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Tuesday, 8 July 2008

EFTA Court backs down over regional exhaustion

On 24 October a request was made for an Advisory Opinion from the EFTA Court by a Norwegian court, the Follo tingrett in Case E-9/07, L’Oréal Norge AS v Per Aarskog AS and Others. The request came in the wake of trade mark infringement proceedings brought by L’Oréal in respect of its REDKEN trade mark for goods in Class 3, which the defendants parallel imported from the US via third parties. The goods in question appear to have been genuine and were marketed in the US with L’Oréal's blessing, but they were imported into Norway without L’Oréal's consent. In the course of these proceedings the defendants argued that the importation and resale of the REDKEN products was contrary to neither Section 4 of the Norwegian Trade Mark Act nor Article 7(1) of Council Directive 89/104 (the Trade Mark Directive), which governs domestic trade mark law in the European Economic Area. According to the defendants, since Article 7(1) did not prohibit international exhaustion and the products had been put on the market in the US by L’Oréal or with its consent, L’Oréal's trade mark rights were exhausted according to the principle of international exhaustion as laid down in Norwegian trade mark law both before and after the implementation of the Trade Mark Directive. At this point the EFTA Court was invited to advise on the following questions:

"1. Is Article 7(1) of Council Directive 89/104 to be understood to the effect that a trade mark proprietor has the right to prevent imports from third countries outside the EEA when such imports take place without the consent of the trade mark proprietor?

2. Is Article 7(1) of Council Directive 89/104 to be understood to the effect that international exhaustion is permitted?".
Almost exactly a month later, another Norwegian court -- this time the Oslo tingrett -- asked the identical questions in Case E-10/07 L’Oréal Norge AS v Smart Club Norge AS. Since the trade mark, the claimant and the legal issues were the same as in the earlier case, the two were consolidated.

Reviewing its own earlier Advisory Opinion in Case E-2/97 Mag Instrument Inc. v California Trading Company Norway [1997] EFTA Ct. Rep. 129, and the European Court of Justice ruling in Case C-355/96 Silhouette [1998] ECR I-4799, the EFTA Court had to concede that it and the ECJ had reached opposite conclusions. The EFTA Court advising that the regional exhaustion provision in Article 7(1) allowed global exhaustion in that global exhaustion automatically included regional exhaustion. The ECJ however read the provision as meaning regional but not global exhaustion. Analysing the position of EFTA Members, the court said this:

"27 The main objective of the EEA Agreement is to create a homogeneous EEA .... Homogeneous interpretation and application of common rules is essential for the effective functioning of the internal market within the EEA. The principle of homogeneity therefore leads to a presumption that provisions framed in the same way in the EEA Agreement and EC law are to be construed in the same way. However, differences in scope and purpose may under specific circumstances lead to a difference in interpretation between EEA law and EC law ....

28 The institutional system of the European Economic Area foresees two courts at the international level, the EFTA Court and the ECJ, interpreting the common rules. It is an inherent consequence of such a system that from time to time the two courts may come to different conclusions in their interpretation of the rules. ... In its interpretation of EEA rules, the Court has consistently taken into account the relevant rulings of the ECJ given after the said date. ... this is “[w]ithout prejudice to future developments of case law”.

29 Neither Article 3(2) SCA nor Article 2(1) of Protocol 28 explicitly addresses the situation where the EFTA Court has ruled on an issue first and the ECJ has subsequently come to a different conclusion. However, the consequences for the internal market within the EEA are the same in that situation as in a situation where the ECJ has ruled on an issue first and the EFTA Court subsequently were to come to a different conclusion. This calls for an interpretation of EEA law in line with new case law of the ECJ regardless of whether the EFTA Court has previously ruled on the question.

30 ... Both sets of arguments [i.e. Mag and Silhouette] are equally valid in a Community law context and an EEA law context.

31 Next, it needs to be considered whether differences in scope and purpose between Community law and EEA law nevertheless constitute compelling grounds for divergent interpretations of Article 7(1) of the Directive in EEA law and EC law.

...

33 ... according to Article 2(1), first sentence, of Protocol 28, “the Contracting Parties shall provide for such exhaustion of intellectual property rights as laid down in Community law”. This allows for the incorporation into Annex XVII of legal acts providing for mandatory EEA-wide exhaustion of rights, regardless of the origin
of the goods to which the rights relate.

34 This interpretation ... is also reflected in the fact that directives with a clear wording to this effect have been incorporated into the Agreement. ...

35 ... Article 2(1) of Protocol 28 does not exclude mandatory EEA-wide exhaustion of trade mark rights ...

36 Thus, it is clear that the EEA Agreement foresees the possibility of mandatory EEA-wide exhaustion of intellectual property rights, also in relation to goods originating from outside the EEA.

37 ... the Court holds that the differences between the EEA Agreement and the EC Treaty with regard to trade relations with third countries do not constitute compelling grounds for divergent interpretations of Article 7(1) ....

38 ...Article 7(1) of the Trade Mark Directive is to be interpreted to the effect that it precludes the unilateral introduction or maintenance of international exhaustion of rights conferred by a trade mark regardless of the origin of the goods in question.".

The court therefore answered the questions this morning as follows:
"Article 7(1) of First Council Directive ... 89/104 ... is to be interpreted to the effect that it precludes the unilateral introduction or maintenance of international exhaustion of rights conferred by a trade mark regardless of the origin of the goods in question.".
The IPKat was quite surprised at the strength and vitality of the defendants' arguments concerning what he had assumed to be a bit of a dead issue. Merpel speculates, will Norway now enter into trade agreements with other countries that provide for global exhaustion? and what will be the outcome?

Full text of the decision here
More about the EFTA Court here
Norwegian Patent Office here

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