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 In October 1995, 21,000 outdated model spectacle frames were sold by Silhouette to Union Trading, with Sdhouette specifically directing its sales representative to inform the purchaser that it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 by the proprietor or with his consent. IV. COMMENT Silhouette v. Hartlauer is unquestionably a landmark Decision in the area of parallel imports in Europe. The Opinion of the Advocate-General attracted some criticism &om academic writers as promoting Fortress Europe to the detriment of consumers within Europe. When the Decision of the ECJ was announced there was much coverage in the popular meha, the general tenor of which was critical of the Decision. This was, to some extent, due to the fact that the reports relied heavily on the views of the major retailers in the United Kingdom such as Tesco and Ada, who have acquired and sold parallel imported goods at their stores at a dlscount to the normal retail price in the United Kingdom. SILHOUETTE K HriRTLAUER - FORTRESS EUROPE? 813 It is, however, difficult to fault the reasoning behmd the ECJ'S Decision. The legislative history of the Directive, the aims of the Directive and the consequences that would follow if Member States were allowed the hcretion to apply international exhaustion, all lead inexorably to the conclusion reached by the ECJ. The issues raised in relation to Fortress Europe and the effect on consumen in Europe while vahd concerns, are essentially political issues to be determined by the Commission and the European Parliament by, for example, entering into reciprocal treaty arrangements with countries outside the EEA. The writer of this article submits that the Court was right not to be swayed by these considerations. The Court was, it is submitted, also correct in not following the Advocate- General's Opinion on whether an injunction could be obtained on the basis of Article 7(1). Article 5 is a mandatory term of the Directive and Austria, in having no equivalent provision in its trade-mark law, appears therefore to be in breach of its obligations. The ECJ did not, however, accept that the absence of such a provision in Austrian trade-mark law was a reason to find that Article 7(1) could by itself be interpreted as giving a trade-mark owner the right to obtain an injunction. That is not to say, however, that this case has settle all aspects of this complex area of the law. In particular, some confision had been caused by the fact that Advocate-General Jacobs was prepared to consider the questions on the assumption that Silhouette had not consented to its goods being marketed in the EEA. The ECJ made no reference to this issue at all. There are two possible interpretations of its silence: (i) that the Advocate-General and the ECJ were simply concerning themselves with the strict legal questions and, because of the uncertain factual position on t h s issue, had to make the assumption they dld, so that nothing should be inferred fi-om this assumption; or that the assumption made is, in fact, now a presumption that unless otherwise established, first marketing of products outside the EEA does not permit sale of products withm the EEA, i.e. that sale outside the EEA creates an implied restriction on resale within the EEA. The first alternative is possible--and indeed it is not the finction of the ECJ to determine questions of fact-but it would have been open to both the Advocate- General and the Court to indlcate, even while answering the questions in the way they did, what their view was on Silhouette's inabdity to prove that the restriction had been communicated to Union Trading. The alternative view avoids the difficult question of whether the restriction should be communicated by the first purchaser to its downstream purchasers in order to be bind~ng.~ It does, however, create a heavy burden on the importer, The issue to be resolved, therefore, is if a trade-mark (ii) See RoussekUclaf S.A. v. Hockley International Limited and Anor, [1996] R.P.C. 441, and the judgment of Jacob J., who stated that restrictions need to be communicated to every person down the chain. 814 THE JOURNAL OF WORLD INTELLECTUAL PROPERTY proprietor sells products outside the EEA but does not--or cannot prove that it did-restrict resales to within the EEA, d courts now presume that such a restriction was intended? Another issue which remains outstanding, and is not addressed by this case at all, is what is meant by first marketing of products in the EEA. Although the spectacle frames were delivered to Sofia, it has been suggested that the contract for sale to Union Trading occurred within the EEA (either in Austria or the United Kingdom). There is very little judicial guidance on what is meant by first marketing, and certain writers have suggested that Silhouette u. Hartlauer is a case of re-importation, not parallel importation, so that in such cases the trade-mark proprietor should not be entitled to prevent re-importation6. Ths author disagrees with those views in the context of this case, but there is undoubtedly a lack of clarity on this fundamental question. As ever, both of these issues await further clarification from the ECJ. 0 Norton Rose Annex Judgment of the Court in Case No. C-355/96: Silhouette International Schmied GmbH G Co. KG tz Hartlauer Handelsgesellschafr mbH. ... Question 1 15. By its first question the Oberster Gerichtshofis in substance asking whether national rules providing for exhaustion of trade-mark rights in respect of products put on the market outside the EEA under that mark by the proprietor or with his consent are contrary to Article 7(1) of the Directive. 