Exhaustion of trademark rights in Europe: the Converse decisions
The legal intricacies and diverse sets of facts connected with the exhaustion defence are widely seen as presenting some of the most difficult problems in trademark litigation. Some clarification comes from two decisions by Germany’s Federal Supreme Court in March 2012 concerning the alleged infringement of the Converse trademarks, where the defendants claimed that the trademark rights were exhausted.
In the first case—Converse I—the defendant claimed that the attacked sports shoes were originals. For that kind of situation, the Federal Supreme Court had already decided in earlier cases (Stüssy I and Stüssy II) that the defendant has the burden of proof for the contention that the attacked products are not counterfeits, because if the products are counterfeits it can be assumed that their distribution lacks the approval of the trademark owner.
According to earlier decisions by the European Court of Justice (eg, Van Doren) and the Federal Supreme Court in the Stüssy II case, European law demands an exception to this rule: if the defendant’s obligation to prove that the products are not counterfeits would enable the plaintiff to ‘wall off’ the national markets, the plaintiff has the burden of proof that the products are not original.
“IN CONVERSE I, THE FEDERAL SUPREME COURT HELD THAT THE PLAINTIFF HAD MET HIS SECONDARY BURDEN TO PRESENT SOME TRAITS OF THE ORIGINALS.”
The Converse I case sheds further light on the application of this general rule for the burden of proof. First, the plaintiff cannot simply wait and see whether the defendant somehow manages to prove that the products are not counterfeit. If he contends that the goods are counterfeit, he is under a so-called ‘secondary burden’ of presenting facts on the question of how originals and counterfeits can be differentiated.
This burden regularly exists in situations where it must be assumed that knowledge of the facts is with one side only. If it is not met, the point of law is decided in favour of the opponent.
In Converse I, the Federal Supreme Court held that the plaintiff had met his secondary burden to present some traits of the originals, even though the plaintiff refused to disclose the Converse coding system. The procedural consequence was that the burden of proof that the products were in fact originals now reversed to the defendant.
The defendant could not meet this burden, so he relied on the exception to the burden of proof rule, namely that disclosing his (allegedly) authorised supplier in court would enable the plaintiff to contact this supplier, instruct him not to sell the shoes outside of his distribution system and thereby ‘wall off’ the national market.
The Federal Supreme Court holds that this exception to the general allocation of burden of proof does not exist only with exclusive distribution systems, but with all other distribution systems that enable the trademark owner to prevent goods from being distributed across national borders, including selective distribution systems.
A danger of a ‘walling-off’ of national markets can be assumed in distribution systems that contain contractual bans for the distribution partners to sell the goods outside of the system. In the Converse I case, it was established that the plaintiff trademark owner distributed the goods through one general importer in each of the countries of the European Economic Area (EEA).
No such general importer was under a contractual ban to sell the original goods outside of a distribution system. So there was, according to established case law categories, no danger of ‘wallingoff’ national markets. The Court of Appeal, however, had held that in this case the danger of ‘walling-off’ could also be concluded from other facts: One of the general importers had said in a publication that partners in the distribution systems would be “pursued” if they “destroyed the prices”.
The Federal Supreme Court reversed this holding. While the Supreme Court generally accepted the appeal court’s reasoning that a ‘walling-off’ could be concluded also from actual measures to prevent movement of goods in order to uphold a certain price level, it held that such a conclusion could not be made solely on the basis of the publication which the defendant had cited in support of his argument.
The second case, Converse II, further developed this argument. In Converse II, the Federal Supreme Court now holds that the danger of ‘walling-off’ may be denied if the supplier of the defendant has left the plaintiff ’s distribution system.
These cases are an important advancement of the case law regarding the exhaustion defence when trademark goods are sold through exclusive or selective distribution systems.
Jens Künzel, LLM, is a partner at Krieger Mes & Graf v. der Groeben. He can be contacted at: jens.kuenzel@krieger-mes.de
