Expending the Exhaustion Doctrine to Publicity in Dior v Evora - Essay Example

Expending the Exhaustion Doctrine to Publi in Dior v Evora (1997) was a Crucial Mistake Introduction Trademark plays an essential role in the highly competitive business world we have today. Basically, the intellectual property rights (IPRs) which includes patents and trademarks are known to foster technological innovation necessary in maintaining economic growth1. By protecting the rights of inventors over their individual creation, businesses are encouraged to invest more in research and development (R&D) which aims to innovate and develop new product designs as well as technology invention.2 Being able to obtain a federal registration of trademarks and logos does not only enable business owners to protect their investments on a specific and distinct brand name but also gives the marketed goods under a trademark an identity which is distinguish from other similar products and services3. It also gives them the legal right to sue anyone who uses the trademark in an illegal manner.4 Once a trademark is completely registered, a person or a company will automatically have a legal protection against those people who would copy or imitate their product signs and symbols.5 In other words, a fraud may occur in case another individual or business entity is uses any signs or symbols that have already been registered under the trademark law.6 In general, the IP protection law has been established in order to ensure that every creative individual who were able to invent a distinctive idea, design, or a product will continuously get credit for their effort and achievements. Trademarks which falls under the category of IPRs, is being represented with a symbol ® or ™ after a company name, logo, pictures, a slogan, or a combination of these.7 In general, a trademark serves the purpose of protecting signs and symbols that are being identified with a specific goods and services that belongs to an individual, a business organization or even the government.8 In the process of having legal protection, business owners could retain an exclusive right over the use of a registered mark. Likewise, it also provides them the authority to allow other people to use the registered mark in exchange of a monetary payment or purely by consent. Unlike the intellectual property right law which is believed to promote monopolistic competition within the domestic and international markets9, competition law promotes free trade and healthy competition among the local and international businesses10. Since competition law which includes the concept of parallel import is very much focused on eliminating and reducing the cases of monopolistic competition, it has been strongly argued that the concept behind the IPR strongly contradicts with the fundamental principles that are being promoted under competition law. Parallel imports occur when a person purchase a product from a low-priced country and export the product to a high-price country with the purpose of re-selling the products for profit11. Since the European Court of Justice (ECJ) is strongly encouraging parallel imports as a way of protecting the welfare of community trade, there will always be some exception to the rule when it comes to dealing with the essential functions of the trademark law12. In line with this matter, this study will discuss the ways on how the doctrine of exhaustion in Dior v Evora (1997) case has damaged the essential function of the trademark law. To enable the readers have a better understanding of the subject matter, Dior v Evora (1997) case will first be summarized followed by the discussing the doctrine of exhaustion which was detected in the case. Eventually, some evidences that make the expension of exhaustion doctrine in Dior v Evora (1997) a mistake will be identified. Summary of Dior v Evora (1997) Case Protected by the trademark law, Parfums Christian Dior SA develops and manufactures luxury perfumes and other cosmetic products. Over the years, the company manages to establish several brands including: (1) Eau Sauvage; (2) Poison; (3) Fahrenheit; (4) Dune; and (5) Svelte among others. As part of the company practices, only the authorized Dior retailers are allowed to re-sell Dior products13. Evora BV – an unauthorized retail company that re-sells Dior products that has been purchased abroad14. As part of a Christmas sales promotion back in 1993, Evora decided to advertise a wide-range of Dior perfumes by exposing the packaging of perfumes in media even without the consent of Dior France15. Claiming that the media advertisement has degraded the prestigious image of Dior products, Evora was legally sued by a Dutch company known as Parfums Christian Dior BV. As part of solving the case, Hoge Raad der Nederlanden – the Supreme Court in Netherlands came up with six questions during the preliminary ruling to ECJ16. One of the questions asked is whether or not trademark law gives right to trademark proprietor in terms of prohibiting the unauthorized traders to advertise trademark product lines17. In the end, ECJ decided that the “re-sellers should be required to comply with the same conditions as given to the authorized distributors”18. Given that Dior revealed that Evora’s advertisement has complied with the retail standards19, ECJ concluded that trademark owners who wishes to sue a third party for damaging the reputation of their trademark should be able to come up with sufficient evidences that a serious damage has occurred on the product’s luxurious image20. The Doctrine of Exhaustion of Rights in Dior v. Evora (1997) Case The exhaustion of the rights conferred by a trade mark as presented under the Article 7 of Trademark Directive states that: 1. “Trademark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trademark by the proprietor or with his consent”21. 