CJEU decision casts doubt on ability to prevent parallel imports following de-mergers

A trade mark registration which is transferred between companies in a de-merger or re-structuring will not always enable the new owner to prevent the importation into its territory of identically named products manufactured by the other, even though the companies are now competitors and the products were not put on the market by the claimant company.

Companies often agree a division of trade mark rights on a de-merger or other corporate restructuring.  At the time of the deal all looks set for sensible co-existence, for example with the different companies having exclusive trade mark rights to the same name in different territories.  However, things are not necessarily as clear cut as might first appear to be the case.

The impact of the CJEU’s judgment in Schweppes SA v Red Paralela SL (Case C-291/16) is that, within the EEA, those companies may well have difficulties objecting to the parallel importation, into their own territory, of products which have been put onto the market in a different territory by the other.  Their territorial rights may well not be as exclusive as they had planned.

This is relevant to any deal or agreement where trade mark rights are being split between different parties.

Parallel imports: the basic position

Under EU law the owner of a registered trade mark can prevent the sale within the EEA of products bearing that mark where those products were not first placed onto the market in the EEA with their consent.

When trade marked products are placed onto the market in the EEA with the consent of the owner of the registered trade mark, the trade mark rights are said to be exhausted.  The trade mark owner cannot then oppose the parallel importation of those products from one EEA country to other EEA countries.

The Red Paralela case

Schweppes and Coca-Cola both have registered trade marks for Schweppes.  That was a consequence of the sale of Schweppes’ business in some EU countries to Coca-Cola.  For competition reasons Coca-Cola could not acquire all the business and Schweppes retained the business in some territories, including Spain.

Schweppes therefore retained the Schweppes trade mark registrations in Spain.  Coca-Cola effectively owns the Schweppes trade mark registrations in the territories where it owns the Schweppes business.

Red Paralela purchased Schweppes branded tonic water manufactured by Coca-Cola.  Coca-Cola had first put that tonic water onto the market in the UK under the Schweppes trade mark which it (ie. Coca-Cola) owned.  Red Paralela imported that product into Spain.

Infringement claim and CJEU judgment

Schweppes in Spain sued for infringement of its Schweppes registered trade mark.  It argued that: it had exclusive rights to use the Schweppes mark in Spain; it had not put the product on the market in Spain; and therefore that it had not exhausted its trade mark rights.

The Spanish court made a reference to the CJEU.  The CJEU, in a judgment at the end of 2017, held that:

• Where a party agrees an assignment of a registered trade mark and then, either acting alone or in co-ordination with the “new” owner of the mark, continues to promote the appearance of a single global trade mark, the protection provided by its retained national trade mark rights is reduced. That party cannot use its national trade mark to oppose the importation from another Member State of identical goods bearing the same mark.

• Even if the owner of the retained national trade mark has not promoted the appearance of a single global trade mark, it cannot use its retained rights to oppose the importation where there are economic links between it and the “new” owner and they have in some way co-ordinated their commercial policies or agreed some form of joint control over the use of the trade mark.

The CJEU also justified its decision by explaining that the essential function of a trade mark is to guarantee the identity of origin of the trade marked product.  Where a trade mark owner (here Schweppes in Spain) has itself blurred that guarantee, by allowing identical marks in different territories to be controlled by different entities, it cannot complain that consumers will not be able to tell which company is the originator (ie. manufacturer) of the product on sale.

Takeaway points

Corporate de-mergers and other restructuring projects, where ownership of identical registered trade marks is split between separate companies, can clearly cause a weakening of the trade mark registrations which each company either retains or acquires.  As the law stands, even careful drafting may not fully avoid that risk.  It is therefore important to bear this in mind when agreeing the structure of the deal.

In theory, trade mark co-existence agreements could also weaken registrations – the parties to a co-existence agreement could in some circumstances, directly or indirectly, be exercising joint control over the use of the trade marks involved (assuming of course that the trade marks and products or services concerned are identical).  Careful drafting should be able to reduce this risk, for example by focusing on areas of activity in which the parties will not use the registered marks and avoiding dictating how the marks must be used.