Issue of implied consent discussed in unparalleled decision

The principle of exhaustion of rights in Europe under Article 7(1) of the First Trademarks Directive provides that where a proprietor has placed goods bearing the relevant trademarks onto the market within the European Economic Area (EEA) or has consented to the sale of those goods within the EEA, the trademark rights are exhausted within the EEA. However, there is no principle of international exhaustion; parallel importers are prevented from importing goods into the EEA by national trademark rights unless the trademark owner has consented to their resale within the EEA pursuant to Article 5.

The issue in Mastercigars Direct Limited v Hunter & Frankau Limited was whether the owner of HABANOS marks for cigars had provided consent to Mastercigars Direct Limited so as to have exhausted its trademark rights and thereby allow the latter to parallel import HABANOS cigars into the United Kingdom.

Mastercigars Direct purchased Cuban cigars in Cuba and imported consignments of these into the United Kingdom for resale. Orders were placed by fax from the United Kingdom. Corporacion Habanos SA (HSA) owns all of the trademarks in suit and is granted the exclusive rights to buy, sell and market Cuban cigars both in Cuba and internationally by the Cuban government. Hunter & Frankau Limited was appointed as its exclusive distributor for the United Kingdom. HSA controls the process of making the cigar to the details of invoicing procedures and the quantities of cigar sales allowed in its outlets. The detailed control of invoicing even includes triplicate copies to allow submission to Customs when cigars are brought out of Cuba. In some Cuban sales outlets quantities of purchase for foreigners were limited to 23 loose cigars, but in seven outlets the quantities were up to $25,000-worth. This amount was considered to be a small commercial quantity and not for personal use.

Hunter & Frankau took issue with Mastercigars Direct's import of HABANOS cigars and brought a claim before the courts. The case made its way to the Court of Appeal, which considered the European Court of Justice's (ECJ) decision in Davidoff. According to the ECJ, implied consent cannot be inferred from:

• mere silence on the part of the proprietor;
  
  
• the lack of warning on the goods that they are not to be sold within the EEA; and
  
  
• the lack of contractual restrictions as to resale.
  

The Court of Appeal made it clear that Davidoff did not require an unequivocal proof of consent, but on a balance of probabilities the trademark owner must be shown to have consented to the sale or marketing of the goods in the EEA without reservation. A trademark owner's consent may be implied and this is to be inferred from the circumstances of the case.

The Court of Appeal found that there was implied consent to the importation of the consignments of cigars into the EEA. The facts were that HSA has legal and de facto control over all aspects of the sale of the Cuban cigars. The provision of receipts for Cuban Customs authorities, the $25,000 personal limit on sales which in fact far exceeds that required for personal use and the faxing of orders from the United Kingdom were all circumstances pointing to knowledge of the trademark owner that the goods were entering the EEA for resale. The minutes of monthly meetings held by HSA with Cuban customs authorities and Cuban sales outlets provided an insight into the policies of HSA for sales in domestic and international markets. The policies and practices of HAS, including its control over its sales outlets coupled with the specific practice of Mastercigars Direct in faxing orders from the United Kingdom to Cuba demonstrated that HSA was aware of and consented to the sales in the EEA.

The Court of Appeal considered it "blindingly obvious" that the trademark owner knew that the cigars were taken to Europe for sale on the grey market and therefore it had impliedly consented to their resale. The trademark rights for HABANOS were therefore exhausted.

This is the first case in the United Kingdom where implied consent has been found and trademark rights deemed exhausted due to the parallel importer successfully showing unequivocal consent. 'Knowingly standing by' may now be seen as providing consent and the principles from Davidoff may be starting to show some cracks.

Cheng Tan, McDermott Will & Emery UK LLP, London