2. “Paragraph (1) shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market”22. Upon analyzing the article 7 of the Trademark Directive, the 1st paragraph strictly limits the right of the proprietor in terms of controlling the use or reselling of goods that has already been placed in the market. It simply means that once the product has been sold out in the market, the rights of the proprietor to control the use or selling of goods is automatically exhausted. On the contrary, the 2nd paragraph of article 7 protects the proprietors’ rights under the trademark law such that proprietors have the option to not to agree with further commercialization or selling of goods particularly when the proprietors’ products were changed or has been damaged after being delivered to the market. Likewise, paragraph (1) of article 5 in Trademark Directive states that “proprietor is to be entitled to prevent all third parties from using his trademark in the course of trade” whereas the paragraph (2) and (3)(d) of article 5 states that “third parties are prohibited to use signs on business papers and in advertising without the trademark proprietor’s consent”23. Since 1997, Dior v. Evora has become one of the most influential cases due to the fact that the case gave rise to the fact that the article 7 of the Trade Marks Directive represented conflict of interests between two parties. In the case of Dior v. Evora, the two parties involved include the proprietor which is protected under the trademark law as stated under the 2nd paragraph of article 7 and the rights of a third party who has decided to sell the proprietor’s product for the purpose of gaining profit as stated in the 1st paragraph of the same article. In the case of Dior v. Evora (1997), Dior took the initiative to limit the incidence of parallel imports by prohibiting the re-sellers from publicly advertising its products that has been acquired out of parallel imports on unauthorized catalogues, brochures, television advertisements, or magazines24. By doing so, Dior is indirectly limiting the marketability of the products which has been purchased by Evora from outside sources25. It is clearly stated in paragraph (2) of article 7 that proprietors have the right to control the movements of its products in the market provided that the condition of its products has been changed or has been damaged one way or the other. Although there was no clear guidelines that could explain the proper measurement of the degree of damage, ECJ stated that advertisements coming from unauthorized re-sellers of parallel products can only be prohibited in case the type of advertisement used in promoting the product can cause significant damage to the reputation of the trademarks as well as its owner(s)26. As a basic rule, the proprietors of trademark are not given the right to disagree with advertisements coming from respectable traders regardless of whether or not the type of advertisement used could cause unforeseeable damages to luxurious products offered by Dior27. In line with this matter, ECJ stated that it is justifiable on the part of Dior to go against Evora’s advertisement in case the re-seller has tried selling the products on sale. The Arrondissementrechtbank Haarlem – a district court stated that Evora should refrain from advertising Dior products in a manner that does not conform with Dior’s traditional way of advertising its products.28 On the contrary, ECJ stated that re-sellers such as in the case of Evora should not be required to comply with the conditions that Dior has set with its authorized distributors29. Evidences that Makes the Expension of Exhaustion Doctrine in Dior v Evora (1997) a Mistake In relation to the free movement of goods, the case of Christian Dior SA v. Evora BV has given us a clear basis on how the court should balance the legal rights of companies that are protected under the trademark law with the rights of the re-sellers to use the trademark logo or marks in their effort to publicly advertise the products’ logos, packaging, and other marks of products with trademark. Considering the fact that Dior France did not give any consent to Evora to advertise Dior products30, ECJ’s decision to use the Exhaustion Doctrine in Dior v. Evora (1997) is clearly a mistake. In the first place, ECJ’s final decision in the case of Dior v. Evora has clearly overruled article 5 paragraph (3)(d) which states that third parties should be prohibited from advertising trademark products and article 5 paragraph (7) which states that consent should be taken directly from the trademark proprietor before using trademark goods especially in the case of re-selling it31. Even though paragraph (1) in article 7 of Trademark Directive allows the re-selling of good with the permission of trademark proprietor32, Evora did not really get any consent from Dior to re-sell its products since Evora intentionally bought Dior products via parallel trading. The practice of parallel trading in case of Evora was the only reason why ECJ decided to grant Evora or any re-sellers to have the right to advertise goods he/she wishes to sell33. Therefore, by expending the exhaustion doctrine in Dior v. Evora (1997) would mean totally violating the Trademark Directive (89/104/EEC of 21 December 1988). Aside from violating some of the articles stated under the Trademark Directive, there are several evidences that clearly show that the practice of promoting parallel trade or parallel imports totally contradicts the general principles of trademark laws. In the case of Dior v. Evora (1997), ECJ decided to promote the importance of