For many brand owners, giving out product samples and testers is a routine way to promote goods. Perfume houses, pharmaceutical companies, and even food and drink manufacturers often rely on samples to help boost product awareness and, ultimately, sales.
Sample goods are not normally intended for sale, however, and may be labelled differently to the products on the market. For a host of reasons, a brand owner may not want its samples to find their way onto retailers' shelves. What, then, can a brand owner do if it finds that its samples are on the market? A recent decision by the ECJ casts light on the legal position in the EU (Coty Prestige Lancaster Group GmbH v Simex Trading AG, C-127/09).
Testing the Boundaries
In Coty, the well-known perfumier supplied "tester" bottles of its scents to its authorised retailers in the EU and around the world. The testers allowed customers to try out the scents before deciding on a purchase, a practice widely familiar to anyone who has walked through the fragrance section of a department store.
By agreement with its authorised retailers, Coty did not transfer title in the tester bottles, but rather made them available as promotional materials. Coty reserved the right to re-call such materials at any time. The tester bottles were prominently marked "Demonstration" and were packaged in white boxes, contrasting with the coloured boxes that were actually sold. The boxes containing the tester bottles were marked "Demonstration" on the front and "Not for Sale" on the side.
In September 2007, Coty discovered tester bottles of some of its perfumes on sale in a German retail chain. The chain in question was not an authorised retailer and had acquired the testers from a Swiss company, Simex, who in turn appeared to have sourced them from Singapore, where Coty had sent them to an authorised retailer in July 2006.
Coty brought proceedings for trademark infringement against Simex in Germany. At first instance Simex successfully argued that Coty had consented to the testers being placed on the market in the EU. The German court held that Coty had provided the same types of testers to authorised retailers in the EU and had therefore consented to such goods being placed on the EU market, even where the specific items at issue came from outside of it. Consequently, the German court held that Coty's rights had been exhausted under Article 13 (1) of the CTM Regulation and Article 7 (1) of the Directive.
On appeal by Coty, however, the appellate court doubted the lower court's findings and referred to the ECJ for guidance.
Reading The Small Print
The ECJ started off by noting that rights were typically exhausted not in a whole category of branded goods, but rather in individual items or shipments. Consequently, it was wrong to regard Coty's rights in the testers as having been exhausted purely because other testers for the same brand were already being provided to authorised retailers in the EU. The testers at issue came from outside the EU and were first put on the market in the EU by Simex. Consequently, the question was not whether Coty had itself effectively put the products on the EU market (it had not), but rather whether it had consented to the actions of Simex in doing so.
There had been no express consent by Coty to Simex's actions, but the ECJ noted that such consent could have been implied. Such implied consent was not to be inferred lightly, though, and the Court noted its own previous warnings in Zino Davidoff and Levi Strauss (C-414/99 - C-416/99) that implied consent cannot be inferred purely on the basis that the trademark owner had not expressly communicated its opposition to marketing of the goods within the EU, nor from the fact that goods might carry no such prohibition on EU marketing, nor from the absence of relevant contractual restrictions. There must, instead, be clear facts or circumstances indicating that the brand owner had renounced its right to control the first marketing of the goods in the EU.
In this case, Coty had done quite the opposite. The tester bottle packages were clearly marked "Not for Sale," and this in itself precluded a finding that Coty's rights had been exhausted. The markings on the tester packaging clearly indicated that Coty did not consent to the sale of the testers in the EU or elsewhere.
The ECJ did not comment in detail on the existence of the contractual restrictions on sale of the testers, the absence of transfer of ownership in them under the contracts with the authorised retailers, and the fact that the testers were packaged differently from the goods that Coty actually placed on the EU market. However, taking all these factors into account together with the markings on the packaging, the Court ruled that, in the absence of any evidence to the contrary, there could be no finding that Coty had consented to the goods being placed on the market in the EU.
Coty's belt and braces approach to keeping its testers off the market is good practice for all brand owners who circulate samples internationally.
Imposing contractual terms preventing the sale of samples and clearly marking them "Not for Sale" should help to limit their re-emergence on the retail market. However, where such terms and markings are used on samples delivered outside the EU, they may take on even greater importance as giving a legal basis under trademark law to object to the sale of such goods by unrelated third parties in the EU, who acquire them from grey market importers.
This is likely to be important not only to major perfume houses, but also to other industries who regularly provide samples and testers, including cosmetic and pharmaceutical companies. Samples are rarely likely to be sold in sufficient quantities to affect the bottom line, but they can undermine a brand owner's image where products are sold in packaging not intended for the marketplace, or in shops not in line with a product's image.
A trademark infringement action based on identity of marks and goods is a strong basis for keeping unauthorised sample goods from outside the EU off retail shelves here, provided it is clear that the brand owner has not consented to the marketing. Practices like those of Coty should avoid any impression of consent, either express or implied.