The beginning of the story that forms the basis for the preliminary ruling of the CJEU in Diageo Brands BV v. Simiramida-04 EOOD (C-681/13) is wonderful news for the trade mark owner: at the request of Diageo, a shipment of 12,096 bottles of Johnnie Walker whisky placed on the market outside of the European Economic Area (EEA) was seized when imported from Georgia into the port of Varna, Bulgaria.
Diageo brought substantive proceedings for trade mark infringement against Simiramida and was in for the next bad surprise: the City Court of Sofia dismissed the action, holding that Diageo's trade mark rights were exhausted - although the goods had been placed on the market outside of the EEA with Diageo's consent. The City Court felt bound by an "interpretative decision" of the Bulgarian Supreme Court on the issue. Diageo did not appeal the decision, probably hoping the nightmare was over.
Yet it wasn't. Now it was Simiramida's turn to go on the offensive. It sued Diageo BV in the Netherlands for damages stemming from the seizure, for a sum "exceeding EUR 10 million" (in case you wonder - that is EUR 826 per seized bottle). Smiramida argued that the Sofia City Court had held that the seizure was unlawful, and it was therefore entitled to damages. Diageo countered that the Sofia City Court was out of its mind, or rather, that its decision was manifestly contrary to EU law, and should not be recognised in the Netherlands. While the first instance court followed Diageo, the
second instance court ruled that the Bulgarian decision had to be recognised. The third instance court, the Hoge Raad, felt compelled to request a preliminary ruling from the CJEU (see Class 46 post on the referral).
Brussels I Regulation) is based on the principle of mutual trust in the administration of justice in the European Union. Such trust requires, inter alia, that judicial decisions delivered in one Member State should be recognised automatically in another Member State. Art. 36 of Brussels I states that "Under no circumstances may a foreign judgment be reviewed as to its substance". Exceptionally, recognition may be refused "if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought" (art. 34(1) Brussels I).
The Hoge Raad wondered whether it was contrary to public policy to recognise a decision of the court of the Member State of origin which is manifestly contrary to EU law, and that fact has been recognised by that court (apparently, the Sofia City Court saw the error of the Supreme Court, but felt bound by its decision for procedural reasons).
The CJEU answered in the negative. A mere misapplication of the law, whether national law or EU law, was insufficient to refuse recognition. Refusal was only possible when the recognition would infringe a fundamental principle. "In order for the prohibition of any review of the substance of a judgment of another Member State to be observed, the infringement would have to constitute a manifest breach of a rule of law regarded as essential in the legal order of the State in which recognition is sought or of a right recognised as being fundamental within that legal order" (para. 44). The rules on the exhaustion of trade mark rights, to put it bluntly, do not amount to such fundamental and essential rules of law. To add insult to injury, the CJEU also reminded Diageo that in order to rely on art. 34(1) Brussels I Regulation, it would have had to avail themself of all the legal remedies available in Bulgaria with a view to preventing such a breach before it occurs, save where specific circumstances make it too difficult, or impossible. The mere fact that an appeal was most likely going to be unsuccessful - a view shared by the Dutch court - was insufficient.
If you think it can't get worse for Diageo, stay tuned. Simiramida also argued that it was entitled to compensation for legal costs as a "successful party" in the sense of art. 14 Enforcement Directive for its action against Diageo in the Netherlands. The CJEU held that indeed, the Enforcement Directive was applicable. The main action by Diageo that had started it all was clearly within the scope of the Enforcement Directive. The fact that the assessment of the justified or unjustified nature of the seizure raised the question of the recognition of a judgment given in another Member State was irrelevant. Such a question was ancillary in nature and did not alter the subject-matter of the dispute.