equal pricing by extending the basic principle of the Exhaustion of Rights to the proper ways of advertising and/or marketing goods that are protected under the trademark law. In this process, ECJ decided to remove any forms of “disguised restriction on trade between the Member States” aside from promoting price equalization on parallel imports34. By doing so, ECJ is actually encouraging more people to engage themselves in the buying and selling of goods from one nation to another. As a result, it would be difficult on the part of trademark proprietors to know their rights without the need to really learn more about the legislation behind the parallel trading and/or competition law. Through parallel import, Evora was able to purchase Dior products at a relatively low price. Therefore, Evora was able to sell these products lower than Dior’s official selling price35. It means that ECJ’s decision to promote price equalization would even be beneficial on the part of Evora since the unauthorized re-seller would have a bigger chance of gaining more profit at the end of the day. Given that Dior would have the power to dictate the official market price of its ‘perfumes’, ECJ’s decision to promote price equalization would not protect the general public in the sense of having the opportunity to purchase luxury products at a much cheaper price as one of the main goal of strongly supporting parallel trading. In other words, expending the exhaustion doctrine in the case of Dior v. Evora is conflict with ECJ’s decision to support the competition law. Likewise, trademark proprietors would lose their advantage of being able to gain more profit out of becoming protected by the trademark law. Discussion There is a thin line that enables ECJ to identify the limitations of trademark law as compared with the competition law in UK. Having gone through the case of Dior v. Evora (1997) enables us to have a better idea and understanding on how the court justifies a case and punishes those companies that will be been proven guilty of violating the competition law. ECJ’s decision to include issues related to advertisements and marketing of products and services under the trademark into the principles behind the Exhaustion of Rights reveals the fact that the rights given to the European Community can outweigh the rights given to trademark proprietors. Since the case of Dior v. Evora includes the presence of parallel trading, ECJ decided to balance the trademark law with the Article 30 and 36 of the EC Treaty36. Therefore, ECJ decided to extend the word ‘use’ as presented in Article 7 paragraph (1) of the Trademark Directive in the sense of allowing a third party to re-sell and advertise trademark products. In other words, expending the exhaustion doctrine in Dior v. Evora (1997) case legally would allow the re-sellers of trademark goods not only to re-sell the products but also in publicly advertising these products37. Aiming to promote free market competition throughout the United Kingdom, the promotion of free movement of goods has been established under the Article 1 of the EC Treaty38. Under the Article 30 of the EC Treaty, it was made clear that the EU members had been strongly promoting the development of a single market by removing trade barriers from one nation to another39. In line with this matter, the practice of parallel imports is being strongly supported by each of the EU members. ECJ’s support on parallel trading contradicts the traditional trademark laws in terms of the business practice and privileges given to the trademark holders. For instance: The IPR law was initially developed in order to protect the profitability and interests of the local and international businesses that has invested large sum of money on research and development40. In general, competition law protects the welfare of the consumers. By promoting a fair market competition throughout the United Kingdom, it is possible to keep the market price of luxurious products as low as possible. In relation to the differences between IPR and competition law, Individuals who are pro-IPR would normally agree that Dior should be protected under the IP law. However, protecting only the welfare of Dior can cause serious damage on the part of other businesses particularly those that are into distributorship or retailing. In case ECJ would consider only the trademark law when coming up with the final judgement, it means that ECJ will have to violate the principles of the competition law. The law behind IPR and competition are both legally accepted in EU. For this reason, it becomes very difficult on the part of the ECJ not to make some cases of IPR protection prevail over the existing competition law which aggressively promotes a free movement of goods throughout the United Kingdom. Because of the presence of competition law and the implementation of the EC Treaty, ECJ has been placed in a position to balance the interest of the community trade with the trademark proprietors. As a result, the monopolistic nature behind the trademark law has been slowly changing into a more competitive market environment for the local and international businesses. Conclusion The rules and regulation stipulated under IP law strongly contradict the business concept suggested under competition law. To avoid making a biased judgment, ECJ should carefully consider the background of each case prior to making a final conclusion. It is clear that ECJ should be able to balance the differences between the competition law, EC Treaty, and the trademark law. Basing on Article 5 and 7 of Trademark Directive, extending the Exhaustion Doctrine in Dior v. Evora (1997) can be considered as a mistake. 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