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Dior can bar resale of its goods by discount stores - ECJ
May '09
In 2000, Dior concluded a trade mark licence agreement with Société industrielle lingerie (SIL) in respect of the manufacture and distribution of luxury corsetry goods bearing the Christian Dior trade mark. That agreement states that in order to maintain the repute and prestige of the Dior trade mark SIL agrees not to sell, in particular, to discount stores outside the selective distribution network, without written agreement from Dior, and that the licensee must make all necessary provision to ensure that that rule is complied with by its distributors or retailers.

However, since it was faced with economic difficulties, SIL sold goods bearing the Dior trade mark to Copad, a company operating a discount store business. Taking the view that that resale was prohibited by the agreement, Dior brought an action against SIL and Copad for trade-mark infringement. However, the resellers pleaded exhaustion of Dior's trade mark rights, because the goods had been put on the market in the EEA (European Economic Area) with Dior's consent.

The French Cour de Cassation, as the court of last instance, referred questions to the Court of Justice concerning the interpretation of the Trade Mark Directive1 particularly since the licensee disregarded a provision in the licence agreement prohibiting, on grounds of the trade mark's prestige, sale to discount stores outside the selective distribution network.

The Court holds, first, that the proprietor of a trade mark can invoke the rights conferred by that trade mark against a licensee who contravenes a provision in a licence agreement prohibiting, on grounds of the trade mark's prestige, sales to discount stores, provided it has been established that that contravention, by reason of the situation prevailing in the case, damages the allure and prestigious image which bestows on those goods an aura of luxury.

The directive entitles the proprietor of a trade mark to invoke the rights that the trade mark confers on him in respect of a licensee where the licensee contravenes certain provisions in the licence agreement listed in Article 8(2) of the directive, including in particular those concerning the quality of the goods. The quality of luxury goods is not only the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury.

In this respect, a selective distribution system such as that at issue, which seeks to ensure that the goods are displayed in sales outlets in a manner that enhances their value, especially as regards positioning, advertising, packaging as well as business policy, contributes to the reputation of the goods at issue and therefore to sustaining the aura of luxury surrounding them.

Consequently, it is conceivable that the sale of luxury goods by the licensee to third parties outside the selective distribution network might affect the quality itself of those goods, so that, in such circumstances, a contractual provision prohibiting such sale must be considered to be falling within the scope of the trade mark directive. It is for the national court to examine whether, taking into account the circumstances of the case before it, contravention by the licensee of a provision such as the one at issue in the main proceedings damages the aura of luxury of the luxury goods, thus affecting their quality.

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