Law

The issue of trade marks and their infringement has become rather conspicuous in these days when common markets are increasingly becoming the order of the day. This is because the relative interpretation of the law regarding trade marks and its consequent application tends to be different in various regions and under varying jurisdictions, making it difficult to have fair determination of cases. In the European Union, for instance, the Trade Mark Act of 1994 has been the sole law that has aided the use of trade marks and other signs during the marketing process. While the legislation applies universally across the region, there is no law that has been enforced which clearly explains what ought to be done when goods are available for parallel circulation outside the region. Although there might be some laws governing this issue in certain regions, the law has not be enforceable there. This has complicated matters and allowed loopholes in the Trade Mark Act.

The relative application of common law and statute law has also come in as a basis for debate because while common law has tended to use past cases as the basis for determining present ones, statute law has fallen short of meeting the need for trade mark owners to be protected by use of past laws. For instance, statute law as found in Section 10(4)(c) of the Trade Marks Act (TMA) grants the rights to a trade mark owner to prevent the importation of goods under his or her mark. Section 12 of the TMA, however, provides a defense to such infringement under the exhaustion of rights principle. This has created a clash between the two clauses and has in many ways paved the way for other people to use the mark of someone else legally, effectively restricting the rights of the trade mark holder. To understand these issues through a critical analysis of statute and case law, this paper critically examines the extent to which section 12 restricts the rights of a trade mark owner.

Provisions of Section 10(4)(c) of the Trade Marks Act (TMA)
According to this legislation, it is not legally right for any one to offer goods for sale which have a similar or an identical sign with another registered sign. The use of a sign includes utilising the sign on one s goods or packaging utilising the sign on letters or other papers used in advertising and offering goods for sale, stocking them, exposing them, or supplying services under the sign. If any of these is done without the consent of the proprietor, then it constitutes trade mark infringement. By extension, no one is allowed to use a trade mark that is identical to an already registered one or to handle or deal in goods or services which are usually used in relation to the registered sign.

Defenses to the Infringement
Although both sections 11 and 12 offer reasonable defenses to the infringement of a trade mark, it is Section 12 that takes matters too far and exposes the proprietor to incidents that might compromise his or her right to regulate the use of the sign or goods distributed under the sign. This section is a mirror of the of the provisions of a European Commission directive known as Article 7 and provides that it is not an infringement of any registered trade mark if that trade mark is used in relation to goods that are being circulated or have been put on the market in the European Economic Area (EEA). It also does not consider it an infringement of a registered trade mark if such a trade mark is used with the permission of the owner.  This is the clause that has managed to limit the powers of the proprietor regarding the use of one s trade mark or the regulation of the products that can be circulated in the market under that trade mark. The only exception to this rule is if the goods under question have been tampered with, modified, or significantly changed so that they fail to reflect what the trade mark originally sought to present. This is the first point where loopholes start being utilised and so the proprietor s rights get limited because of the following reasons

Principle of Exhaustion
First, while it is clear that the principle of exhaustion can be applied to the trade mark or the goods circulated under the trade mark, the extent or the jurisdiction that is to be covered by such a principle is not clear. For one, third parties can utilise the rather ambiguous clause - goods have been put on the market. It is critical that this clause is defined further to make it clearer. Otherwise, it is not possible for one to tell what putting goods on the market means. For instance, it is possible that goods can be put on the market but not sold. Or they can just be stocked without selling. In this case, third parties can claim the goods were put on the market in the EEA, yet the goods were simply stored.  This is a point of contention because it is also possible for goods to be offered for sale or just imported and yet they were never sold. The proprietor might never be aware of the exact point where his or her trade mark rights is exhausted.
 
