Unauthorised sales of genuine products can cause real damage for luxury brands, both in terms of serious and lasting damage to reputation and loss of profits. But all is not lost: here we take a high level look at some of the avenues in the EU for challenging unauthorised sales, and what to think about when approaching this issue. In this piece, we focus on actions that can be taken against unauthorised sales, and have not considered what a brand owner can do to strengthen and protect its distribution system, which may be a future topic.
Over and again we hear brands wanting to minimise the harm caused by the sale of unauthorised sales across Europe as quickly and efficiently as possible, balancing budget, damages recovery and a deterrent effect with quick and certain action. Unauthorised sales of goods raise multiple legal issues and we view the different legal rights and causes of action as an armoury from which different rights can be deployed depending on the circumstances of each case and the legal climate in the jurisdiction.
Where the goods are imported from outside the EEA, we would look to trade mark rights as the first option. This is because where goods have not been authorised for sale in the EEA by or with the consent of the brand owner, the brand owner will still have a cause of action under their trade marks as their rights will not be deemed to be 'exhausted'. In other words, the goods are deemed to be unauthorised and will infringe the brand owner's trade marks. This is relatively straightforward provided that the brand owner is confident that the goods have not been explicitly or implicitly authorised for sale in the EEA.
However, even if the goods have been authorised for sale in the EEA, all is not lost: the brand owner can still object to unauthorised sales if the goods are being sold in a way that damages their reputation (under principles set out in the Copad case). This is a particularly important point for luxury brands, as often the unauthorised sales are in outlets which do not match with the brand's reputation and the products are sold with low quality or even counterfeit products, which further diminish the aura of luxury associated with the brand. Such an approach will be strongest where the brand strictly manages its distribution system and has legally compliant qualitative criteria for its authorised retailers. Where an unauthorised distributor sells in circumstances that clearly do not meet these criteria, such that the brand's luxury reputation is damaged, there should be a good cause of action (though it's worth noting that the courts in France have held that the mere existence of a selective distribution network does not mean that sales outside it are automatically damaging).
Even if these circumstances are not established, there may be grounds for the brand owner to argue that the unauthorised distributor is giving the impression that it is commercially connected to the brand when it is not, which may also constitute a legitimate reason to oppose further sales of the goods under its trade mark rights, or may give rise to claims of passing off or unfair competition in certain jurisdictions.
It is always worth also considering the chain of supply up to the point at which the goods are being sold. If it is possible to determine that the entity who sold outside the distribution system in breach of its contract was the entity who was responsible for placing the goods on the market in the EEA with the brand owner's consent, then there may be grounds for the brand owner to claim that the goods have not been put on the market with their consent, such that the goods are deemed trade mark infringing. This will depend on the intricacies of the supply chain, including when economic value for the goods has been realised by the brand owner, and whether the terms in the contract that were breached were terms going to the quality of the goods.
Lastly from the IP side, there may be ancillary claims around use of copyright works and trade marks by the unauthorised sellers. Whilst sellers of genuine goods will generally be entitled to use the brand owner's trade marks to denote the origin of the goods, there may be arguments around prominent use of logos (where such use goes beyond honest and commercial practices), as well as claims in copyright against use of copyright images without consent. Whilst these actions may not address the underlying sale of goods, they will help to minimise damage and confusion that may be suffered by the brand.
If IP rights do not apply, there may also be grounds in tort law to address the sale of unauthorised goods. These laws are not harmonised in the EU and so will differ depending on the jurisdiction. France stands out in this regard with its extremely useful Commercial Code provisions which protect selective and exclusive distribution networks and provide brand owners with a cause of action against direct or indirect breaches of their distribution network. There has been great success using these provisions in the French courts where the Courts have found non-authorised resellers liable even where they bought products at a judicial sale of a bankrupt authorised distributor. The position is not as easy in most other EU jurisdictions, but there will generally be one or more tort laws which may apply, including inducing breach of contract and/or profiting from breach of contract. Depending on the circumstances, such claims may be brought by the brand owners or their authorised resellers who are suffering loss.
So the message is, if you are suffering from unauthorised sales, don't lose heart. There are many ways in which to approach the issue of unauthorised sales in the EU, particularly for luxury brands for whom reputation is so vital. The key is understanding the local and EU-wide picture and deploying the actions best suited to the case.