The English Court of Appeal recently upheld a ruling by the Intellectual Property Enterprise Court regarding the right of brand owners to object to further commercialisation of their products in certain circumstances. The ruling (in Nomination de Antonio v Brealey) is good news overall for brand owners.
The general rule is that once a product is first sold anywhere in the EEA under a trade mark, that trade mark is then "exhausted" and cannot be asserted to prevent onward sales of the same product. So, for example, if a high street retailer sold a coat to Ms X, the retailer could not object if Ms X later sells the coat on eBay to Ms Y. Exhaustion of intellectual property rights is a key aspect of a fundamental tenet of the EU project: the functioning of a single internal market for goods.
The law does, however, provide some balance between the free circulation of goods and the need to protect brand owners in certain circumstances. A trade mark owner is able to prevent further dealings in its goods where there exist (objectively) "legitimate reasons" for it to do so.
There is no definitive list of potentially legitimate reasons, although the EU and UK courts have provided some guidance in case law over time. For example, there are five "BMS conditions" (named after the case of Bristol-Myers Squibb v Paranova) in relation to parallel imports of repackaged goods within the EEA. An importer must comply with all five conditions to insulate against the risk that the trade mark owner may be able to oppose onward sale of repackaged goods.
Back to the Court of Appeal's decision. Nomination is an Italian company which makes charm bracelets composed of individual links, each marked with a Nomination trade mark. Brealey (trading as JSC) divided genuine Nomination charm bracelets into individual links and repackaged each link, together with one of JSC's own links (which were compatible with Nomination bracelets) in cheap, clear plastic bags. Nomination brought a claim to oppose this practice, and succeeded (twice) in doing so, resulting in a few key lessons for brand owners:
- The practice of breaking down Nomination's bracelets and reselling the individual links was not, in itself, trade mark infringement. Nomination's original sale of bracelets (which themselves could be broken down into links) constituted implied consent to this practice, and Nomination had not imposed any relevant contractual restrictions on its retailers. The lesson here: the best way to control how products are presented to end consumers is to draft the brand's terms of supply carefully.
- Nomination nevertheless succeeded in arguing that JSC breached BMS condition (4): the repackaging of the charms was liable to damage Nomination's reputation. JSC's plastic bags were not the "premium" packaging that was usually (but not always) used by Nomination and its authorised sellers. The lesson: it is not just "premium" brand owners with tightly-controlled selective distribution networks that can object to potentially damaging onward sale. Nomination products are (relatively) affordable and sold in over 300 independent retailers in the UK and online (including on Amazon). Nomination's relatively permissive policies were not enough to dissuade the court that a humble plastic bag risked harm to Nomination's reputation in the eyes of both its existing and potential future customers.
- That said, it certainly helps to be the owner of a luxury brand when trying to persuade a court that there is a risk of damage to reputation. A court is more likely to be persuaded of this risk when a brand clearly has a carefully cultivated reputation of prestige and luxury. This also helps to combat a further risk: the uncertain point at which selective and prescriptive selling arrangements become restrictive to the point of anti-competitiveness. In very general terms, more "premium" brands stand a better chance of justifying restrictive selling arrangements.
A final note: the UK's policy on regional (EEA) exhaustion following the end of the Brexit transition period on 31 December 2020 is currently uncertain and depends on the outcome of the ongoing trade negotiations. Based on the UK Government's current rhetoric, it seems likely that the UK may not recognise exhaustion in respect of imported goods that were first placed on the market in the EEA / under an EU trade mark.
For the reasons given above, I would dismiss this appeal