The Court of Appeal has reversed the judgment of the High Court in finding that Mastercigars Direct Limited (“Mastercigars”) did not infringe the trade marks of Corporacion Habanos SA (“Habanos”) when it imported into the UK cigars purchased by it in Cuba. There was no infringement because Habanos was found to have impliedly consented to the cigars sale within the EU.

Background

Following information passed to them by Habanos, Customs and Excise at Gatwick airport seized a consignment of cigars from Cuba that they suspected to be counterfeit under their powers pursuant to Council regulation (EC) 1383/2003 (the Customs Regulation). Mastercigars commenced proceedings for a declaration that the cigars seized were not “counterfeit” within the definition of the Customs Regulation. It also sought a declaration that the cigars did not infringe Habanos’ trade marks. Habanos responded with a Part 20 claim that the cigars infringed its marks. Both claims were heard together.

Mastercigars' evidence was that all the cigars included in the consignment were purchased, by individuals connected with Mastercigars, in Cuba from official outlets (known as casas). Habanos allows tourists to purchase cigars from several such outlets up to the approximate value of $25,000 for “personal consumption” provided the individual’s passport number is provided to the casas.

The High Court judge held that the cigars were not “counterfeit” but parallel imports. However Habanos’ claim of trade mark infringement was made out as Mastercigars had been unable to establish that Habanos had demonstrated an unequivocal intention to renounce its trade mark rights as was required following the ECJ’s guidance in the Zino Davidoff v A & G Import case for a finding that Habanos had impliedly consented to their importation into the EEA.

Mastercigars appealed this finding. It based its assertion of implied consent on two main foundations. Firstly as Cuba is a communist regime both the casas and Habanos were really all just instruments of and inseparable from the republic. Therefore the consent of the casas amounted to consent by Habanos. Secondly, the $25,000 allowance for sales to individuals for personal consumption was absurd and amounted in reality to Habanos’ consent to commercial resale, including re-sale within the EEA.

Outcome

The Court of Appeal like the High Court judge did not accept the “instruments of the republic” argument as it was “just too theoretical”. However unlike the trial judge the Court of Appeal did find that Habanos exercised “de facto control over what was going on in” the casas and were acting “in concert concerning every aspect of the domestic market, including sales to foreigners who would be taking the goods out of the country”. In fact Habanos “were prepared not only to tolerate but to allow small commercial quantities to be purchased by foreigners within Cuba for them to take out and re-sell abroad…Moreover there is ample confirmation that this is exactly what [it] wanted”.

Accordingly the de facto control, the monthly meetings with the casas, the special documentation provided to the casa to record sales to foreigners and to enable such foreign purchasers to get through customs, along with the generous $25,000 purchase limit (which amounted to a “commercial” quantity) imposed by Habanos “as a whole…unequivocally indicate[d] consent”. Habanos was found to have done more than turn “a blind eye to [the] parallel trade” it knew was occurring, or demonstrate a “failure to police”, which following Davidoff was not enough to imply consent, it had actually “facilitated the parallel trade in addition to failing to police”. This was enough.

Comment

Lord Justice Jacob gave the leading judgment in this case. His barely restrained contempt of the ECJ’s development of the doctrine of European exhaustion of rights in trade mark cases is clear from his judgment. See for example the following comment – “the so-called doctrine of EEA-wide exhaustion of rights… has a life of its own and, particularly in trade mark law has gone so far as to influence the way courts have thought about the nature of the right itself. By jumping to consider whether or not there is exhaustion, the very function and nature of a trade mark has been overlooked…”

It is therefore not surprising that he was keen to find a factual matrix in which the court could make a finding of implied consent despite the high hurdles presented by the Davidoff case. This finding is all the more significant following as it does from a string of cases were it was held that the facts did not support such a finding which include Levi Strauss v. Tesco, Adidas v. Microhaven, Adidas v. Microhaven, Quiksilver v Charles Robertson, Sony Entertainment v Nuplayer, Hewlett-Packard v Expansys, Sony Computer Entertainment v Electricbirdland, Sun Microsystems v Amtec Computer, Honda Motor v Neesam and most recently Roche Products v Kent Pharmaceuticals. However it is unlikely that this judgment indicates any reversal of the general trend; the facts being as they were quite unique.