Coordination of commercial policy and exhaustion of trademark rights

The advocate general at the Court of Justice has issued his opinion on parallel Schweppes trademarks functioning in different EEA countries and registered for separate proprietors.

Opinion of Advocate General Paolo Mengozzi delivered on 12 September 2017 in C-291/16, Schweppes SA v Red Paralela SL

Origins of trademark and facts of the case

In 1783 Jacob Schweppe developed the first industrial method for carbonating mineral water, creating a beverage known as “Schweppe’s Soda Water.” The Schweppes trademark gained worldwide renown on the market for tonic water. In all member states of the European Economic Area the Schweppes mark is registered under a number of national trademarks. In 1999 the owner of the trademarks at that time, Cadbury Schweppes, assigned rights to the Schweppes mark in 13 EEA member states to the Coca-Cola Company, while retaining rights in 18 other EEA member states. In the UK, the Schweppes trademark belongs to Coca-Cola.

The authorised holder of the trademarks in Spain discovered that the company Red Paralela was marketing tonic water in Spain under the Schweppes label imported from the UK. In its view, Red Paralela was acting unlawfully because the tonic water was offered in Spain by Coca-Cola, not by the holder of the trademark in Spain or with its consent. Because the names and goods were identical, consumers could not distinguish the commercial origin of the beverage. Red Paralela alleged in its defence that the trademark rights to Schweppes goods from the UK had been exhausted.

Litigation is underway before the commercial court in Barcelona. The court decided to stay the proceeding and request a preliminary ruling from the Court of Justice on four issues. The aim is to determine whether the proprietor of a mark may lawfully oppose a third party’s importation of goods from the UK to Spain bearing the same trademark, when the proprietors of the mark in the two countries are different. Thus the subject of interest of the advocate general is the issue of exhaustion of parallel trademarks.

Principle of exhaustion of trademark rights

If goods lawfully bearing a trademark are offered on the EEA market by the proprietor of the mark or with the proprietor’s consent, then (with certain exceptions) the proprietor cannot oppose further turnover in the goods based on its exclusive rights. This is known as the principle of exhaustion of trademark rights. For the principle of exhaustion to operate, two conditions must be met:

  • Marketing of the goods in EEA territory
    • Marketing of goods by the proprietor of the trademark or with the proprietor’s consent.

Placing the goods on the market occurs only when the trademarked goods are sold. However, consent to placing the goods on the market, which is a decisive element for exhaustion of trademark rights, must be stated unequivocally, e.g. express consent. It is also recognised that exhaustion of trademark rights occurs in the case of sale of goods by an entity with economic links to the proprietor of the trademark (e.g. a licensee). And even if the first marketing of the goods was done by an entity with no economic links with the proprietor of the trademark and without its express consent, it is recognised that consent to placing of goods on the market in the EEA can be implied, based on circumstances occurring before, simultaneous with or after the marketing, clearly indicating the proprietor’s intent to renounce its rights. Nonetheless, the proprietor’s silence or passivity is not deemed to be consent.

Exhaustion and parallel trademarks

The Court of Justice has previously addressed the issue of exhaustion of trademark rights in situation where the rights originally belonged to one person but then became fragmented among two or more entities voluntarily or by state action. According to the prior case law, in the case of parallel trademarks, the principle of exhaustion applies when the proprietor in the importing state and the exporting state are the same person, or, if they are separate persons, they share economic links, e.g. via a trademark licence or membership in the same corporate group. Economic links, as understood by the Court of Justice, mean that the trademarked goods are produced under the control of a single body. The decisive element is the possibility of controlling the goods, not the actual exercise of control.

Expansion of the concept of economic links

In this case, the advocate general appears to be suggesting an expansion of the notion of “economic links” and adoption of the view that exhaustion of trademark rights can also occur when the production and sale of goods bearing identical parallel trademarks fits within a single commercial policy and strategy conducted by the owners of the marks. In Advocate General Mengozzi’s view, the court’s existing case law allows the notion of economic links to be extended to a broader spectrum of relationships. It is not so much the title given to the relations between the proprietors of parallel trademarks, as the fact that these links place the trademarked goods under the control of two separate persons that act in the exploitation of the mark as one and the same centre of interests. In the advocate general’s opinion, it cannot be ruled out that the proprietors of parallel trademarks can be deemed to be economically linked for purposes of trademark exhaustion when they coordinate their commercial policies with a view to exercising joint control over the use of their respective marks.

Summary of advocate general’s opinion

According to Advocate General Mengozzi, in the Schweppes case the proprietors of the parallel trademarks could be found to have coordinated their commercial policy, based on a number of factual circumstances, e.g.:

  • The presentation of the Schweppes goods by proprietors in all EEA countries is similar or even identical.
  • Proprietors peacefully coexist in certain EEA territories, e.g. hold mutual licences to use the Schweppes marks.
  • Schweppes tonics are sold online throughout the EEA with no distinction as to origin.
  • Neither of the proprietors opposes the other’s actions.

Consequently, it may be found that each of the proprietors renounces its right to oppose importation to its own territory of trademarked goods placed on the market in the other proprietor’s country.

The advocate general has proposed to the Court of Justice an expansive interpretation of “economic links.” Considering the factual circumstances of the Schweppes case, this approach appears warranted and rational.

The opinion provides guidelines for the Court of Justice on how it could answer the questions presented by the national court. We will track the case to see whether the court follows the advocate general’s suggestion or takes its own approach.

Dr Monika A. Górska, legal adviser, Intellectual Property practice, Wardyński & Partners