16. It is to be noted at the outset that Article 5 of the Directive defines the rights conferred by a trade mark and Article 7 contains the rule concerning exhaustion of the rights conferred by a trade mark. 17. According to Article 5(1) of the Directive, the registered trade mark confers on the proprietor exclusive rights therein. In addition, Article 5(l)(a) provides that those exclusive rights entitle the proprietor to prevent all third parties not having his consent &om use in the course of trade of, inter alia, any sign identical with the trade mark in relation to goods or services which are identical to those for which the trade mark is registered. Article 5(3) sets out a non-exhaustive list of the kinds of practice which the proprietor is entitled to prohibit See ? Hays and P. Hansen, Silhouette is not the Proper Case from which to Decide the Parallel Importation Question, [I9981 E.I.P.R. 277. See also W.R. Cornish, Trade Marks: Portcullisfor the E m , [1998] E.I.PR. 172. SILHOUETTE K HARTLAUER - FORTRESS EUROPE? 815 under paragraph 1, including, in particular, importing or exporting goods under the trade mark concerned. 18. Like the rules laid down in Article 6 of the Directive, which set certain limits to the effects of a trade mark, Article 7 states that, in the circumstances which it specifies, the exclusive rights conferred by the trade mark are exhausted, with the result that the proprietor is no longer entitled to prohibit use of the mark. Exhaustion is subject first of all to the condition that the goods have been put on the market by the proprietor or with his consent. According to the text of the Directive itself, exhaustion occurs only where the products have been put on the market in the Community (in the EEA since the EEA Agreement entered into force). 19. No argument has been presented to the Court that the Directive could be interpreted as providing for the exhaustion of the right conferred by a trade mark in respect of goods put on the market by the proprietor or with his consent irrespective of where they were put on the market. 20. On the contrary, Hartlauer and the Swedish Government have maintained that the Directive left the Member States 6ee to provide in their national law for exhaustion, not only in respect of products put on the market in the EEA but also of those put on the market in non-Member countries. 21. The interpretation of the Directive proposed by Hartlauer and the Swedish Government assumes, having regard to the wording of Article 7, that the Directive, like the Courts case-law concerning Articles 30 and 36 of the EC Treaty, is limited to requiring the Member States to provide for exhaustion within the Community, but that Article 7 does not comprehensively resolve the question of exhaustion of rights conferred by the trade mark, thus leaving it open to the Member States to adopt rules on exhaustion going hrther than those explicitly laid down in Article 7 of the Directive. 22. As Silhouette, the Austrian, French, German, Italian and United Kingdom Governments and the Commission have all argued, such an interpretation is contrary to the wording of Article 7 and to the scheme and purpose of the rules of the Directive concerning the rights which a trade mark confers on its proprietor. 23. In that respect, although the Third Recital in the Preamble to the Directive states that it does not appear to be necessary at present to undertake flll-scale approximation of the trade-mark laws of the Member States, the Directive none the less provides for harmonisation in relation to substantive rules of central importance in this sphere, that is to say, according to that same recital, the rules concerning those provisions of national law which most directly affect the hnctioning of the internal market, and that recital does not preclude the harmonisation relating to those rules fiom being complete. 24. The First Recital in the Preamble to the Directive notes that the trade-mark laws applicable in the Member States contain disparities which may impede the fiee movement of goods and fireedom to provide services and may distort competition within the common market, so that it is necessary, in view of the establishment and functioning of the internal market, to approximate the laws of Member States. The Ninth Recital emphasizes that it is fundamental, in order to facilitate the fiee movement of goods and services, to ensure that registered trade marks enjoy the same protection under the legal systems of all the Member States, but that this should not prevent Member States 6om granting at their option extensive protection to those trade marks which have a reputation. 25. In the light of those Recitals, Articles 5 to 7 of the Directive must be construed as embodying a complete harmonisation of the rules relating to the rights conferred by a trade mark. That interpretation, it may be added, is borne out by the fact that Article 5 expressly leaves it open to the Member States to maintain or introduce certain rules specifically defined by the Community legislature. Thus, in accordance with Article 5(2), to which the Ninth 816 THE JOURNAL OF WORLD INTELLECTUAL PROPERTY Recital refers, the Member States have the option to grant more extensive protection to trade marks with a reputation. 26. Accordingly, the Directive cannot be interpreted as leaving it open to the Member States to provide in their domestic law for exhaustion of the rights conferred by a trade mark in respect of products put on the market in non-Member countries. 