CJEU strengthens rights of trademark holders in exhaustion situations

Out-Law News | 22 Nov 2022 | 1:19 pm | 3 min. read

In the case of audio electronics company Harman against the Polish distributor AB S.A., the CJEU clarified that trademark owners do not have to establish a system under which a third party can directly see the intended market of a specific item of goods.

Harman had concluded an agreement with a distributor regarding the sale on Polish territory of its products under the EU trademarks JBL and HARMAN, for which Harman holds the trademark rights. However, AB purchased Harman’s products from a supplier other than the distributor authorised by Harman in respect of the Polish market and sold them in Poland.

Harman considered this an infringement of its trademark rights and brought an action before the Regional Court of Warsaw, aiming to stop AB from importing and putting on the market speakers, earphones and their packaging bearing those marks. Harman also wanted AB to withdraw those products from the market and destroy them and their packaging.

AB, on the contrary, held that the rights of the trademark owner Harman were exhausted, because according to AB the respective products had been placed on the market in the EEA by Harman or with Harman's consent. AB had relied on this information from its supplier, but had no direct insight into the actual situation.

As usual when ruling in cases like this where products were to be withdrawn or destroyed, Polish infringement courts referred to 'products which have not previously been placed on the market within EEA by the proprietor of the EU trademark or with its consent'. With this phrasing, the courts leave it up to the enforcement authorities to decide which specific products were placed on the market without consent and must therefore be withdrawn or destroyed.

Against this background, the Regional Court of Warsaw referred the case to the CJEU, asking the CJEU whether Article 15(1) of the Regulation on the European Union trade mark and Article 36 of the Treaty on the Functioning of the European Union and other relevant regulations in EU law, "must be interpreted as precluding a judicial practice by which the operative part of the decision leaves it to the enforcement authority to determine to which products that decision applies." The regional Court of Warsaw also highlighted that the marking systems used by Harman does not make clear for which market Harman's products are intended.

The CJEU found the judicial practice of the Polish courts not to be in violation of EU law, provided that "the defendant is permitted to contest the determination of the products covered by that procedure and that a court may examine and decide […] which products have in fact been placed on the market in the EEA by the proprietor or with its consent."

Fabian Klein, trademark expert at Pinsent Masons, said that with its decision, the CJEU strengthened the position of trademark owners. "The CJEU made clear that in general, the burden of proof to show exhaustion lies with the defendant. This burden of proof may only be shifted where the distribution system implemented by the trademark owner would create a risk to the free flow of goods in the EU's internal market. This is for example the case where there is an exclusive distribution system, but not merely because of difficulties of the defendant to obtain information on the actual country of designation of items of goods," he said.

Klein also said the CJEU clearly rebutted the idea of trademark owners having to establish a system under which every third party could directly identify the intended market of a specific item of goods. "This would have been almost impossible to implement, and would certainly have created major disruptions with various companies," he said.

Supporting the Regional Court of Warsaw in delegating the decision as to which products should be withdrawn from the market or destroyed to the enforcement authorities, was a logical choice, Fabian Klein said. "The alternative would have been that the infringement decision would have needed to specify the non-exhausted goods, for example by stating the serial number or a similar identifier. But given that an injunction is always forward-looking, it would render the infringement judgement useless if it had to be obtained anew basically for each new 'shipment', since the serial number or other identifier may very well be different in the next batch of non-exhausted goods."

Klein highlighted that generally, it is advisable for trademark owners to have close contacts with enforcement authorities or custom authorities wherever possible, "training" them on how to tell original goods from counterfeits, and exhausted goods from non-exhausted goods. "By this, trademark owners can avoid the unjustified seizure of 'legitimate' goods, thereby reducing the risk of damage claims and strengthening their market position," Klein said.

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