Chanel v EasyCash: Distribution of sample cosmetics does not trigger trade mark exhaustion

The issue of exhaustion of rights has been the subject of numerous decisions in the past few years [IPKat here, here or here]. This Kat has found an important recent ruling by the French Cour de Cassation involving this doctrine as applied to trade mark law. The issue was to determine whether the sale in a second-hand shop of cosmetic samples partially used or cosmetic products whose original packaging had been altered would amount to trade mark infringement.

Facts

Ouest SCS sells various second-hand and brand-new goods under the Easy Cash banner in France. Second-hand Chanel cosmetics and fragrances were sold in some of those shops, including samples [IPKat on Chanel recent litigation here and here]. Some of the products were labelled "can only be sold by Chanel-approved stockists". Others were partially used or had their plastic film removed. Several of the samples were labelled as “Free sample – cannot be sold”.

Many of those products had been purchased by Ms N, who said she had bought them from an approved retailer in the Chanel distribution network.

Chanel brought proceedings against Ms N and Ouest SCS for use of the trade mark without the owner's authorisation and for unlawful use of the trademark on 26 December 2012. On 9 January 2017, The Tribunal de Grande Instance of Rennes partially accepted Chanel’s claim.

The French fashion house appealed.

On 25 February 2020. The Court of Appeal overturned the 2017 judgment. In the meantime, Ouest SCS was placed in compulsory liquidation. The company Ouest SCS and its judicial liquidator appeal to the Cour de cassation.

Chanel fragrance samples

Analysis

To reach its decision, the Cour de cassation divided its reasoning into several steps.

Sale of samples bearing “Free sample – cannot be sold”

The Cour de Cassation first sought to determine whether the sale of samples bearing the above-mentioned wording constituted an infringement of the origin function of the Chanel trade mark. Relying on a combined reading of the former Article L. 713-4 paragraph 1 of the French Intellectual Property Code (CPI) and article 7 of Directive 2008/95/CE, the Court recalled that "the exclusive right of a trade mark owner to consent to the marketing of a product bearing their trade mark is exhausted by the first marketing of that product with their consent".

 
The Court emphasized that the burden of proving exhaustion lies with the party claiming it. This is in line with the French case law and the CJEU ruling in Zino Davidoff, C-414/99 at 54. In the same way, the Court explicitly recalled the scope of the CJEU case in L’Oréal, C-324/09, pointing out in particular that the supply by the trade mark owner to its authorised distributors of free samples bearing the trade mark that can be given to consumers "does not, in the absence of evidence to the contrary, constitute placing on the market within the meaning of Directive 89/104 or Regulation 40/94".

Applying those principles to the litigious facts and upholding the ruling of the Court of Appeal, the Cour of Cassation unsurprisingly rejected the argument that Chanel’s trade mark rights in the samples distributed had been exhausted. As a result, Ouest SCS infringed the guarantee of origin of the Chanel products.

In this Kat opinion, such outcome is logical as it is a correct application of the aforementioned L’Oréal case. In particular, Ouest SCS failed to bring any evidence that the distribution of Chanel samples in authorised point of sales does amount to trade mark exhaustion. It is especially truer as the litigious samples bore the words “Free sample – cannot be sold”. Therefore, bringing any contrary evidence would have been difficult for Ouest SCS. Nevertheless, it is worth noting that the present decision is silent as regards what kind of facts would have qualified as valid evidence. As noted by the Court, such outcome should not be limited to free samples but also to perfume testers [IPKat on perfume testers here]

Choupette, a very Chanel Kat

Alteration of the packaging of Chanel products

The Court then turned to the second plea concerning the alteration of the packaging of products bearing the Chanel trade mark. Basing its reasoning explicitly on the former version of article 713-4 paragraph 2 of the CPI, the Court recalled that "despite a lawful placing on the market, the right remains open to the owner of the trade mark to oppose any new act of marketing, if they can justify legitimate reasons, relating in particular to the subsequent modification or alteration of the condition of the goods".
Hence, upholding the decision of the Court of Appeal, the Cour de Cassation quickly held that “the sale of cosmetic products and fragrances without their original packaging constituted an alteration of the condition of these products” [IPKat on repackaging issue]. The Court also held that “as regard perfumes and cosmetics products, any partial use of a product leads to its alteration, which is seriously prejudicial to Chanel's image".

 
Under these conditions, Chanel could therefore validly object to the resale of its products by Ouest SCS even if the litigious products had been lawfully placed on the market.

 
The Court here applied the aforementioned article rigorously, narrowing its focus to the case of perfumes and cosmetic products. On this point, this decision is also in line with article 7 of Directive 2008/95/CE.