International Law

TRADE MARK LAW: PLACING LUXURY GOODS IN DISCOUNT STORES CAN AFFECT THEIR QUALITY

By Karel.Frielink

French fashion house Dior has the upper hand in legal battle over ?dumping? of its goods

Placing luxury goods like Christian Dior products in discount stores can affect their quality according to the European Court of Justice, in a ruling on April 23, 2009, thereby backing the renowned French fashion house Dior in a trademark case. At issue is the extent to which companies such as Dior can defend themselves against products bearing their brands being ?dumped? even though the licensing agreement clearly prohibits the licensee from doing so.

On May 17, 2000 the fashion house concluded a deal with a licensee for the manufacture and distribution of luxury lingerie goods bearing the Christian Dior trademark, which is owned by Dior. Under that agreement, in order ?to maintain the repute and prestige of the Dior trademark?, the licensee agreed not to sell, inter alia, to discount stores. When facing financial difficulties the licensee asked Dior for permission to market goods sold under the Christian Dior trade mark outside its selective distribution network. Dior refused to grant that request. However, despite the refusal and in breach of its contractual obligations, the licensee sold to a company operating a discount store business.

Dior brought the matter to court in France and argued that where one of its licensees sold its luxury lingerie to a discount store in breach of license, the sale amounted (not only to a breach of the trade mark license agreement, but also) to an infringement of its trademark rights. If this reasoning is correct, it would be entitled to enforce its trademarks directly against the discount stores. Given that it had doubts as to the interpretation of the relevant (EU community) law, the French court of cassation decided to stay proceedings and to refer the matter to the European Court of Justice for a preliminary ruling.

In the preliminary ruling, the European Court of Justice ruled that a license agreement does not give the licensee the absolute and unconditional consent of the trademark owner to sell the protected goods. Dior could invoke its trademark rights if the sale to the discount store affected its prestigious image. ?The quality of luxury goods is not only the result of their material characteristics but also of their allure and prestigious image which bestows on them an aura of luxury?, the court said in its ruling. The court declared in its ruling that it is conceivable that the sale of luxury goods to a discount store might affect ?the quality itself of those goods?, but referred the case back to the French court to decide whether ?the aura of luxury? had been damaged in this particular case.

It should be noted that the question put forward to the European Court of Justice pertains to the European Trademarks Directive. The Netherlands Antilles is not subject to EU legislation and is therefore not affected by it. However, the Dutch Caribbean legal system, including its statutory provisions governing the right to use trademarks for the purpose of distinguishing goods and services from those of others (set forth in the Trademarks Ordinance), is based on the same or similar legal ideas and concepts. Therefore, said ruling is also significant for this jurisdiction and specifically Dutch Caribbean intellectual property law, which enables companies and persons to protect their rights (such as patents; trademarks; and copyright) effectively and in accordance with national and also international standards.

Karel Frielink / Ursus van Bemmelen
Dutch Antilles Attorneys / Lawyers

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Full post as published by Karel's Legal Blog on April 28, 2009 (boomark / email).