CJEU reinforces trademark holders rights in exhaustion states

CJEU reinforces trademark holders rights in exhaustion states

The CJEU explained that trademark owners do not have to launch a system under which a third party can directly see the intended market of a specific item of goods. It is applicable in the case of audio electronics company Harman against the Polish distributor AB S.A.

Harman had settled an agreement with a distributor. It's in regards to the sale on Polish territory of its products under the EU trademarks JBL and HARMAN, where Harman clenches the trademark rights. However, Harman's products were bought by AB from a supplier excluding the Harman authorised distributor in respect to the Polish market and sold them in Poland.

According to Harman, this is a breach of its trademark rights, hence brought an action before the Regional Court of Warsaw. It aims to stop AB from importing and placing on the market speakers, earphones and their packaging bearing those marks. Harman also wanted AB to remove those products from the market and abolish them and their packaging.

Contrarily, AB held that the rights of Harman, the trademark owner were shattered. The reason is in keeping with AB the respective products had been placed on the market in the EEA by Harman or with Harman's agreement. AB had trusted on this supplier's information. But it had no direct insight into the actual circumstances.

Usually when ruling in cases like this where products were to be removed or demolished, Polish infringement courts referred to 'products which have not formerly been placed on the market within EEA by the proprietor of the EU trademark or with its permission'. With this phrasing, the courts leave it up to the implementation authorities to agree which specific products were placed on the market without approval and must therefore be withdrawn or ruined.

The Regional Court of Warsaw referred the case to the CJEU against this background. Enquiring the CJEU if Article 15(1) of the Regulation on the European Union trade mark and Article 36 of the Treaty on the Functioning of the European Union and other relevant regulations in EU law, "must be understood as avoiding a judicial practice. In response the operative part of the decision leaves it to the enforcement authority to determine to which products that decision applies." The marking systems used by Harman is unclear for which market Harman's products are intended as highlighted by the regional Court of Warsaw.

The CJEU found out the judicial practice of the Polish courts not to be in violation of EU law, […]. Provided that "the defendant is permitted to contest the determination of the products covered by that procedure and a court may examine and decide. In fact the products have been placed on the market in the EEA by the proprietor or with its approval."

Trademark expert at Pinsent Masons, Fabian Klein mentioned that with its resolution, the CJEU supported the position of trademark owners. "In general, the CJEU made it clear that the burden of proof to show exhaustion lies with the defendant. This burden of proof may only be moved where the distribution system applied by the trademark owner would create a risk to the free flow of goods in the EU's internal market. For instance, there is a high-class distribution system, but not only because of inconveniences of the defendant to obtain information on the actual country of designation of items of goods," he said.

Klein also said the CJEU clearly refuted the idea of trademark owners having to establish a system. Every third party could openly recognise the proposed market of a specific item of goods under it "This would have been almost unmanageable to implement and would positively have created major disturbances with various companies," he said.

In delegating the decision, supporting the Regional Court of Warsaw to which products should be withdrawn from the market or ruined to the enforcement authorities, was a logical selection.

Fabian Klein said, "The alternative would have been that the infringement decision would have needed to state the non-exhausted goods by stating the serial number or a similar identifier. An injunction is always forward-looking but would render the infringement judgement useless if it had to be found again essentially for each new 'shipment'. The serial number or other identifier may thoroughly be dissimilar in the next batch of non-exhausted goods."

It is advisable for trademark owners to have close contacts with enforcement authorities or custom authorities wherever possible, highlighted Klein. Training is needed on how to tell original goods from fakes and exhausted goods from non-exhausted goods. "With the help of this, trademark owners can elude the unjustified removal of 'legitimate' goods, thus decreasing the risk of damage claims and firming their market position," concluded Klein.