Letting the bag out of the Kat: a very belated post on a CJEU ruling

While Kats are not exactly human, they are prone to the sort of lapses that are often condoned as being "human error" or excused with a wave of the hand, a sigh and the gentle balm of reassurance that flows from the words "don't worry about it, you're only human". Well, we all missed a Court of Justice of the European Union (CJEU) decision -- quite a big one and an unusual one too -- Case C‑661/11, Martin Y Paz Diffusion SA v David Depuydt, Fabriek van Maroquinerie Gauquie NV, a ruling of the Third Chamber of Europe's favourite court that dates all the way back to 19 September.  What's more, our readers all seem to have missed it too, since no-one wrote to complain that we hadn't blogged it. If Katfriend Paul Joseph (RPC) hadn't emailed this Kat in all innocence to ask him what he thought about it, we might all still be in the dark.  Even worse, the Kats must have known it was coming since this blog mentioned it back in February 2012, here.

So what's it all about?  First a warning: the facts are quite long and a little baffling.  By a contract concluded in June 1990, one Baquet, a leather goods manufacturer and the owner of a business deriving from a company governed by Belgian law declared insolvent in 1989, sold the name of that company, ‘Nathan’, to Martin y Paz “with a view to the production of a line of small leather goods”. This contract stipulated that Baquet retained “property in the name for the manufacture of handbags”. Martin y Paz undertook not to create unfair competition as regards the manufacture and distribution of such goods, while Baquet guaranteed Martin y Paz the exclusive use of the name ‘Nathan’ for making and selling small leather goods.

In May 1995 we encounter a second contract, by which Baquet sold his handbag business to one Depuydt, the manager of a business called Fabriek van Maroquinerie Gauquie (FvMG). This contract stated that the bag business sold by Baquet included the Benelux word mark NATHAN, which he had had registered in 1991 for leather items, clothing and shoes in Classes 18 and 25. Depuydt therefore became the proprietor of that word mark. This contract referred to the undertaking which Baquet gave Martin Y Paz that he would not to manufacture or distribute small leather goods under the name ‘Nathan’.

Depuydt subsequently began to market, through FvMG and under the word mark NATHAN, handbags to which was affixed a horizontally stretched letter N, a sign which Martin Y Paz was also affixing horizontally to its own goods.  In July 1998, Martin Y Paz complained to FvMG of a lack of cooperation between them, suggesting that they collaborate as regards the materials and colours for their goods and also an exchange of customer lists. Shortly after, in August, Martin Y Paz registered a Benelux figurative mark consisting of the letter N stretched horizontally (‘the mark N’) and a Benelux figurative mark consisting of a stylised version of the word sign ‘Nathan’ (‘the figurative mark Nathan’) registered for goods in inter alia Classes 18 and 25.

Since 2002 both Martin Y Paz and FvMG used the word sign ‘Nathan Baume’. In January 2002 Martin Y Paz obtained registration of that sign as a Benelux trade mark for goods in Classes 18 and 25 (‘the mark Nathan Baume’).  So, at this stage, handbag makers Depuydt/FvMG had the NATHAN Benelux word mark, while Martin Y Paz had been guaranteed use of the name Nathan in respect of small leather goods and held the Benelux registrations of the mark N, the figurative mark Nathan and the mark ‘Nathan Baume’.

It appears from the summary of the facts that, at this stage, the two companies were both selling handbags and shoes manufactured by FvMG, as well as the other leather items manufactured by Martin Y Paz; they were selling them to one other and displayed them in their respective shops. However, relations between the two companies deteriorated progressively and, in May 2005, Depuydt and FvMG (referred to collectively as ‘Gauquie’) sued Martin Y Paz before the tribunal de commerce de Nivelles, Belgium, and applied to have the mark N, the figurative mark Nathan and the mark Nathan Baume -- all of which were owned by Martin y Paz -- declared invalid for all goods for which they were registered or, at the very least, seeking a ruling that those marks were valid only with respect to small leather goods. In October 2006 the tribunal de commerce de Nivelles dismissed this action.

