European Court of Justice: "Sabel/Puma" Decision

Kador & Partner, Munich, Germany by Jennifer Clayton-Chen

In its judgment Silhouette v. Hartlauer (Case C-355/96), the European Court of Justice held that national rules providing for exhaustion of trade mark rights in respect of products put on the market outside the European Economic Area (EEA) under the mark by the proprietor or with his consent ("international exhaustion") are contrary to Article 7 (1) of the Trade Mark Harmonization Directive (referred to hereunder as Directive) which provides for exhaustion of trade mark rights "in relation to goods which have been put on the market in the Community" by the trade mark owner or with his consent (Note: By way of the EEA Agreement, the scope of application of the Directive has been extended from the European Community to the European Economic Area, which includes the 15 EU Member States, Liechtenstein, Iceland and Norway).

Before the implementation of the Directive Austria, like several other EU Member States (e.g. Germany and Sweden) had applied the principle of international exhaustion, and one of the parties (Hartlauer) of the court case, which originated in Austria, had argued that Article 7 (1) of the Directive did not prevent Member States from con tinuing to recognize a broader, international concept of exhaustion. He furthermore argued that the recognition of international exhaustion of trade mark rights by some of the Member States and not by others would not negatively affect the free movement of goods within the EEA.

The Court disagreed and stated that in the light of the recitals in the preamble to the Directive, Articles 5 to 7 of the Directive must be construed as embodying a complete harmonization of the rules relating to the rights conferred by the trade mark. Furthermore, the recognition of international exhaustion by some Member States while others provided for Community exhaustion only would inevitably give rise to barriers to the free movement of goods and the freedom to provide services. The practical consequence of this decision is that owners of trade marks registered in EC Member States cannot prevent, on the basis of their trade mark rights, the reimportation or parallel impor tation of genuine branded products bearing the identical trade mark which was first put on the market by themselves or with their consent within the EEA, because their trade mark rights were thereby exhausted in the whole of the EEA; while they are able to prevent the same if the goods were first put on the market outside the EEA, because, according to the Silhouette decision, the re-importer or parallel importer cannot claim the (international) exhaustion of the trade mark owner's rights.

The Silhouette decision may not be the last word in this matter, though, because the Court has left an "open door" by indicating, at the end of the decision, that the Community authorities could always extend the Community?wide exhaustion by entering into international agreements as has already been done in the EEA Agreement. Thus, the Community?wide exhaustion has already been extended to an EEA?wide exhaustion including Iceland, Liechtenstein and Norway, and could in future be extended even further. It is, of course, also possible for the Directive to be amended.