Following the 2004 case of Peak Holding against Axolin-Elinor, it was ruled that the meaning of the phrase put on the market in the EEA ought to be that the goods were actually sold and not just placed on an offer for sale or just imported into a country. It stemmed from the fact that although the defendant held that the goods had been put on the market in the EEC, they were not actually sold. So, the plaintiff insisted that because the goods were never sold, or at least some of them were not sold, the principle of exhaustion never applied. The court ruled in favour of the plaintiff, claiming that for as long as the goods were not sold, the proprietor still had the right over them. However, in cases where this is not clear, third parties can claim to have put the goods on the EEA market and yet only sell a fraction of the these goods, thereby robbing the proprietor of the right to regulate the goods. This is because unless this is done, such goods that, having been placed on the EEA market, fail to be sold in the EEA might find their way outside the region and then back again for resale in the EEA as imports. Should this happen, the proprietor would not have any means of controlling their distribution. Only with the knowledge that trade mark rights are exhausted when the goods are sold in the EEA can the proprietor be able to restrict imports of similar goods and their subsequent circulation in the EEA.

Parallel Trade
The principle of exhaustion clearly allows for the resale of goods by third parties once they have been put on the market in the EEA. However, it is not clear whether such provisions only cover the region or extend to areas beyond the region. For instance, the proprietor might actually put the goods on the market in the EEA or give consent for the goods to be circulated. However, the same goods can still find their way in the country and be offered for sale. In such a case, the proprietor cannot stop the distribution of the goods because by being allowed to be sold freely, the proprietor is assumed to have consented to their free circulation wherever they will find their way. This has raised a number of issues with proprietors, arguing that they might have consented to the sale of the goods but not as long as they are imported from another country outside the EEA.

In the Silhouette International Schmied  Co KG against Hartlauer Handelsgellschaft, the plaintiff wanted to have the defendant barred from selling its designer glasses even though the defendant had imported them from outside Austria and the EU. The argument by the plaintiff was that the designer spectacles ought not to be resold in Austria because the firm still held the trade mark rights over any such goods that were not from the EEA. On the other side, the defendant maintained that because the plaintiff consented to the sale of the goods, there was no legal right to control where they were being sold. In a landmark ruling by the ECJ, it was decided that the plaintiff had the right to stop the sale of the designer spectacles in the country because of the fact that although the law governing international circulation was not enforceable in the EEA, this did not mean that there was an allowance to circulate such goods there. In essence, the plaintiff s rights over the goods had not been exhausted on account of the law that had not been enforced.

A similar ruling was made in the 1999 Sebago Inc against GB Unic SA case where the court decided that it was never the responsibility of individual nations in the EU to set laws governing the exhaustion principle as it applied to goods that originated from outside of the region. This was a case in Belgium where the plaintiff wanted to stop the sale of its shoes in the country   shoes which had been imported from outside the EEA. This ruling was in spite of the defendant s argument that the plaintiff had consented to the distribution of the goods in the international market. The court, in order to set the record straight, ruled that it was the responsibility of the trade mark owner to specify which goods were permitted to be sold in the international market so that those specific ones could be said to have the consent of the trade mark owner. Unless this was done, the trade mark rights were still not exhausted. This ruling came in to help trade mark owners in that prior to it, goods could be distributed under their trade mark even when they only authorised a few of them or certain brands only.

Common Law and Not Statute Law
The difference in the application of the law can also present many challenges to the owners of trade marks and drive them to dispute certain rulings by the court. Whilst statute law is the written law and can be applied in the jurisdiction provided for under the law, common law might be used to deny rights even when statute law could have granted such rights. The 2000 High Court case between Zino Davidoff SA and AG Imports Ltd demonstrated how the use of common law and not statute law can work to deny trade mark owners their rights. Specifically, the use of common law was requested by the plaintiff so that a ruling could be made to require that the defendant stops the sale of perfumes that had been circulated outside the EEA. This was in spite of the plaintiff having given consent to the sale of the perfumes outside the EU and so effectively exhausting his rights over the goods. The insistence on the use of common law was partly because there was no other enforceable law in the EU governing the parallel importation outside the EU, and largely because an earlier ruling on a similar case had gone in favour of Silhouette International Schmied GmbH.