In January 2007 Martin Y Paz asked the President of the tribunal de commerce de Nivelles to order Gauquie to stop using signs which were identical or similar to the marks N and Nathan Baume for goods in Classes 18 and 25, while Gauquie counterclaimed for an order to prohibit Martin Y Paz from using those marks and any sign that was identical or similar to the word mark Nathan for leather goods other than small leather goods. In May 2007 Martin Y Paz’s application was dismissed and that company was ordered not to make or market, under the signs ‘N’, ‘Nathan’ or ‘Nathan Baume’, handbags that were identical or similar to those distributed by Gauquie.

Martin Y Paz appealed to the cour d’appel de Bruxelles, while Gauquie cross-appealed to the same court against that judgment and also appealed to that court against the October 2006 ruling. In November 2007, that court held that Gauquie could not use signs that were identical or similar to the marks N or Nathan Baume for goods other than handbags and shoes and that Martin Y Paz could not use the mark N, the figurative mark Nathan and the mark Nathan Baume for handbags and shoes. As to the remainder, it dismissed Gauquie’s appeal against the October 2006 judgment. Regarding the rights which the marks N and Nathan Baume conferred on their proprietor Martin Y Paz, that court held that that company had, until it applied for an injunction before the tribunal de commerce de Nivelles, always recognised that Gauquie could use signs that were identical to those marks for handbags and shoes, that recognition being highlighted by Martin Y Paz’s repeated proposals for joint management of the marketing of its goods and those of Gauquie. The cour d’appel de Bruxelles concluded from those facts that there was ‘irrevocable consent’ on the part of Martin Y Paz to the use, by Gauquie, of those signs in respect of handbags and shoes. This being so, by seeking a prohibition of that use in particularly stringent terms, Martin Y Paz had abused the exclusive right conferred by its marks, and that the marketing by Martin Y Paz of handbags or shoes under those marks constituted an act of unfair competition since it took unfair advantage of the investments which Gauquie made in order to make its high quality goods known and is also liable to cause confusion in consumers’ minds.

Martin Y Paz now appealed to the Cour de cassation on a point of law. In its appeal, Martin Y Paz admitted that it had consented, for an indeterminate period, to the use by Gauquie of signs that were identical to its marks N and Nathan Baume in respect of handbags and shoes. However, Martin Y Paz maintained that the Cour d’appel de Bruxelles erred in law in categorising its consent as ‘irrevocable’ since, in its view, that consent could be withdrawn unilaterally at any time. Accordingly, since it had ceased to consent to Gauquie’s use of signs that weree identical or similar to its marks, its application to prohibit Gauquie from using those signs at all was in no way abusive; rather, it was is a legitimate exercise of the exclusive right conferred upon it by the marks which it owned. Martin Y Paz also maintained that the cour d’appel de Bruxelles erred in law in holding that Martin Y Paz could not make and sell handbags and shoes under the marks N and Nathan Baume. This was because the marks concerned were registered for classes of goods covering, among other things, handbags and shoes. To prohibit that company from using its own trade marks for those goods would therefore deprive it of its exclusive right.

In December 2011 the Cour de cassation rejected Martin Y Paz’s argument that its application for an injunction was only an expression of the exclusive right conferred by its marks and could not therefore be categorised as abusive: the cour d’appel de Bruxelles’ finding that Martin Y Pas had committed an abuse was based not only on the consent which it had given, but also on the terms in which it had formulated its application for an injunction and on the underlying motivation of retaliation. However, the Cour de cassation questioned whether the cour d’appel de Bruxelles could, without erring in law, have deprived Martin Y Paz of the possibility of invoking its marks against Gauquie and of the possibility of itself using its marks in respect of handbags and shoes. It therefore decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘1(a) Must Article 5(1) and Article 8(1) of [the long-repealed and re-enacted Directive 89/104 on the approximation of trade mark law: we now have Directive 2008/95] be interpreted as meaning that the exclusive right conferred by the registered mark can definitively no longer be asserted by its proprietor against a third party, in respect of all goods covered by it at the time of registration:

– where, for an extended period, the proprietor has shared the use of that mark with that third party in a form of co-ownership for part of the goods covered;

– where, when that sharing was agreed, the proprietor gave the third party its irrevocable consent to use of that mark by the third party in respect of those goods?

