Parallel importer to prove exhaustion of rights, rules ECJ

European Union

In Van Doren + Q GmbH v Lifestyle Sports + sportswear Handelsgesellschaft mbH, the European Court of Justice (ECJ) has ruled that the defendant carries the burden of proving that the mark owner gave its consent to the sale of its goods in the European Economic Area (EEA), thus exhausting the mark owner's trademark rights.

Van Doren is the exclusive distributor in Germany of Californian fashion company Stussy Inc's products. When Van Doren discovered that Lifestyle Sports was also selling STÜSSY branded products in Germany, it filed an action for trademark infringement. Lifestyle argued that the trademark rights had been exhausted because it bought the goods in the EEA, where they had been put on the market with Stussy's consent. The court of first instance upheld most of Van Doren's claims. Lifestyle appealed.

The appellate court reversed the decision, finding that the burden of proving that Stussy's rights in the mark were exhausted fell on Van Doren. Van Doren appealed.

The German Supreme Court reversed the decision, reasoning that in cases of tort such as trademark infringement, the burden of proof lies with the alleged infringer. However, the court took the view that this creates a risk that a party unconnected with the dispute could be prohibited from marketing products bearing that mark, even where the products had originally been put on the market in the EEA with the consent of the mark owner. This would effectively partition national markets. Therefore, the court asked the ECJ whether putting the onus of proof on the parallel importer is consistent with Articles 28 and 30 of the EU Treaty.

The ECJ ruled that the German approach is consistent with EU law. However, it found that the burden shifts to the trademark owner where the parallel importer can establish that there is a real risk of market partitioning if it were to bear the burden of proof. The ECJ decision begs as many questions as it appears to answer: How does a parallel importer show that there is a real risk of market partitioning in order to shift the burden of proof to the mark owner? Is it sufficient for the parallel importer simply to show that the mark owner has an exclusive distribution system in operation within the EEA? What sort of evidence does the mark owner have to adduce to shift the burden back to the parallel importer?

The ECJ decision does not address these difficulties, nor does it comment on the advocate general's suggestion that the mark owner clearly indicate the intended market on the goods, and/or prove that there are no gaps in its distribution system within the EEA. Although it is difficult to see how the latter suggestion would work in practice, marking the goods (and possibly the subsequent removal of such markings by a third party) might well prove to be sufficient to shift the burden of proof back to the parallel importer. It is therefore more advisable now than ever for mark owners to indicate the intended market on their goods to counter grey imports. As for the parallel importers, even if they are in a position to name their supplier's suppliers, their dilemma will be how much information to produce to the mark owner for fear of losing their immediate sources of supply.

Joel Smith and Naomi Gross, Herbert Smith, London

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