Schweppes = Schweppes - AG Opinion in parallel goods dispute

The rules surrounding parallel goods in the European Economic Area (EEA) may at first seem straightforward - once a product has been placed onto the market into the EEA by the trade mark holder (either directly or with its consent) the trade mark holder's rights are exhausted and it cannot prevent resale of those goods elsewhere in the EEA.

Sounds simple, but trade marks, like so much in life, are rarely so straightforward as Schweppes, Coca Cola and Red Paralela can attest.

The IPKat first flagged up this issue when the question was referred to the Court of Justice of the European Union (CJEU) back in 2016.

As David Brophy explained in that post, the Barcelona Commercial Court (nº 8) decided to refer four questions to the EU Court of Justice. Two of these four questions deal specifically with the limits of the trade mark function of origin.

The first question:

Is it incompatible with Article 36 of the Treaty on the Functioning of the European Union and Article 7.1 of Directive 2008/95/EC and Article 15.1 of the Directive (EU) 2015/2436 for the holder of a trade mark in one or more Member States to prevent parallel importation or marketing of products, bearing a virtually identical trade mark owned by a third party, from another Member State, when the holder has promoted a global brand image associated to the Member State from which the products intended to be prohibited came?

The second question:

Is it incompatible with Article 36 of the Treaty on the Functioning of the European Union and Article 7.1 of Directive 2008/95/EC and Article 15.1 of the Directive (EU) 2015/2436 for the holder of a well-known trademark to use it in a manner that generates confusion in the average consumer regarding the corporate origin of the product?

Some background

The dispute is all about the SCHWEPPES mark which is applied to a range of soft drinks such as tonic water. Red Paralela SL, imported genuine SCHWEPPES drinks into Spain from other EEA countries, particularly the UK. Schweppes SL is the exclusive licensee of Schweppes International Limited, which owns the Spanish SCHWEPPES mark. Schweppes SL was not impressed by Red Paralela's activities and initiated proceedings in Barcelona's Commercial Court No 8.

The SCHWEPPES marks are divided across the EEA in what appears to be a particularly complicated way. This dates back to a 1999 sale of many trade mark rights by Schweppes International to third parties including the Coca-Cola Group. This means that across the EEA, some SCHWEPPES marks are owned by Schweppes International, some are owned by Coca Cola and invariably the marks are licensed either to different operating companies or in some cases to Coca Cola. In short, the Facebook status (circa 2009) for the SCHWEPPES mark would say "it's complicated".

Advocate General (AG) Mengozzi was tasked with making sense of the licensing/ownership situation and considering whether Red Paralela's activities constituted trade mark infringement.

What did the AG say?

AG Mengozzi's opinion is available here.  For those with limited time, I will skip straight to the point.

1. The CJEU has already determined (in IHT Internationale Heiztechnik and Danzinger C-9/93, EU:C:1994:261)that the principles of trade mark exhaustion apply where the owner of the trade mark in the importing state (i.e. Spain) and the owner in the exporting state (e.g. UK) are: (i) the same; or (ii) economically linked.
2. There is an economic link between (i) a manufacturer and its distributor, (ii) a licensor and its licensee, or (iii) companies belonging to the same corporate group.
3. The nature of the relations between entities is of less importance than the result.  In other words, the key question is whether the trade mark is under unitary control (this was the position put forward by the Commission and the AG considered that it was consistent with IHT Internationale Heiztechnik and Danzinger).  The AG considered that in his opinion this can also apply to situations where the use of the mark is subject to joint control of two separate persons that exploit the mark with one and the same centre of interests.
4. The AG clarified that the proprietors of parallel marks which arise from the fragmentation of a single mark may be regarded as 'economically linked' when they co-ordinate their commercial policies with a view to exercising joint control over use of the marks.  
5. In order for the rights to be exhausted, such unitary control must allow the entities which exercise that control the possibility of determining (i) the goods to which the mark can be affixed and (ii) their quality.
6. The burden of proof is on the parallel importer to establish the requisite level of co-ordination between owners of parallel marks.  The importer must put forward precise and consistent evidence to show the existence of unitary control.

What's next?

As David pointed out in his post, "Schweppes and Coca-Cola have done a pretty good job in marketing SCHWEPPES as a single global brand ... so much so that until hearing of this case he had no idea that the tonic water sold in Spain was from a different corporate stable than that sold in the UK. Looking at the respective websites would not have cured the IPKat of this misconception, referring as they both do to the same genesis story from 1783."  This is indicative of an economic link of the sort the AG described.

The parallel importer has the upper hand for now but they are not home yet.  The CJEU may not follow the AG's opinion and even if it does, the national court may apply the CJEU's decision differently.  There's time to get plenty of G&Ts in before this dispute is over.