Common law was used but there was found to be a discrepancy between the earlier case and the present one, particularly in the manner the sale outside the region was conducted. For in the earlier case, there had been no consent whatsoever but in the present case the plaintiff had given consent for the goods to be distributed outside the EEA. Not once have there been cases where the law is not specific on what ought to be done and it is always left to the judges in courts to make their ruling based on what has been common practice elsewhere or what has been done in the past. For this particular case involving the distribution of perfumes, the principle of exhaustion as provided for in the statute law failed to protect the trade mark owner and instead gave the power to distribute the goods to a third party. Although Davidoff was the owner of the trade mark for the goods, the firm had no power to decide how the goods were going to be distributed just because the goods were presumed to have been allowed to circulate freely in the international market.

This brings into perspective yet another issue that requires critical analysis. This is why the court ruled in favour of Silhouette International Schmied GmbH and against Davidoff when common law provisions would have allowed for a similar ruling. Actually, it was on the basis of knowledge of common law applicability in general and the Silhouette International Schmied GmbH court ruling in particular that had prompted Davidoff to file the case before the court. The reason behind the case was that if a past case had been determined in favour of the trade mark owner, then this case, too, should be determined in favour of the plaintiff who owned the trade mark rights. However, while acknowledging the applicability of common law in this case, the judge referred to Article 12   the principle of exhaustion - as a statute that ought to be scrutinised keenly and used alongside common law.

So in the ruling, the judge sought to establish the extent to which exhaustion could become applicable and the point at which this principle came into play. He stated that the issue was not about the perfumes having been placed in the EEA market but rather the trade mark owner having consented to the distribution of the perfumes abroad   outside the EEA. How this consent was given was beyond the scope of the court but it ought to be analysed for it is clear that consent may be an ambiguous word needing clarification.

What Constitutes Consent
It is difficult to tell what consent really is. For one, consent can be implied or expressed by the trade mark holder. While expressed consent can be easy to understand and the issuance of such by the trade mark owner can be used to mark the point at which the goods are exhausted, third parties can utilise the ambiguity that often surrounds implied consent to distribute goods in areas where the goods ought not to be sold. For instance, a third party can claim that a supplier never specified the areas where the goods ought to be distributed and as such, the third party distributing the goods took that as an implied consent from the trade mark owner that the goods could be marketed freely. Similarly, third parties, particularly distributors outside the EEA, can cite the absence of full and very explicit instructions requiring that the goods are not to be imported into the EEA as an indication that the trade mark owner has actually allowed or consented for them to be imported there, thereby exhausting his rights over the goods.

This was seen in a number of rulings by the ECJ, most of the cases having been referred there from other courts. In a joint ruling of the cases of Levi Strauss  Co Limited and Levi Strauss (UK) Limited against Tesco Stores Limited and Tesco plc Zino Davidoff SA against AG Imports Limited and Levi Strauss  Co and Levi Strauss (UK) Limited against Costco Wholesale UK Limited, the ECJ held that there was no need for confusion to exist between implied and expressed consent. The court went ahead to define what implied consent was as most of the cases touched on the ambiguity of the word. According to the ECJ, consent - whether implied or expressed by the trade mark holder - ought to be given in such a way that gives the trade mark holder the power and ability to unequivocally renounce ownership of the goods. The court added that it is upon the proprietor to choose the method through which to give this consent. He or she can use an expressed statement or can imply it by the manner he or she acts after and during the time the goods have been placed in the market outside the EEA. This behaviour will show whether he or she has unequivocally let go of the rights over the goods or if he or she still holds such rights.

This is where the problem lies because what is implied by some actions of someone will be interpreted differently by various people. As earlier mentioned, it is possible that third parties can be more willing to trade in goods which are not clearly exhausted under the pretext that the trade mark owner implied that he or she had exhausted his or her rights over the goods as inferred from his or her actions. The law fails to clearly mention the actions that can be taken to mean exhaustion of rights and which ones do not, making the proprietor live at the mercy of the interpretation of his or her actions by would-be trade mark infringers. For instance, most proprietors will remain silent during and after their goods have been placed in the market outside the EEA, making it difficult to determine what such silence means.

