On 2 February 2010, the French Cour de Cassation quashed a decision of the Paris Court of Appeal (7 April 2006) that sales of luxury Dior goods by Dior’s licensee to discount stores did not amount to trade mark infringement where the licence agreement prohibited such resale. The judgment follows a decision of the Court of Justice of the European Union (“ECJ”), which considered the exhaustion of rights and licensing provisions of the EU Trade Marks Directive (2008/95/EC, Articles 7(1), 7(2) and 8(2)) (see IP News, May 2009). The case will now go back to different judges of the Paris Court of Appeal for decision in light of the principles established by the ECJ.
Dior granted SIL a trade mark licence in respect of the manufacture and distribution of luxury corsetry goods bearing the Christian Dior trade mark. The licence agreement provided that “in order to maintain the repute and prestige of the trade mark the licensee agrees not to sell to wholesalers, buyers’ collectives, discount stores, … without prior written agreement from the licensor”. The licensee sold goods bearing the Christian Dior trade mark to Copad, a company operating a discount store business.
The Paris Court of Appeal reversed the judgment of the Bobigny Court of First Instance and held that such sales had been made with the consent of the licensee only, acting outside the terms of the licence agreement, and that they therefore did not exhaust Dior’s trade mark rights (under Article L. 713-4 of the French Intellectual Property Code (“IPC”), implementing Article 7(1) of the Directive). However, the Court of Appeal considered that such sales did not constitute trade mark infringement. In the Court of Appeal’s opinion, Article L. 714-1 of the IPC (which implements Article 8 of the Directive) allowed a trade mark owner to sue its licensee for infringement if it did not respect the selective distribution clause of the licence where such distribution means were considered to be services. The Court of Appeal noted that the Christian Dior trade mark did not cover any distribution services, so that application of Article L. 714-1 was excluded. On appeal, the Cour de Cassation stayed the proceedings and referred three questions to the ECJ for a preliminary ruling on the correct interpretation of the Directive.
Licensing
The ECJ interpreted Article 8(2) broadly and held that the proprietor of a trade mark can invoke its rights against a licensee which breaches a provision in a licence agreement prohibiting sales to discount stores of goods covered by the trade mark, on the basis of the trade mark’s prestige, provided that it has established that the breach damages the allure and prestigious image which bestows on those goods an aura of luxury.
Applying this interpretation, the Cour de Cassation quashed the decision of the Court of Appeal. Instead of focusing on whether the Christian Dior trade mark covered distribution services, the Court of Appeal should have considered whether the prohibition in the licence agreement on sales to discount stores addressed the quality of the goods supplied by the licensee.
Since the Cour de Cassation has jurisdiction to rule on points of law only, it will be for different judges of the Paris Court of Appeal to decide whether, on the facts, the breach by SIL damaged the allure and prestigious image of the goods. Since luxury goods are not normally sold in discount stores, it seems likely that the Paris Court of Appeal will decide that Dior is entitled to enforce its rights under Article 8.
Exhaustion
Turning to Article 7(1), the ECJ held that there could be no exhaustion of rights where goods were placed on the market by a licensee in breach of one of the contractual provisions listed in Article 8(2). The Cour de Cassation therefore quashed this aspect of the Court of Appeal’s decision also. Although the Court of Appeal had reached the right result, it had nevertheless misapplied Article L. 713-4. Rather than merely state that the goods had been placed on the market by the licensee in breach of the licence, the Court of Appeal should have explained the absence of exhaustion by reference to the contractual provisions listed in Article L. 714-1. A breach of at least one of those provisions indicated the absence of consent on the part of the trade mark proprietor. It was therefore clear that both the licensing and exhaustion provisions were intimately linked. Therefore, a sale in disregard of this provision could amount to an act of infringement.
The principles of interpretation, set down by the ECJ and restated by the Cour de Cassation, are clear. It will now be for different judges of the Paris Court of Appeal to apply the principles to the facts and most likely rule in favour of the luxury brand.
Marianne Schaffner, Partner, Paris on +33 1 56 43 59 60 (marianne.schaffner@linklaters.com)
Lorraine Sautter, Associate, Paris on +33 1 56 43 59 31 (lorraine.sautter@linklaters.com)
