Distribution outside a selective distribution network - infringement. ECJ gives guidance in COPAD v Christian Dior

In C-59/08 Copad SA v Christian Dior and ors, a licensee of Christian Dior, who was licensed to make and sell luxury corsets entered into a licence whereby it agreed not to sell to discount stores for the purpose of maintaining the repute and prestige of the Christian Dior mark. The licensee requested Dior to sell its goods outside the network but Dior refused. However, the licensee went ahead anyway. The issue that came before the Tribunal de Grande Instance was whether such conduct which was undoubtedly a breach of the contract also constituted trade mark infringement. 

Art.8(2) of Reg.40/94 stipulates that a proprietor

of a trade mark may invoke the rights conferred by a trade mark against a licensee who contravenes any provision in his licensing contract with "regard to its duration, the form covered by the registration in which the trade mark may be used, the scope of the goods or services for which the licence is granted, the territory in which the trade mark may be affixed, or the quality of the goods manufactured or of the services provided by the licensee." The Tribunal held that there was only contractual liability. Dior appealed to the Cour de Cassation which referred to the ECJ various questions on the proper interpretation of Art.8(2) and Art.7(1) (exhaustion provision).

The ECJ held that a trade mark infringement proceedings "may invoke the rights conferred by the trade mark" against a licensee who sells to a discount house where it is established that such damages the allure and prestigious image which bestows on those goods an aura of luxury. That thus required the Court to consider what rights the proprietor had. In this regard, it held that there was no exhaustion where the goods had been placed on the market in disregard of the provisions of a licence where it is established that such provisions were included in Art.8(2). 

This judgment thus neatly reconciles Art.7 and Art.8(2). It makes it clear that certain contractual provisions in a contract are "consent-breakers" and others are not. For instance, provisions regarding payment would not be "consent-breakers". Thus, a failure to pay will not make the goods infringing and nor would it entitle the licensor to bring proceedings for trade mark infringement against a licensee. However, of course, breach of such terms will give rise to a cause of action for breach of contract and often can entitle the licensor to terminate the contract.

Could a trade mark owner get around the effect of Art.8(2) by stipulating that breach of a term automatically removed consent to marketing of a product? It seems that such a device would be perceived as a stratagem for avoiding the effect of Art.8(2). For instance, could a term that stipulates that the trade marked goods can only be sold to named persons in a selective distribution network and that there is no consent to them being sold to persons outside the network. Whilst such may be considered an anti-competitive term if no justification for it (particularly, if it amounts to a territorial limitation), it would be strange if the sale of such goods to a person outside the network did not mean that such goods were infringing goods as no consent had been given to their marketing. In this question, there can be no question of exhaustion of rights because such only relates to goods which have been put on the marketplace with the consent of the proprietor. However, the effect of the ECJ's judgment seems to mean that such would not be an infringement unless the person outside the network was a discount house or other person whose dealing in goods might damage the allure or reputation of the mark.