Silhouette v. Hartlauer - Fortress Europe?

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  • Silhouette v. Hartlauer - Fortress Europe?

    Martyn HA*

    On 16 July 1998, the European Court of Justice (EcJ) gave its Decision in the case of Silhouette International Schmied GmbH G Co. KG tz Hartlauer Handelsgesellschaft mbH. This case, widely reported in the popular media, is an important development for parallel import activity. This article reviews the Opinion of Advocate-General Jacobs as well as the judgment itself and its effect.

    I. THE FACTS

    The plaintiff, Sdhouette, is an Austrian company which produces high-quality spectacles. The spectacles are distributed world-wide under the word and picture trade mark Silhouette, which is registered in Austria and internationally. In Austria, Silhouette spectacles are supplied to selected opticians. In other countries, Silhouette relies on subsidiary companies or distributors. The Defendant, Hartlauer, also sells spectacles in Austria and seeks to solicit customers by maintaining lower prices.

    In October 1995, 21,000 outdated model spectacle frames were sold by Silhouette to Union Trading, with Sdhouette specifically directing its sales representative to inform the purchaser that it was restricted to selhng the h e s only in Bulgaria or the States of the former Soviet Union. Whether this actually happened is unclear. In November, the goods were delivered to Sofia. In December, Hartlauer acquired the goods, offering them for sale in Austria. Again, the factual background is uncertain, since it has not been confirmed that Hartlauer purchased the goods directly from Union Trading or whether a thrd party was involved.

    Silhouette sought an order to prohibit Hartlauer fiom marketing, under its trade mark, spectacles or spectacle frames which were not put on the market in the EEA by it or with its consent. Its argument, based on the Austrian law relating to the protection of trade marks (the Markenschutzgesetz) on the unfair competition law and

    * Norton Rose, London, U.K. This is a follow-up to the article published by the author in the July 1998 issue of the Journal: see

    TradeMark Rights and Parallel Importr in Europe, 1 J.W.I.P. 4, p. 621, at p. 632. Case No. C-355/96.

  • 810 T H E JOURNAL OF WORLD INTELLECTUAL PROPERTY

    on the C i d Code, was that its trade-marks rights had not been exhausted because the Trade Marks Directive (the Directive)2 provides that such rights can only be exhausted by reason of marketing within the EEA by the trade-mark owner or with the trade-mark owners consent. In its defence, Hartlauer contended that Silhouette sold the fiames without any specific instruction that import into the Community was excluded. It also pointed out that the Markenschutzgesetz &d not provide for prohibitory injunctions in these circumstances.

    Silhouette failed in its action in the Regional Court (hndesgerickt) and the Higher Regional Court (Oberlandesgericht). It appealed to the Oberster Gericktskof (Supreme Court of Judicature). The Oberster Gerickfshof submitted two questions to the ECJ:

    Is Article 7(1) of the Trade Marks Directive, to approximate the laws of the Member States relating to trade marks, to be interpreted as meaning that the trade mark entitles its proprietor to prohibit a h r d party fiom using the mark for goods which have been put on the market under that mark in a State which is not a contracting State? May a proprietor of the trade mark, on the basis of Article 7(1) of the Trade Marks Directive alone, seek an order that the thrd party cease using the trade mark for goods which have been put on the market under that mark in a State which is not a contracting State?

    The procedure of the ECJ is that all questions referred for a determination by the ECJ are first considered by an Advocate-General, who delivers his non-binding Opinion to the Court.

    (i)

    (ii)

    11. THE OPINION OF ADVOCATE-GENERAL JACOBS3

    Since both questions refer to Article 7(1) of the Directive, it is worth setting it

    The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.

    In giving his Opinion on the first question, the Advocate-General was of the view that the language excluded international exhaustion, though not expressly, since Article 7(1) sets out the circumstances in whch trade-mark rights are exhausted, and this must naturally be read as doing so comprehensively.

    The Advocate-General also noted that the legislative history of the Directive confirms that international exhaustion is excluded. The Commissions original proposal would have imposed international exhaustion, but its subsequent proposal

    out in full:

    Fiat Council Directive 89/104/E~c of 21 December 1988. Delivered on 29 January 1998.

