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ECJ says damage to luxury perception is damage to goods themselves


Luxury goods trade mark holders can use the European Union's Trade Mark Directive to stop companies it has a contract with from selling luxury goods in discount shops, the European Court of Justice (ECJ) has said.

The Court said that goods themselves could be damaged if the perception of them as luxury items was damaged.

The ECJ said that Dior's trade mark rights in lingerie made for it by Société industrielle lingerie (SIL) could extend to stopping SIL from selling the underwear through discount shops run by Copad.

The Directive says that a trade mark holder can take action under it if a licensee breaks the licensing agreement in respect of "the quality of the goods manufactured".

The Court found that the 'quality' of the goods referred not just to the items themselves, but to their reputation and the perception of them.

"The quality of luxury goods such as the ones at issue in the main proceedings is not just the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury," said the ruling. "Since luxury goods are high-class goods, the aura of luxury emanating from them is essential in that it enables consumers to distinguish them from similar goods. Therefore, an impairment to that aura of luxury is likely to affect the actual quality of those goods."

The Court said that it had to decide whether or not licence conditions detailing control of the retail distribution network was something that could come under the scope of the Trade Mark Directive.

"It is conceivable that the sale of luxury goods by the licensee to third parties that are not part of the selective distribution network might affect the quality itself of those goods, so that, in such circumstances, a contractual provision prohibiting such sale must be considered to be falling within the scope of Article 8(2) of the Directive," the Court said.

Having said that control of distribution could be governed by the Directive, the ECJ said that it was up to the French court hearing the case to decide if SIL's behaviour in distributing the clothes through discount shops did damage the "aura of luxury" of the Dior clothes.

"The Directive is to be interpreted as meaning that the proprietor of a trade mark can invoke the rights conferred by that trade mark against a licensee who contravenes a provision in a licence agreement prohibiting, on grounds of the trade mark’s prestige, sales to discount stores such as the ones at issue in the main proceedings, provided it has been established that that contravention, by reason of the situation in the main proceedings, damages the allure and prestigious image which bestows on them an aura of luxury," said the Court.

Copad argued that Dior's trade mark rights had been exhausted because it had put the material on the market within the European Economic Area (EEA), which meant that it could not assert rights under trade mark law to control distribution. The Court rejected that argument.

"The licence agreement does not constitute the absolute and unconditional consent of the proprietor of the trade mark to the licensee putting the goods bearing the trade mark on the market," it said. "Article 8(2) of the Directive expressly enables the proprietor of the mark to invoke the rights the trade mark confers on him against a licensee where the latter contravenes certain provisions in the licence agreement."

Trade mark law expert Lee Curtis of Pinsent Masons, the law firm behind OUT-LAW.COM, said that the ruling was a crucial one.

"The case is important because it made clear and built on existing case law that the impairment of a brand's image should be considered, as well as the physical condition of the goods," he said. "Thus the sale of a luxury brand in a discount store could well be interpreted as damaging the brand image of a premium brand and is a legitimate reason for the brand owner to object to such use of the brand."

"The case also made clear that selling goods in contravention of the provisions of a licence agreement, for example in different trade channels to that provided for by the licensor, meant that the licensor can not be interpreted as having consented to the marketing of those goods and thus had not exhausted their trade mark rights," said Curtis.

"This case is further boost to the protection of branded luxury products in the EEA and helps such brand owners to control their distribution channels more tightly," he said.

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