Exhausting exhaustion – where does trade mark protection end?

23rd February 2024

Court of Appeal of Düsseldorf, judg. of 29.06.2023, case 20 U 278/20 – Calvin Klein

Introduction – The principle of exhaustion and its exceptions

Trade marks grant their owner the exclusive right to offer the goods for which the trade mark is registered. Once the original goods are placed on the market within the European Economic Area (“EEA”), this right is however exhausted, meaning that the trade mark owner cannot oppose the further distribution of its products based on trade mark rights.

This principle of exhaustion, stipulated in Art. 15 (1) EUTMR, has an exception foreseen in Art. 15 (2) EUTMR: A trade mark owner can exceptionally oppose the further sale of original goods if he has “legitimate reasons” to do so. The only “legitimate reason” mentioned in Art. 15 (2) EUTMR is where the condition of the goods has been changed or impaired after they have been placed on the market, but the provision allows for other reasons to be considered legitimate. It is up to the courts to explain what other “legitimate reasons” may be. Early on, the Court of Justice of the European Union (“CJEU”) held that the damage to the reputation of a trade mark can be such a legitimate reason (Dior/Evora-decision, C-337/95), leaving us with the questions: What is required to prove such a reputation? And what is required to find its impairment?

Background – Discounters selling prestigious (or not?) perfumes

The claimant (“Coty”) is part of the Coty Group which produces and sells perfumes of numerous brands. Coty distributes its products through a selective distribution system via selected distributors. Its portfolio includes perfumes from “Calvin Klein” and “JOOP!” with Coty being the licensee of these trade marks.

The Defendant (“Aldi Süd”) belongs to the Aldi Group which operates one of the world’s largest retail discounters. The Aldi range consists of groceries and weekly promotions of consumer goods. Aldi advertises these promotions in a weekly brochure. As part of its promotions, Aldi sold “JOOP!” and “Calvin Klein” perfumes and presented them in glass containers where they were draped on motif paper napkins. The glass cabinets also included other products such as the alcoholic beverage “Jägermeister” or multimedia goods. Next to the perfumes, Aldi sold other weekly promotional goods like plastic-wrapped pyjamas. Aldi also advertised the perfumes in its weekly brochure for Valentine’s Day.

The perfumes were original products, acquired by Aldi within the EEA. Coty’s trade mark rights should thus, in principle, have been exhausted. Coty still sued Aldi for trade mark infringement, basing its claim on a lack of exhaustion for “legitimate reasons”, namely a negative impact on its luxury products’ reputation.

The Court of Düsseldorf rejected the action in the first instance. It held that the perfumes in question were not luxury goods and the sale in retail discounters could therefore not have negatively affected their reputation. Coty appealed the decision to the Court of Appeal of Düsseldorf.

Decision – Prohibition of sale of (medium) prestigious products in retail discounters

Coty’s appeal was partly successful. The Court of Appeal recognised a certain luxury image of the products and granted the action, but only as far as it was directed against the offer of the perfumes in the respective Aldi stores.

The Court of Appeal held that the trade marks in question did not need to be “luxury brands”. An abstract “threshold of luxury” was not required, since there was an interaction between the “degree of prestige” and the “degree of impairment” of such prestige. As for the perfumes in question, the Court recognised a certain prestigious character of the brands, which it classified in the “medium premium segment”. This would be sufficient if the “luxurious aura” stemming from the brands was inappropriately impaired by the specific way in which the goods were presented.

The Court of Appeal, applying the CJEU’s Copad-decision (C-58/08), then found that the following aspects had to be considered:

• The threshold of “luxury”,
• the standard distribution channels of the products in question,
• the nature of the goods typically marketed by the Defendant (and marketed together with the products in question), and
• the typical marketing methods used by the Defendant.

Given the “medium premium segment” of the products in question, the Court of Appeal did not prohibit the general sale of the perfumes in discounters, but only such sales under the very specific circumstances of the case, especially the messy presentation of the goods, which appeared, for example, “on a motif paper napkin” and next to boxes containing “pyjamas wrapped in plastic” and “USB sticks, radios and toothbrushes”.

On the other hand, the Court of Appeal recognised that the perfumes at issue were not so luxurious that any advertising or distribution by a discounter would per se damage the prestige of the goods. The advertising of the products in Aldi’s brochures was thus not prohibited as it did not impact the product’s prestige. The products were rather placed in an “attractively designed” advertising space in the brochures and set off from the rest of the product range by the words “Valentine’s Day gift tip”.

Implications / Key takeaways – “Prestige” and its impairment strongly depend on the facts of the case (and their presentation to the court)

The Court of Appeal of Düsseldorf shed some light on the “detriment to the prestigious character of a luxury aura” as “legitimate reasons” for which the trade mark owner should be able to exceptionally oppose the further distribution of original products. It recognised that there is no absolute “threshold of luxury” and that goods in the “medium premium segment” can also be protected against damage to reputation if the way in which the goods are presented damages their prestige.

Both the question of “prestige” and (even more so) the question of its impairment through the particular way of presenting the goods are, however, certainly “questions of taste” and their answers by the judges are therefore rather subjective. This shows the wide scope of application of the relevant notions under Art. 15 (2) EUTMR.