27. This, moreover, is the only interpretation which is hlly capable of ensuring that the purpose of the Directive is achieved, namely to safeguard the functioning of the internal market. A situation in which some Member States could provide for international exhaustion while others provided for Community exhaustion only would inevitably give rise to barriers to the fkee movement of goods and the freedom to provide services. 28. Contrary to the arguments of the Swedish Government, it is no objection to that interpretation that since the Directive was adopted on the basis of Article lOOa of the EC Treaty, which governs the approximation of the laws of the Member States concerning the functioning of the internal market, it cannot regulate relations between the Member States and non-Member countries, with the result that Article 7 is to be interpreted as meaning that the Directive applies only to intra-Community relations. 29. Even if Article lOOa of the Treaty were to be construed in the sense argued for by the Swedish Government, the fact remains that Article 7, as has been pointed out in this judgment, is not intended to regulate relations between Member States and non-member countries but to define the rights of proprietors of trade marks in the Community. 30. Finally, the Community authorities could always extend the exhaustion provided for by Article 7 to products put on the market in non-Member countries by entering into international agreements in that sphere, as was done in the context of the EEA Agreement. 31. In the light of the foregoing, the answer to be given to the first question must be that national rules providing for exhaustion of trade-mark rights in respect of products put on the market outside the EEA under that mark by the proprietor or with his consent are contrary to Article 7(1) of the Directive, as amended by the EEA Agreement. Question 2 32. By its second question the Oberster Gerichtshofis in substance asking whether Article 7(1) of the Directive can be construed 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 fkom using its mark for products which have been put on the market outside the EEA under that mark by the proprietor or with his consent. 33. In its order for reference, as clarified subsequently by letter, the Oberster Gerichtshof has pointed out: - that the second question was put because the Markenschutzgesetz does not provide for any right to obtain a prohibitory injunction, nor does it contain any provision correspondmg to Article 5(l)(a) of the Directive. A prohibitory injunction may be sought in respect of a trade-mark infkingement only if there is at the same time a breech of Paragraph 9 of the UWG, the application of which pre-supposes the risk of confusion, which is not the case where the original products of the trade-mark proprietor are concerned; - in Austrian law, at least according to current academic legal writing, the proprietor of a trade mark has no right to obtain a prohibitory injunction against a person who makes parallel imports or reimports of trade-marked goods, unless the right to a prohibitory injunction is already available under Paragraph lOa(1) of the Markenschutzgesetz. The question thus arises, under Austrian law, whether Article 7(1) of the Trade Marks Directive, which has the same content as Paragraph lOa(1) of the SILHOUETTE V HARTLAUER - FORTRESS EUROPE? 817 Murkenschutzgesetz, provides for such a right to apply for a prohibitory injunction and whether the proprietor of the trade mark can therefore seek, solely on the basis of that provision, an order that a third party cease using the trade mark for goods which have been put on the market under that mark outside the EEA. 34. Under the scheme of the Directive the rights conferred by a trade mark are defined by Article 5, while Article 7 contains an important qualification with respect to that definition, in that it provides that the rights conferred by Article 5 do not entitle the proprietor to prohibit the use of the trade mark where the conditions laid down in that provision are satisfied. 35. Accordingly, while it is undeniable that the Directive requires Member States to implement provisions on the basis of which the proprietor of a trade mark, when his rights are infringed, must be able to obtain an order restraining third parties fiom making use of his mark, that requirement is imposed, not by Article 7, but by Article 5 of the Directive. 36. That being so, it is to be remembered, first, that, according to settled case-law of the Court, a Directive cannot of itself impose obligations on an individual and cannot therefore be relied upon as such against an individual. Second, according to the same case- law, when applying domestic law, whether adopted before or after the Directive, the national court that has to interpret that law must do so, as far as possible, in the light of the wording and the purpose of the Directive so as to achieve the result it has in view and thereby comply with the third paragraph of Article 189 of the Treaty (see, inter &a, Case C-106/89, Murleasing v. La Comercial lnternucionul de Alimentucion, [1990] E.C.R. 1-4135, paragraphs 6 and 8, and Case C-91/92, Fuccini Dari v. Recreb, [1994] E.C.R. 1-3325, paragraphs 20 and 26). 37. The answer to be given to the second question must therefore be that, subject to the national courts duty to interpret, so far as possible, domestic law in conformity with Community law, Article 7(1) of the Directive 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 from using his trade mark for products which have been put on the market outside the EEA under that mark by the proprietor or with his consent. 38. ...