ECJ rules on consent in relation to exhaustion principle

The Court of Justice of the European Union (ECJ) has clarified the nature of 'consent' to use a registered trademark under Article 5(1) of the First Trademarks Directive (89/104/EEC) in Martin y Paz Diffusion SA v Depuydt (Case C-661/11, September 19 2013). In particular, the ECJ held that a trademark proprietor's exclusive use rights cannot be exhausted against a third-party user of identical marks applied to identical goods or services in circumstances where the proprietor consented to such use and subsequently revoked its consent. The proceedings highlight the importance of concluding an agreement that sets out the terms of co-existence when two parties wish to use the same mark for similar or identical goods or services.

Martin y Paz Diffusion SA (MyP), and David Depuydt and Fabriek van Maroquinerie Gauquie (collectively Gauquie), manufactured leather items for sale. By separate agreements, MyP was permitted to use the mark NATHAN for small leather goods, while Gauquie acquired the right to use the sign for handbags and shoes. Gauquie also acquired a Benelux word mark for NATHAN in Classes 18 (leather items) and 25 (clothes) of the Nice Classification. The parties sold their products to each other and displayed them in their respective shops.

Over time, the relationship between the parties deteriorated. MyP registered the Benelux figurative marks N, NATHAN BAUME and NATHAN. Following a failed invalidation attempt against MyP's registrations by Gauquie, MyP requested a court order to stop Gauquie using the marks. Gauquie unsuccessfully counterclaimed to stop MyP using the marks for leather goods other than small leather goods. The case went to appeal and the litigation rose through the Belgian courts until it reached the Cour de Cassation, which referred questions to the ECJ.

The dispute mainly concerned the following provisions of the First Trademarks Directive:

• Article 5(1): "The registered trademark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade: (a) any sign which is identical with the trademark in relation to goods or services which are identical with those for which the trademark is registered."
• Article 7(1): "The trademark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community [European Economic Area] under that trademark by the proprietor or with his consent."

The Belgian court asked the ECJ to clarify whether Articles 5 and 8 (concerning licences) of the directive precluded the applicant, MyP, where there had been long-term use of a shared trademark, from being deprived of any possibility of asserting its exclusive trademark rights or itself exercising that exclusive right in respect of goods which were identical to those of that third party. As no licensing contract was concluded between MyP and Gauquie, the ECJ focused on Article 5(1).

The ECJ held that, while MyP's consent to Gauquie using signs identical to its own trademarks in respect of handbags and shoes would result in the exhaustion of its exclusive right within the meaning of Article 7(1) of the directive, as set out in case law (Sebago (Case C-173/98), Paragraphs 19 and 20, and Coty Prestige Lancaster Group (C-127/09), Paragraph 31), the third party receiving consent could no longer invoke the exhaustion principle once that consent was withdrawn.

The ECJ added that a proprietor could assert its exclusive right only where another party's use of a sign adversely affected a function of the trademark or was liable to do so. This secured the function of a trademark as a guarantee of origin as this guarantee would be affected if a party continued to use the mark once consent has been withdrawn (Buděovický Budvar, národní Podnik v Anheuser-Busch Inc (Case C-482/09) and Interflora Inc v Marks & Spencer (Case C-323/09)).

If it were established that such an adverse affect existed, the national court would have to hold that depriving MyP of its right to exercise its exclusive right against that use by Gauquie exceeded the limitations on the rights of a trade mark owner set out in Articles 5 to 7 of the directive.

The ECJ explained that a member state's national law could impose a penalty on a trademark proprietor or order it to pay compensation. However, if it was found that the proprietor had unlawfully withdrawn consent for the third party to use a sign identical to its trademark, this would not justify a court order prolonging the third-party's use for an unspecified period if the companies in question no longer shared the intention to use the trademark.

The ECJ followed the guidance from the advocate general in April 2013 in reaching its decision. The case provides useful clarification on the operation and limitations of the exhaustion principle. It will be welcomed by rights holders, who will be keen to ensure that they control their valuable assets in cases where they tolerate use of their marks by third parties. While a trademark proprietor's consent to a third party's use of an identical sign is likely to exhaust the proprietor's rights vis-à-vis that party, the proprietor is entitled to withdraw its consent and thereby refresh its rights.

Mark Lubbock and Alison Thomson, Ashurst LLP, London