Court of Appeal: parallel import of jewellery does not affect trademark's prestige

The jurisprudence on parallel import is a very useful benchmark of the state of art at the national and EU courts concerning the adaptation of legal concepts to the actual understanding of trade and commercial relations.

The traditional concept of parallel imports has undergone some important changes in the past years, for instance regarding the use of registered trademarks by parallel importers. A recent decision of the Israeli Supreme Court (Swissa v Tommy Hilfiger Licensing LLC (CA 7629/12 and 8846/12, November 16 2014) in a parallel imports case provided an occasion to take another look at a decision of the Portuguese Court of Appeal on the same subject, and highlighted the need to review the role that parallel importers may play when it comes to the protection of trademarks.

The decision at issue was made by the Portuguese Intellectual Property Court earlier this year (Case No 59/14.3YHLSB, May 14 2014) and was then confirmed by the Court of Appeal on September 11 2014. The case shows that the application of concepts such as that of parallel imports must be updated to today's conditions.

In the Portuguese case, the exclusive distributor of a worldwide-known jewellery brand sued a parallel importer on the grounds that the parallel import of the trademarked goods and the failure to meet the requirements imposed by the trademark owner caused, among other things, the dilution of the trademark and significant damage to its prestige. The trademarked goods were distributed worldwide by exclusive distributors selected by the trademark owner; the distributors had strict duties regarding styling, merchandising, advertising and selling, and there was a rigorous selection regarding the jewellery shops where the products could be sold. The exclusive distributor argued that the actions of the parallel importer misled consumers into believing that all the shops where the goods were sold were sponsored by the trademark owner, and diluted the impression of luxury and exclusivity of the trademark.

The first instance court, based mainly on the EU decisions in Parfums Christian Dior (Case C-337/95), BMW (Case C-63/97) and Gillette (Case C-228/03), decided that use of a registered trademark may be prohibited only where it has been proven that use of the mark by the parallel importer seriously affects the reputation of the trademark and creates the impression that there is a commercial relation between the parallel importer and the trademark owner.

In the present case, the jewellery shops selling the products distributed by the parallel importer did not fulfil any - or only a minority - of the criteria imposed by the trademark owner and, consequently, did not meet the required standards regarding advertising, selling, exhibiting and merchandising. Nevertheless, the court found that no confusion was created and, therefore, there was no obstacle to the distribution in the country of products identical to those distributed by the official distributors of the trademark owner. In fact, the Portuguese courts have not recognised that the sale of trademarked products without complying with the guidelines imposed by the trademark owner could damage a luxury trademark and its reputation.

Although it admitted that the behaviour of the parallel importer could cause damage to the local resellers that were supplied by the official distributor, the Court of Appeal concluded that there was no clear evidence that the prestige of the trademark had been damaged, thereby allowing the parallel import of the trademarked goods without any restrictions.

Arguably, this decision did not take into consideration the fact that, as the trademark at issue was notorious and prestigious, non-compliance with the rigorous guidelines imposed by the trademark owner to distributors and resellers would contribute to the deterioration of the trademark or its dilution.

The recent Israeli jurisprudence mentioned above indicates that, applying the same legal concepts, the courts may have a modern, updated view that prestigious trademarks need stronger protection.

The decision of the Israeli Supreme Court in Swissa v Tommy Hilfiger Licensing LLC, which concerned an appeal from a court decision prohibiting the intensive use of the trademark TOMMY HILFIGER by a parallel importer, “defined the scope of permissible use of registered trademarks by parallel importers” ("Supreme Court issues landmark decision on parallel imports", World Trademark Review, December 1 2014).

The Israeli Supreme Court used the same legal concepts as those used by the European courts. Comparing and analysing the EU jurisprudence, it was especially sensitive to the so-called 'sponsorship test' under Israeli law (ie, whether the use of the trademark creates confusion as to sponsorship of the trademark owner). 

Arguably, the restrictions imposed by the Israeli Supreme Court on the parallel importer did not represent a limitation to the principle that parallel imports are allowed, but struck a balance between the application of this principle and the legal protection afforded to trademarks, especially prestigious trademarks.

If no protective criteria are applied in parallel imports cases, this may mean that, whatever effect this may have on the value of the trademarks, there will be no distinction between importers and parallel importers, and the principle of trademark exhaustion will offer no exception. As a consequence, there will be no protection for luxury trademarks.

Paula Martinho da Silva and Manuel Lopes Rocha, PLMJ - Sociedade de Advogados, Lisbon