Owners of registered trade marks for luxury goods will be encouraged by a ruling of the European Court of Justice in Copad SA v Christian Dior Couture SA (Case C-59/08, 23 April 2009). The court confirmed that owners of such marks may sue for trade mark infringement licensees which, in breach of licence, sell such goods to discount retailers, if the sales damage the "allure and prestigious image" of those goods. This means that luxury brand owners will not be restricted to actions for breach of contract in such circumstances and allows them greater flexibility in the control and enforcement of their marks.
Christian Dior Couture SA (" Dior") licensed Société Industrielle Lingerie (" SIL") to manufacture and distribute luxury corsetry goods bearing the Dior trade mark. The licence contained a clause which, "in order to maintain the repute and prestige of the trade mark", prohibited the licensee from selling to discount stores (among others). SIL faced financial difficulties and asked Dior if it could sell the goods outside the prescribed distribution network. Dior refused. SIL nevertheless sold the goods to Copad SA, a company operating discount stores. Dior sued SIL and Copad for trade mark infringement.
The lower French courts found no infringement by SIL but held that breach of the prohibition meant that Dior had not consented to the sales for the purposes of the exhaustion provisions of the EU Trade Marks Directive (2008/95/EC). Dior was thus entitled to prohibit the sales (under Article 7). Copad appealed to the Cour de Cassation, which considered the matter to be unclear and referred it to the ECJ for a preliminary ruling.
Under the Directive, a trade mark proprietor may sue for infringement of the mark a licensee who contravenes any provision in the licensing contract with regard to, among other specified grounds, the quality of the goods manufactured by the licensee (Article 8(2)). The ECJ confirmed that, in the case of luxury goods, their quality was not just a result of their material characteristics, but also of the "allure and prestigious image which bestows on them an aura of luxury". Any damage to the aura was likely to affect the actual quality of the goods. It was a matter for national courts whether, on the facts of a particular case, sales outside the trade mark owner’s chosen distribution network caused such damage, such that any contractual provision prohibiting such sales fell within Article 8(2) and thus allowed the owner to sue for infringement. Among the factors to be taken into consideration were the nature of the luxury goods and those normally marketed by the discount retailer, the volumes of luxury goods sold and the frequency with which the licensee sold to discount stores.
The ECJ also held that a licensee who puts goods bearing a trade mark under the licence on the market in breach of a provision specified in Article 8(2) does so without the consent of the trade mark owner. While this ruling is useful for trade mark owners, it could present difficulties for distributors further down the supply chain which have obtained goods that have ostensibly been put on the market under an otherwise legitimate trade mark licence. Such distributors will need to protect themselves against the possibility that the relevant licence provisions have been breached.
Finally, in the case of luxury goods, even where consent could still be considered to have been given despite a breach of a provision specified in Article 8(2), the owner may still oppose resale where this damages the reputation of the mark. This approach is consistent with previous case law (see Dior [1997] ECR I-6013).
