No economic links, no exhaustion of the "Schweppes" mark in Spain

For Kat readers who cannot get enough about exhaustion of IP rights (and even for Kat readers who can), Kat friend Raúl Bercovitz reports on a fascinating case in Spain regarding the “Schweppes” mark.

As a consequence of a voluntary assignment of Schweppes Cadbury’s trademarks to the Coca Cola Group in 1998, the ownership of the ‘Schweppes’ brand belongs to two different business groups (and fierce competitors), depending upon the jurisdiction of registration. The Schweppes Group holds the exclusive rights over the ‘Schweppes’ brand in Spain, among other countries, while the Coca-Cola Group holds the rights over the ‘Schweppes’ brand in the United Kingdom, among other countries.

This unusual trademark situation has given rise to numerous legal proceedings in Spain, in which the Spanish licensee of the trademark (Schweppes, S.A.) faced distributors who marketed products in Spain under the brand 'Schweppes’ of the Coca-Cola Group. In the case at hand, Schweppes, S.A. brought an action against Red Paralela before the Commercial Court No. 8 of Barcelona, alleging that the marketing in Spain of Schweppes branded products, manufactured and marketed in the United Kingdom by the Coca-Cola Group, infringes its rights over the Schweppes brand in Spain.

In defense, Red Paralela argued that the rights of the Schweppes Group in Spain have been exhausted. As a result, Schweppes, S.A. can no longer oppose the marketing in Spain of Schweppes branded products coming from the United Kingdom. In support of its claims, Red Paralela provided evidence which, in its opinion, showed the existence of economic links between the Schweppes Group and the Coca-Cola Group, as well as the existence of promotion of a single brand image by both owners.

According to Red Paralela, this constituted exhaustion of the rights of the Schweppes Group in the territories in which it is the proprietor of the Schweppes trade mark, such as Spain, with the result that the Schweppes Group had no basis to challenge the marketing in Spain of the products of the brand ‘Schweppes’ of the Coca-Cola Group.

Before issuing its judgment, the Commercial Court of Barcelona referred a preliminary ruling to the CJEU, which gave rise to the Judgment of 20 December 2017 (case C-291/16). There, the CJEU offers a general interpretation of article 7.1 of Directive 2008/95 (now article 45.1 Directive 2015/2436), noting that the mere existence of a division in the ownership of a trade mark does not result in the exhaustion of the rights.

The CJEU stated that European Union law does not preclude the proprietor of a national trademark from opposing the import of identical goods bearing the same trade mark and coming from another Member State, in which said trade mark, which initially belonged to the same proprietor, is currently owned by a third party. That said, the CJEU established two limitations regarding exhaustion of trademark rights:

(i) the proprietors have not, actively and deliberately, continued to promote the appearance or image of a single global trade mark, thereby generating, or increasing, confusion on the part of the relevant public as to the commercial origin of the goods;

(ii) there are no “economic links” between the proprietors, in the sense that they coordinate their commercial policies or that they have agreed to exercise joint control over the use of the trade mark, so that it is possible for them to determine, directly or indirectly, the goods in which said trademark appears and to control its quality.

In other words, according to the CJEU, the Schweppes Group may object to the marketing in Spain of tonic water identified with the ‘Schweppes’ brand, manufactured in the United Kingdom by Coca-Cola, unless some of the exceptional situations identified by the CJEU, which it is for the national courts to assess.

Having regard to the evidence provided by Red Paralela in light of the judgment of the CJEU, the upshot was the exhaustion of the Schweppes Group's rights. This was contrary to the other Spanish courts that have otherwise unanimously determined that the marketing in Spain of ‘Schweppes’- branded products manufactured by the Coca-Cola Group infringes the exclusive rights of the Schweppes Group. The facts considered by the Court of Barcelona included:

(i) two tweets that purportedly show that the Schweppes Group assumes as its own the English territory for the distribution and advertising of the brand ‘Schweppes’ on social networks;

(ii) two photos published on Facebook which would lead to the use by Schweppes of the image of English products in its "institutional advertising";

(iii) a hyperlink to the Coca Cola website in the English version of the European "Schweppes" website;

(iv) the minimal differences in presentation between the products of both groups;

(v) the references by the Schweppes Group to the English origin of 'Schweppes';

(vi) the parallel registrations of the 'Zero' trademarks;

(vii) the signature of the founder Jacob Schweppe by both proprietors in their respective territories;

(viii) the erroneous application by the Schweppes Group for registration of a Community design (subsequently withdrawn because of the opposition of the Coca-Cola Group);

(ix) the Dutch license agreement between the two companies; and

(x) the alleged lack of opposition by the Schweppes Group to the marketing of Coca Cola's "Schweppes" products on e-commerce platforms.

Not surprisingly, the Schweppes Group did not agree with the result reached by the Commercial Court of Barcelona, especially its application of the doctrine of exhaustion of rights based on existence of economic links between the owners as well as joint use of the trademark. Accordingly, the Schweppes Group appealed this decision.

In its judgment of July 22nd, the Court of Appeals accepted the appeal, deeming the evidence provided by Red Paralela to be insufficient, and even irrelevant, to support the application of the exhaustion of rights under CJEU law. It ruled that exhaustion of rights was not shown because it had not been established that the essential function of the trade mark 'Schweppes' has been infringed, or that there are economic links between the two proprietors within the meaning of the CJEU judgment.

As a result, and according to the interpretation given by the Spanish Court of Appeal to the CJEU judgment, it is clear that evidence giving rise to the exhaustion of the right must be irrefutable. Moreover, the evidence must be capable of unequivocally showing that the requirements established by the European Court of Justice for the exhaustion of the right are met.

For these reasons, the existence of similarities between national parallel marks of common origin is irrelevant for the purposes of applying the doctrine of exhaustion of the right. According to the Court of Appeal, this is even more evident in the case of the Schweppes trademark. The mark cannot be exclusively held by the Schweppes Group, even if it was the sole original owner of the brand before the assignment, given that the Schweppes Group voluntarily assigned part of its rights to the Coca Cola Group.

On the other hand, it cannot belong exclusively to the Coca Cola Group, simply because it is the current owner of the brand in the United Kingdom, which is the historical territorial origin of the Schweppes brand, dating back to 1783.

Thus, the historical value belongs to both the Schweppes Group and the Coca-Cola Group. This means that both owners can use the elements that form part of the historical "DNA" of the Schweppes brand, independently of the existence of a fragmentation of the brand between two owners in the territory of the EU.

Picture on upper right is by NordNordWest and is licensed under the Creative Commons Attribution=Share Alike 3.0 Unported license.

Picture on left is by Jacopo Werther and is licensed under the Creative Commons Attribution 2.0 Generic license.

Picture on lower right is from British Library/Mechanical Curator collection and is in the public domain.