(b) Must those articles be interpreted as meaning that application of a national rule, such as that according to which the proprietor of a right cannot exercise that right in a wrongful or abusive manner, can lead to a definitive prohibition on the exercise of that exclusive right for part of the goods covered or as meaning that that application must be restricted to penalising the wrongful or abusive exercise of that right in another way?

2(a) Must Article 5(1) and Article 8(1) of [Directive 89/104] be interpreted as meaning that, where the proprietor of a registered mark ends its undertaking to a third party not to use that mark for certain goods and thus intends to recommence that use itself, the national court can none the less definitively prohibit it from recommencing that use of the mark on the ground that it amounts to unfair competition because of the resulting advantage to the proprietor of the publicity previously made for the mark by the third party and possible confusion in customers’ minds, or must they be interpreted as meaning that the national court must adopt a different penalty which does not definitively prohibit the proprietor from recommencing use of the mark?

(b) Must those articles be interpreted as meaning that a definitive prohibition on use by the proprietor is justified where the third party has, over a number of years, made investments in order to bring to the attention of the public the goods in respect of which the proprietor has authorised it to use the mark?’

In September the CJEU ruled, first, that the questions were inadmissible in so far as they touched upon Article 8. This was because the interpretation of that provision, which relates to licences, was irrelevant in regard to the resolution of the dispute in the main proceedings, since there never was a licence. As for Article 5 of the Directive, however,

* Consent, such as that which let Gauquie use signs which were identical to Martin Y Paz’s trade marks in respect of handbags and shoes, did result in the exhaustion of the exclusive right within the meaning of Article 7, but only in respect of the individual items of the product which were first put on the market in the European Economic Area by the party who received the consent. So exhaustion isn't much of an issue here.

* It was settled case-law that the exclusive right under Article 5 of Directive 89/104 was conferred in order to enable the trade mark proprietor to protect his specific interests as proprietor of that mark, that is, to ensure that the trade mark can fulfil its functions. Therefore, the exercise of that right must be reserved to cases in which another party’s use of the sign adversely affects or is liable adversely to affect one of the functions of the trade mark. Those functions include not only the essential function of the trade mark, which is to guarantee to consumers the origin of the goods or services in question, but also its other functions, in particular that of guaranteeing the quality of those goods or services or those of communication, investment or advertising. It was however for the referring court to determine whether third party use adversely affects or is liable adversely to affect one of the functions of those marks. If it were established that such a detriment or risk of detriment existed, it would have to be held that depriving Martin Y Paz of the possibility of exercising its exclusive right against that use by Gauquie exceeded the limitations on the exercise of the trade mark right that arise from Articles 5 to 7 of Directive 89/104.

* What was left of the questions asked by the referring court should be answered as follows:

Article 5  ... precludes a proprietor of trade marks which, in a situation where there has been use shared with a third party, had consented to the use by that third party of signs which are identical to its marks in respect of certain goods in classes for which those marks are registered and which no longer consents to that use, from being deprived of any possibility of asserting the exclusive right conferred upon it by those marks against that third party and of itself exercising that exclusive right in respect of goods which are identical to those of that third party.

Sorry about all that, says the Kat.  It all seems very confusing, but the truth of the matter is that, from a clear-cut and concise legal point of view, trade marks used by third parties are generally either licensed or likely to be unauthorised and at risk of infringing. However, in the real world in which businesses exist, there seems to be an almost infinite variety of amorphous arrangements that fit the needs of businesses themselves but don't fit neatly into the statutes. This is one such case.

Merpel had a comment or two, but fell asleep before she got to the end of reading it ...