The European Court of Justice (ECJ) has given a preliminary ruling on a matter of law which gives an important interpretation of the Trade Mark Directive. The ECJ concluded that the owner of a trade mark may oppose the sale of its luxury goods if the sale is in breach of provisions of the licence agreement. When giving its decision, the ECJ focused on the fact that sales by one of the parties, a discount store, were harming the allure and prestigious nature of the trade marked luxury goods.
In 2000 Société industrielle lingerie (SIL) were granted a trade mark licence that allowed them to manufacture and distribute luxury corsetry goods bearing the Christian Dior trade mark. The agreement stated that in order to maintain the “repute and prestige of the trade mark” SIL were not permitted, unless they had Dior’s consent, to sell the goods to a retailer outside of a selective distribution network.
In 2001 SIL were faced with economic difficulties and asked Dior for permission to market Christian Dior goods outside of the selective distribution network but permission was refused. SIL nonetheless started selling the goods to Copad SA, which operated a discount store business. Dior therefore brought an action against SIL and Copad SA for infringement of a trademark in the French courts. This culminated in an appeal before the Cours de Cassation in France, which had doubts as to the interpretation of the relevant Community law and so decided to stay proceedings and refer questions to the ECJ for a preliminary ruling. The preliminary ruling system is a mechanism of EU law aimed at enabling national courts to ensure uniform interpretation and application of EU law in all the Member States.
The ECJ considered the implications of the Trade Mark Directive (Directive 89/104/EEC) and held that Dior, as proprietor of the trade mark, was entitled to invoke its ownership rights. The ECJ interpreted the Directive so as to allow Dior to bring an action on the grounds of both harm to its trade mark’s prestige and on the grounds that SIL were acting in contravention of the licence agreement. The ECJ focused on the fact that damage was occurring to the “allure and prestigious image” which gave the goods an “aura of luxury”.
The ECJ’s interpretation means that the owner of a trade mark may enforce its proprietary rights where the licensee (in this case SIL) contravenes licence provisions that relate to the quality and image of the goods. The ECJ concluded that the key issue for a national court to decide is whether the licensee is contravening a provision of their licence agreement and damaging the "aura of luxury" of the luxury goods and therefore affecting their quality. It held that it was conceivable that the sale of luxury goods by the licensee to third parties not part of the selective distribution network, might affect the quality of those goods.
It was also decided that if a licensee disregards their agreement and sells outside of their selective distribution network, those sales will be considered to have taken place without the consent of the trademark proprietor. This clarifies the general rule that although goods bearing a trade mark are considered to have been put on the market with the consent of the proprietor, the licensor does not lose all his rights to enforce the trade mark rights against the licensee.
The national court which referred the case, the French Cours de Cassation, will now use these preliminary rulings to prepare its own judgment.