'Trademark exhaustion' doctrine examined for the first time

In Elite Industries Ltd v Graziella Import Export SRL (Case 1409/2002), the Criminal Division of the Supreme Court of Justice has ended a five-year legal battle between the plaintiffs Elite Industries and Elite Romania SRL (Elite), and the defendants Graziella Import Export SRL and its owner - Yahya Sadr Kheradmand. In finding Kheradmand guilty of unauthorized trademark use and unfair competition, the Supreme Court analyzed, for the first time, the doctrine of exhaustion of trademark rights set out in the Romanian Trademark Law (Law 84/1998 on marks and geographical indications).

In 1998 Elite, a food manufacturer and distributor based in Israel, became aware that Graziella was repackaging in a trade dress identical to Elite's, coffee products that it had purchased from Elite's authorized distributors. It was then selling these goods on the Romanian market without Elite's consent. Elite filed a criminal complaint against Kheradmand, claiming unauthorized trademark use and unfair competition. It requested the imprisonment of Kheradmand and that he and his company pay civil damages of $90,000 and moral damages of $50,000.

Following a police inquiry, the case was prosecuted before the Tribunal of Cluj City. The tribunal rejected the prosecution's accusation of unauthorized trademark use. However, it found Kheradmand guilty of unfair competition and ordered that he pay a criminal fine of Lei100,000 (approximately $4 at the time of judgment). The tribunal also awarded Elite civil damages of around $90,000 but rejected its claim for moral damages.

All the parties involved (ie, Elite, Kheradmand and the Prosecutor's Office) appealed to the Appeal Court of Cluj City. The appellate court accepted both Elite's and the Prosecutor's Office's appeals. It found Kheradmand guilty of unauthorized trademark use and unfair competition, sentencing him to one year of imprisonment. It also ordered that Kheradmand and Graziella pay Elite civil and moral damages totalling $140,000.

Kheradmand and Graziella appealed to the Supreme Court. In his defence, Kheradmand argued that, pursuant to the 'trademark exhaustion' doctrine set out in the Trademark Law, Elite could not rely on its trademark registration to prevent the sale of goods bearing that mark, which had already been marketed in Romania by Elite or with its consent. The Supreme Court rejected Kheradmand's defence and upheld the appeal court's ruling. It held that the trademark exhaustion doctrine does not apply where there are "legitimate reasons [...] to oppose further commercialization of the goods". The Supreme Court concluded that since Kheradmand and his company had altered the products after they had been placed on the market, such legitimate reasons existed and the doctrine did not apply.

Alexandru A Harsany, Nestor Nestor Diculescu Kingston Petersen, Bucharest