Van Doren Lifestyle revisited: the reversal of the burden of proof due to market partitioning

Kat friend Jan Jacobi reports on a recent case where only the intrepid dare tread—-trade mark exhaustion and market partitioning.

In the context of European trade, proving trade mark exhaustion (within the meaning of article 15 of the Trade Mark Directive) can be challenging. On the basis of the Van Doren Lifestyle judgement by the ECJ (as it then was), the burden of proof regarding trade mark exhaustion rests with the party relying on it.

Successfully proving trade mark exhaustion requires evidence that goods bearing the trade mark were placed on the EEA by the trade mark proprietor or with its consent. Such evidence is usually presented in the form of a paper trail of the chain of trade, starting from the origin of the trade (which should be the trade mark proprietor) to the party relying on trade mark exhaustion.

Some trade mark proprietors (contractually) restrict their distributors from selling to certain markets. If a distributor sells goods to such market in spite of a restriction, having its identity revealed to the trade mark proprietor might lead to repercussions: the trade mark proprietor can decide to no longer distribute goods via the distributor or impose a (contractual) sanction. In turn, this could lead to market partitioning whereby the trade mark proprietor effectively controls markets through a system of distributors who sell to specific markets only.

The ECJ therefore ruled in the Van Doren Lifestyle case that, if a party relying on exhaustion can demonstrate that there is a real risk of market partitioning if he bears the burden of proof, it is for the proprietor of the trade mark to establish that the products were initially placed on the market outside the EEA by him or with his consent.

To this guest Kat’s knowledge, only a handful cases have been rendered over the past decade where application of the Van Doren Lifestyle judgement has resulted in the trade mark proprietor needing to prove that its trade mark rights were indeed not exhausted. Considering this paucity of decisions, a recent judgement by the Court of Appeal of the Hague (19 October 2021), which deals with the Van Doren Lifestyle judgement, merits special attention.

Background

World Branding Mark S.A (‘WBM’) is the proprietor of two EUTM’s under which perfume is sold. WBM does not sell the perfume directly to the market but via exclusive licensees who, in turn, enter into distribution agreements with resellers, in this case the Dutch company Silk Cosmetics (‘SM’). Notino is a Dutch vendor of perfumes and through its web shops sells WBM perfumes to Dutch and Belgian consumers. Suspecting Notino to be selling perfume that infringes WBM’s marks, SM made several test purchases from Notino’s web shop and subsequently demanded proof of exhaustion. After not receiving such proof, SM proceeded to initiate proceedings on WBM’s behalf, claiming trade mark infringement.

Judgement

After being dismissed on formal grounds in first instance before the District Court of the Hague (who held that SM did not have a proper power of attorney to present claims on WBM’s behalf), the case was brought before the Court of Appeal of the Hague. On appeal, SM stated that Notino had the burden of proving exhaustion of WBM’s trade marks, pursuant to the Van Doren Lifestyle judgement.

Notino, to the contrary, argued that SM was part of an exclusive distribution system put in place by WBM. In support thereof, it firstly presented as evidence the exclusive distribution agreement that existed between SM and WBM’s licensees. Notino pointed out that, according to this agreement, SM was strictly prohibited to resell perfumes anywhere outside Belgium and the Netherlands. Secondly, Notino alleged that it was highly likely that similar agreements existed for distributors located in other EU countries that also contain a prohibition on resale. Notino invited SM to refute this allegation.

Taking into account the possibility of an exclusive distribution system, the court considered that the allocation of the burden of proof must be decided in accordance with the Van Doren Lifestyle judgement, referring to point 40 of that decision--

'in such situations [of an exclusive distribution system], if the third party were required to adduce evidence of the place where the goods were first put on the market by the trade mark proprietor or with his consent, the trade mark proprietor could obstruct the marketing of the goods purchased and prevent the third party from obtaining supplies in future from a member of the exclusive distribution network of the proprietor in the EEA, in the event that the third party was able to establish that he had obtained his supplies from that member.' (point 40).

Applied to the facts of the case, the court firstly found that there is proof of an exclusive distribution agreement for Belgium and the Netherlands. Secondly, the court considered that SM’s inability to refute the existence of similar distribution agreements creates ‘a likelihood’ that WBM operates an exclusive distribution system for the EU, this by dividing the European market into smaller segment of markets, each with (re)selling restrictions.

The court concluded by referring once more to the Van Doren Lifestyle judgement whereby, under such circumstances, there is a real risk of market partitioning should Notino prove that the perfumes had been first put on the market by WBM. Consequently, the court charged SM with adducing such proof.

Instead of providing the court with a paper trail of the chain of trade, SM claimed that the packaging of the perfumes satisfies the required proof, since the package of the perfumes did not contain an ingredient list (which list is mandatory for perfumes being sold in the EEA pursuant to Regulation 1223/2009). This, SM concluded, demonstrates that the perfumes could never have been sold within the EEA.

The court rejected this argument, stating that reliance on the packaging does not rule out that the perfumes could have been put on the EEA market. The court observed that exhaustion of trade mark rights can also occur if goods are first sold and delivered within the EEA and only thereafter shipped outside the EEA to the country of destination.

The court considered that the other proof presented by SM, including statements on the origin of the perfumes, were insufficient in comparison to the evidence SM could have adduced from the batch numbers of the perfumes. From this evidence, it would have been possible for SM to present a full paper trail of the chain of trade to establish the first sale of the perfume. In the absence of such proof and, since SM had not brought forward any other legitimate interest to object to sales of the perfumes, the court concluded that the trade mark rights of WBM were deemed to be exhausted and thus could not be relied upon by SM.

Comment

Trademark proprietors are warned that the Van Doren Lifestyle judgement is not always on their side: they might be called upon to show with specificity, including by means of a sufficient paper trail, that exhaustion has not occurred.

This warning extends to the licensees and distributors that are part of an exclusive distribution system. Beware of the situation where you are called upon to refute a claim of exhaustion only to find out that the proprietor lacks (or may be unwilling to provide) the necessary evidence.

Picture on the top right is by Francesca Cesa Bianchi, made available under Creative Commons Attribution-ShareALike 3.0 license.

Picture on the bottom left is by Takk, made available under a Creative Commons Attribution-Share Alike 3.0 Unported license.