[OM (TA) 37077-01-17 SCENTWISH LTD v. CHANEL — decision dated October 30, 2019]
1. The abovementioned decision, recently rendered by the Tel Aviv District Court ("the Court"), tackled the issue of the use of well-known trademarks with respect to repackaged parallel imported Chanel's Perfumes.
2. Chanel S.A ("Chanel") is a world class leading French company, specializes in the production of luxury goods, including perfumes. Chanel is the owner of the following wellknown trademarks, registered in Israel in class 3: trademark No. 15345 (CHANEL), trademark No. 113982 (N°5) and trademark No. 264148 (COCO MADMOISELLE) (collectively – "Chanel's Trademarks").
3. The plaintiff in the abovementioned proceedings is Scentwish Ltd. ("Scentwish"), a company which parallel imports well-known perfumes, opens the perfumes' packages and transfers their content into small 8ml bottles (each made of an inner cartridge and an outer container) with a branding of its own ("Rebottling"; "Scentwish's Bottles"). The following disclaimer appears on the package of Scentwish's Bottles ("the Disclaimer") [free translation from the Hebrew]: "Scentwish merely repackages original perfumes. Scentwish is not related to the manufacturer of this perfume in any way".
4. Scentwish uses the relevant perfume manufacturer's trademarks (Chanel's name and the names/brands of the perfumes) on Scentwish's Bottles, on a leaflet attached to the Scentwish's Bottles ("the Leaflet"), on the invoice issued by Scentwish to each of its clients ("the Invoice") and on its website ("the Website"; collectively – "Scentwish's Use").
5. Chanel had sent Scentwish a cease and desist letter, claiming infringement of its rights and exposure of consumers to risks allegedly associated with the unauthorized Rebottling process, which might damage the perfume.
6. In response, Scentwish filed a claim with the Court seeking a declaratory judgment, declaring, inter alia, that its activity does not constitute an infringement of Chanel's Trademarks.
7. One of the main arguments raised by Scentwish was that its activity is lawful in view of the exhaustion of rights doctrine ("the Doctrine"), since once the goods have been sold, the IP rights holder cannot prevent the buyer from further selling same.
8. The Court ruled that the Doctrine is irrelevant to the current scenario, since it relates to the reselling of the genuine product. In this case, Scentwish's Use encompasses also marketing activities.
9. The Court went on to analyze whether Scentwish's Use amounts to a "fair use" according to Section 47 of the Trademarks Ordinance [New Version], 1972 ("the Ordinance"), being "the use by any person of any genuine description of the character or the quality of his goods". Otherwise, it was held, Scentwish's Use will constitute trademark infringement according to Section 1 of the Ordinance. In this respect, the Court held that the tests set forth by case law with respect to use of a trademark in the context of marketing of genuine goods apply also to the marketing of original but not identical goods. For the purpose of this analysis, the Court was willing to assume that Rebottling may, to some extent, affect the compound and quality of the perfume (after reviewing expert opinions submitted by both parties).
10. As for the first fair use test – is the use of the trademark necessary to identify the service or the goods? ("the Identification Test") – the Court concluded that the dominant, not to say, sole ingredient of the product sold by Scentwish is the original Chanel perfume. Accordingly, and in view of the fact that Scentwish only uses the names of Chanel and those of the relevant perfumes, the Court held that the use of the Chanel's Trademarks is necessary to identify the goods.
11. As for the second and third fair use tests: does the use of the relevant trademark exceed the reasonable and fair use required to describe the service or goods offered to the consumers? ("the Necessity of Use Test") and what is the risk that consumers will be misled as to affiliation of the service/goods to the trademark proprietor? ("the Sponsorship Test"), the Court analyzed each of the elements of Scentwish's Use against the said tests and provided specific instructions regarding changes which should be made with respect to the various uses.
12. For example, with respect to the reusable cartridge that contains the perfume itself, the Court held that while the use of Chanel's Trademarks on the cartridge is necessary, the absence of Scentwish's name creates the wrong impression that Chanel is involved in the production of the cartridge itself. Therefore, the Court instructed Scentwish to add its own name, as the main and prominent marking on the cartridge. In addition, a clarification that the cartridge contains a specific independently Rebottled perfume of a certain original manufacturer may be included. The Court also noted that the abovementioned instruction is neither precise nor complete.
13. With respect to the Leaflet and Invoice, it was also held that while the use of the Chanel Trademarks is consistent with the Necessity of Use Test, such use fails to comply with the Sponsorship Test as long as Scentwish's name and a proper clarification regarding the independent Rebottling are lacking. It was clarified that the use of Chanel's Trademarks must be incidental, as a description of an ingredient of Scentwish's product and for the purpose of identification thereof.
14. The Court also held that the wording of the Disclaimer on Scentwish's Bottles ("Scentwish merely repackages original perfumes. Scentwish is not related to the manufacturer of this perfume in any way") is not optimal; the word "repackage" could wrongly be interpreted as if Scentwish's involvement is merely external (related to the package only), rather than internal (related also to the perfume itself). Therefore a term such as "Rebottle" reflects the Scentwish's Use more accurately. Additionally, the word "merely" should be removed and a positive statement clarifying that Chanel is not affiliated with Scentwish, whose activity is totally independent, is required ("the Updated Disclaimer").
15. The Court held that the Updated Disclaimer should prominently and clearly appear on the package of the goods, the Invoice, the Leaflet and the Website.
16. The Court also rejected Chanel's argument that allowing Scentwish's Use goes against one of the main rationales for trademarks' protection – the trademark's role as an indication of quality, apparently in view of its finding that the Updated Disclaimer clearly indicates that the goods are not identical to those manufactured by Chanel.
17. An additional argument raised by Chanel and rejected by the Court was that the process of Rebottling "unties the Gordian knot between the Chanel's products and Chanel's Trademarks" as they are put in generic bottles where they lose their visible uniqueness. Hence Scentwish's Use damages Chanel's image, goodwill and also dilutes Chanel's Trademarks. The Court mentioned, in obiter dictum, that the protection of the trademark owner's image does not stem from the rationales of trademarks law and that recent case law tends to limit the application of the dilution doctrine to the specific circumstances listed in the Ordinance with respect to infringement of a well-known registered trademark. In any event, it was held that in the present case the issue of trademark dilution was not sufficiently argued or substantiated by evidence.
18. The Court also reviewed foreign case law addressing the issue of repackaging, and concluded that no concrete conclusions may be reached in this respect, since the parties failed to present the full picture regarding relevant law provisions.
19. Ultimately, the Court allowed the use by Scentwish of Chanel's Trademarks with respect to Scentwish's Bottles, subject to making the amendments described above. This decision is yet another link in the chain of judgements rendered by Israeli courts in recent years encouraging competition, at the cost of limiting the monopoly afforded to the trademark owner.