  • SILHOUETTE V HARTLAUER - FORTRESS EUROPE? 811

    was amended to limit the exhaustion principle to products marketed in the Community. Clearly, the amendment, and its effect, were deliberate.

    The Advocate-General was attracted to the argument that the function of a trade mark is to identie the origin of the product, not to enable the owner to divide up the market and to exploit price dlfferentials. However, while the Advocate-General noted that international exhaustion could bring price competition and advantages for consumers, he concluded that the ECJS case-law was developed in the context of the Community, and not the world-wide market. While he acknowledged that certain elements of the Directive were discretionary, this could not mean that some Member States could apply international exhaustion while others did not. This would lead to barriers in the internal market, a result entirely contrary to the harmonisation aim of the Directive.

    Accordmgly, the Advocate-General was of the opinion that Article 7(1) meant that a proprietor of a trade mark is entitled to prevent a third party fiom using the trade mark in relation to goods which have been put on the market outside the EEA.

    The second question, whether an injunction could be granted on the basis of Article 7(1), was raised because the Markenschutzgesetz does not provide for any right to obtain a prohibitory injunction or make any other provision which corresponds to Article 51(a)4 of the Directive. In fact, a prohibitory injunction could only be sought in respect of trade-mark infiingement under the Austrian law on unfair competition (Unluuteren Wettbewerb), and only then if there was some risk of confusion, which wdl not be the case where the original products of the trade-mark proprietor are being imported.

    The Advocate-General noted that Article 5( 1) (a) had not been incorporated into the Markenschutzgesetz but stated the accepted position that national courts are under a duty to give trade marks the same protection as if each provision of the Directive had been expressly transposed into national law.

    Accordingly, the Opinion on the second question was that, even if Article 7(1) alone has been transposed, a proprietor of a trade mark is entitled to obtain a prohibitory injunction.

    111. JUDGMENT OF THE COURT

    This judgement is relatively short and concise, the substantive element (excluding the introduction and a recitation of the facts) being only three pages. It is annexed to this article.

    The judgment, in relation to the first question, focuses on whether the Directive allows Member States to have a rule of international exhaustion.

    _.. exclusive rights to prevent all third parties not having the consent of the Owner from using in the course of trade any sign which is identical with the trade mark in relation to goods or services which are identical to those for whch the trade mark is registered.

  • a12 THE JOURNAL O F WORLD INTELLECTUAL PROPERTY

    Article 7(l), in the Courts view, clearly only obliges Member States to provide for exhaustion withm the Community. However, although the question of international exhaustion remained open it was inconsistent with the objectives of the Directive, in particular as stated in the Recitals to the Directive, to allow individual Member States to apply international exhaustion whde others provided for community exhaustion only. The Court believed that this would inevitably give rise to barriers to the 6ee movement of goods.

    The ECJ noted that Article 7 could be extended to non-Member countries but this was the responsibihty of the Community as a whole, not individual Member States.

    The answer to the first question was as follows: National rules providing for the exhaustion of trade-mark rights in respect of products put on the market outside the EEA under the mark by the proprietor or with his consent are contrary to Article 7(1) of the Directive.

    With regard to the second question, the ECJ noted that t h s was raised because the Markenschutzgesetz did not contain any provision corresponding to Article 5(1). It c o h m e d that cohs ion was not an issue where the allegedly infiinging goods are, or were originally, the products of the trade-mark proprietor.

    However, whde the Court agreed that the Directive did not oblige Member States to implement provisions allowing a trade-mark proprietor to obtain injunctions to prevent infringement, that obligation was contained in Article 5, not in Article 7. Moreover, the ECJ noted that it is settled case-law that Directives cannot be relied upon by individuals. Accordingly, the ECJS answer to the second question was:

    Article 7(1) cannot be interpreted as meaning that the proprietor of a trade mark is entitled, on the basis of that provision alone, to obtain an order restraining a third party &om using his trade mark for products which have been put on the market outside the EEA under that mark