[Guest post] No small feat: Converse wins Dutch Supreme Court case on trade mark exhaustion

The IPKat has received and is pleased to host a new contribution by former GuestKat Jan Jacobi. Here’s what Jan writes:

No small feat: Converse wins Dutch Supreme Court case on trade mark exhaustion

by Jan Jacobi

As explained in an earlier blog, proving trade mark exhaustion (within the meaning of Article 15 of the Trade Mark Directive) can be a very challenging task. The Van Doren Lifestyle judgment of the Court of Justice of the European Union (CJEU) provides that, as a general rule, the burden of proof lies with the party relying on trade mark exhaustion. However, if such burden of proof may lead to a real risk of market partitioning, the burden is reversed and the trade mark proprietor must prove that its rights are in fact not exhausted.

Still, it is for the party relying on trade mark exhaustion to demonstrate the risk of market partitioning. It is the latter element that sets a high bar, because it requires evidence that is usually only in the domain of the trade mark proprietor (such as distribution contracts and reselling restrictions).

In a recent decision of 23 December 2022, the Dutch Supreme Court shed more light on this matter.

Background

Converse is a well-known manufacturer of shoes that bear the marks CONVERSE and ALL STAR. In the instances leading to the Supreme Court, the question arose whether the trade mark rights on these shoes were exhausted. The defendants in this case argued that the burden of proving exhaustion should not be placed on them, because Converse would be operating an exclusive distribution system.

With respect to exclusive distribution systems, the CJEU had ruled in Van Doren Lifestyle that: “[…] there is a real risk of partitioning of markets, for example, in situations where, as in the main proceedings, the trade mark proprietor markets his products in the EEA using an exclusive distribution system” (paragraph 39)

On this basis, the defendants argued that the existence of an exclusive distribution system would mean, by default, that the risk of market partition was also sufficiently demonstrated. In other words, if it could be established that there was an exclusive distribution system in place, the burden of proof would have to shift back to the trade mark proprietor.

The Supreme Court decision

The Dutch Supreme Court disagreed. According to that court, the basic principle is that trade mark exhaustion should be proven by the party relying on it. The Supreme Court noted that this was also accepted by the CJEU in Van Doren Lifestyle, as it only allowed a deviation of this basic principle if the protection of the freedom of services would so require it.

Consequently, it is for the party relying on trade mark exhaustion to demonstrate that the freedom of services actually risk being impaired if the burden of proof is placed on him. This could be demonstrated by an exclusive distribution system, but the mere existence thereof is not sufficient, as the Supreme Court held:

"the point is that the third party must demonstrate that there is a real risk of market partition if it has to prove exhaustion itself. Such a risk will be particularly likely if the trade mark proprietor markets its goods within the EEA by means of an exclusive distribution system. However, the use of an exclusive distribution system does not necessarily entail a real risk of market partition if the third party has to prove exhaustion itself."(translation by me)

The Supreme Court observed that its interpretation of Van Doren Lifestyle is similar to decisions by the highest courts in the UK, France and Germany and saw no need to make a referral to the CJEU.

Comment

To this Katfriend, it is a missed opportunity that the Dutch Supreme Court did not refer the matter to the CJEU. Given Van Doren Lifestyle is twenty years old, it can be questioned if the CJEU intended to (still) set such a high bar for proving trade mark exhaustion. Essentially, the current standard seems to require evidence that would normally only appear in competition law cases. The border between making a risk of market partition plausible and actually proving appears to be blurry, which is to the detriment of the party relying on trade mark exhaustion.

When proof is obtained of an exclusive distribution system, which in practice is already difficult enough to acquire, it seems equitable that further proof of exhaustion is placed on the proprietor. Moreover, the trade mark proprietor should be best placed to easily counter the claim that its marks are exhausted, since it usually has full insight in the chain of trade by means of barcodes and tracking numbers.