiting the sale to discount stores on the grounds of the prestige of the trademark, provided that such breach “damages the allure and prestigious image which bestows on those goods an aura of luxury”. Whether such damage occurs, as a result of the breach of the relevant provision in the licence agreement, should be assessed by the national courts, and may be difficult to prove.

Secondly, a licence agreement does not constitute absolute and unconditional consent of a trademark holder to put goods bearing its trademarks on the market. If the licensee sells trademarked goods in disregard of a term of the licence which is included in those listed in article 8(2) of the Trademark Directive, the licensee must be considered to do so without the consent of the trademark owner.This precludes the exhaustion of the trademark rights.

Finally, the ECJ ruled that, even if the goods have been put on the market with the consent of the trademark holder, the latter can still rely on a breached provision in the licence agreement to oppose the resale of those goods on the basis of article 7(2) of the Trademark Directive, provided that such resale damages the reputation of the trademark.

This seems to be a lower threshold than the ECJ established in the case of Dior/Evora3, in which it required that “the use of the trade mark for this purpose seriously damages the reputation of the trade mark”.