Actually, in these joint cases, it was required of the court to give a ruling on whether silence formed part of implied consent. To this, the  ECJ ruled that it was not the work of the trade mark owner to determine which of his or her actions constituted implied consent but rather the prerogative of the third party   the person engaging in the trading of the goods   to prove that whatever actions were exhibited by the trade mark holder constitute implied consent. In essence, the court was saying that the trade mark owner can never defend his or her actions regarding implied consent. This is very detrimental to him or her given that he or she might have actually acted to imply that he or she was not consenting to his or her goods being distributed freely outside the EEA. Subsection 2 of Section 12 of the Trade Mark Act can also be a loophole through which trade mark owners can be deprived of the right to control goods under their trade mark. This clause, on the face of it, gives trade mark owners the right to oppose the circulation of goods if the proprietor has legitimate reasons to do so. In this case, the proprietor can determine if there are goods coming in from outside the EEA and move to alert the relevant authorities to withhold them on the basis that having them distributed locally would be trade mark infringement. Clearly, this is a very difficult task for anyone to do. It is almost impossible for trade mark owners to monitor where their goods are and where they are destined for sale in the foreseeable future. Asking them to notify the relevant authorities when the goods are destined for the EEA again is tantamount to requiring them to monitor every move of the goods wherever they go around the world.

Given this state of affairs, third parties can easily get the goods back into the country of origin or in the EEA and distribute them without the knowledge of the trade mark owner. Since the trade mark owner must notify the customs officials before the goods are due into the country and give the details of the nature of the goods and which specific ones are capable of infringing the trade mark right so that the goods might be prohibited, third parties can conceal the identity of the goods, slightly modify them, or ensure that the trade mark owner does not get to know of the imports until when it is too late to stop the goods. Besides, it is difficult for trade mark owners to prove the ownership of the rights for goods that are not yet in the country. This has made trade mark owners to fail to exercise total control over their trade marks.

Another possible way through which traders can infringe on trade mark rights legally is if they claim that they had no prior knowledge of the goods having been restricted because of there having been no communication from either the trade mark holder or the agent. In other words, silence on the part of the trade mark owner can work against him or her, allowing infringers to use his or her trade mark under the guise of lack of appropriate information. Generally, therefore, it ought to be the law that implied consent entails the trade mark owner actually facilitating the importation of such goods. Otherwise, as was ruled by the court in the Roche Products Limited against Kent Pharmaceuticals Limited case, silence is not to be used as an indication of consent.

Modification of Goods
Another issue of contention is what actually constitutes modification of goods. For in the Davidoff case, it was alleged by the plaintiffs that if indeed the court was not willing to bar the sale of their goods in the country, then they must be given the orders to block the sale under Section 7 of the act which allows trade mark owners to stop the distribution of such goods if they have a legitimate reason, such as product deformity or modification. With the products having been changed slightly, they wanted the court to allow them to stop their sale locally. However, the court held that obliteration of goods   which is what the defendants had done to the goods   did not constitute what is legally described as modification or impairment of goods. This ruling pointed out that there are loopholes in the clause that allowed trade mark owners to stop the distribution of the goods if they are modified.

First, there is no clear definition in statute law what exactly modification of goods is and what it is not. Changing the labels on the goods, for instance, can be used to deceive the consumers that they are actually different goods and this can make it hard for the trade mark owner to identify such goods. This can then give traders the right to go ahead and distribute those goods as they desire, under a different label but the same goods, without the intervention of the trade mark owner. Actually, if what the court ruled that changing the labels on the products does not constitute impairment or change on the products, then all third parties need to do in order to have the right to deal in trade mark-protected goods is to alter them slightly enough to be within what is acceptable as not constituting change or impairment and then going ahead and distributing the goods freely. In the same case, the defendant held that although the plaintiff had the right to stop the circulation of the goods earlier on by notifying customs of their impending importation into the country, the plaintiff did nothing, implying that he had consented to their importation back into the country.

In conclusion, the principle of exhaustion as contained in Section 12 of the Trade Mark Act has drastically limited the power that a trade mark owner has over the goods covered by the trade mark.