Court provides guidance on exhaustion of trademark rights

Estonia

The Harju County Court has issued its decision in an infringement action filed by Spirits International BV, the owner of the trademarks STOLICHNAYA, MOSKOVSKAYA and RUSSKAYA, against Estonian company AS Liiwi Heliis, a former sub-licensee of these marks in Estonia (Case 2-08-51214, February 23 2012).

Spirits is the owner of the well-known trademarks STOLICHNAYA, MOSKOVSKAYA and RUSSKAYA for vodka in Estonia. Estonian company AS Stol-I held the exclusive licence to exploit the trademarks in Estonia. AS Stol-I granted a sub-licence to AS Liiwi Heliis, which manufactured the vodka. The vodka was distributed in Estonia and other Baltic countries.

In 2005, when it became obvious that the master licence would not be extended and that the sub-licence would thus be terminated, AS Liiwi Heliis manufactured over 400,000 litres of vodka bearing the STOLIVHNAYA, MOSKOVSKAYA and RUSSKAYA marks two months before the end of the agreement. Moreover, it continued to sell the goods after the sub-licence agreement had ended.

Spirits requested that use of its trademarks be discontinued, but AS Liiwi Heliis argued that Spirits’ trademark rights had been exhausted, as the goods had been manufactured and put on the market when the sub-licence was still valid.

In 2008 Spirits filed a court action against AS Liiwi Heliis requesting:

  • the termination of the infringement;
  • the destruction of the infringing products;
  • damages; and
  • an account of profits.

The court, following an inter partes evaluation of the case, granted a preliminary injunction and ordered the seizure of all the goods that were in the possession of the defendant and its logistic partner (a co-defendant in the matter).

To demonstrate that Spirits’ trademark rights had been exhausted, AS Liiwi Heliis submitted documents showing that it had transferred the ownership of the manufactured goods to a third party three days before the end of the licence agreement. However, the third party in question turned out to be a financial institution that financed AS Liiwi Heliis’ stock; the ownership of the goods was transferred to the financial institution to secure the loan that AS Liiwi Heliis needed to manufacture and store the large quantity of goods produced before the end of the licence agreement.

At the request of the defendant, the Harju County Court issued an intermediate decision on April 4 2011 on the potential expiry of the infringement claim to establish whether there had been a breach of law that could serve as a basis for the damages and unjust enrichment claims filed by Spirits.

The court ruled that:

  • the claim had not expired; and
  • there had been trademark infringement, as the trademark owner’s rights were not exhausted by the transfer of ownership of the goods to a financial institution when the licence agreement was still valid.

The court found that such transfer of indirect possession and ownership as a security for a loan did not amount to putting the goods on the market. The court pointed out that the defendant had direct possession of the goods, as they were kept at its warehouse and it had the option to re-purchase the goods. The court found that goods given as a security, and kept as a security, cannot be considered as having been put on the market.

Because AS Liiwi Heliis winded up its business during the court proceedings due to tax problems with the Estonian Tax Office, Spirits had no realistic chance of obtaining monetary compensation. The monetary claims were thus dropped and, in a final ruling issued on February 23 2012, the Harju County Court ordered AS Liiwi Heliis to terminate the infringement and refrain from infringing Spirits’ marks in the future.

Almar Sehver, AAA Legal Services, Tallinn

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