CJEU rules on Schweppes trademark exhaustion dispute

Europe’s highest court issued a ruling today on a trademark exhaustion dispute, providing advice on whether Schweppes can oppose the importation into Spain of Schweppes-branded goods from the UK.

Schweppes is the owner of the mark ‘Schweppes’ in Spain and has an exclusive right to exploit the mark in the country.

The brand began infringement proceedings against distribution company Red Paralela in 2014, for importing and marketing bottles of tonic water bearing the mark ‘Schweppes’ from the UK into Spain.

Coca-Cola owns the trademark ‘Schweppes’ in the UK, after acquiring the rights by assignment from Cadbury Schweppes.

In 1999, Cadbury Schweppes assigned the rights relating to some of its marks, including those registered in the UK, to Coca-Cola. It retained ownership of the rest, which now belong to Schweppes.

Schweppes claimed that the sale of the tonic water is unlawful because the bottles were put on the UK market by Coca-Cola, which has no connection with Schweppes.

According to Schweppes, the signs and goods at issue are identical, so consumers will be unable to distinguish the commercial origin of the bottles.

Red Paralela hit back, arguing that the trademark rights resulted from tacit consent between Coca-Cola and Schweppes. It added that there were “undeniable legal and economic links” between Coca-Cola and Schweppes in the exploitation of ‘Schweppes’ as a universal mark.

Commercial Court number eight, of Barcelona, Spain, asked the CJEU to “ascertain whether or not EU law precludes Schweppes from invoking the exclusive right that it enjoys under Spanish law to oppose the importation into and/or marketing in Spain of ‘Schweppes’ goods which come from the UK”.

In September, advocate general Paolo Mengozzi outlined what he believed were the criteria to determine this case.

According to Mengozzi, EU law precludes reliance on an exclusive right if, given the economic links between the respective proprietors, it’s clear that the marks are under unitary control.

Mengozzi added that the proprietors of parallel marks which arise from the fragmentation of a single mark may be regarded as economically linked when they “coordinate their commercial policies with a view to exercising joint control over the use of their respective marks”.

The answer from the CJEU was that EU law precludes Schweppes from opposing the importation if it has itself given the impression that the trademark is a single global mark.

According to a press release from the court, Schweppes may be unable to oppose the importation of the identical goods bearing the same mark.

The CJEU explained that the mark’s proprietor is unable to oppose when, either acting alone or maintaining its coordinated trademark strategy with the third party, it “actively and deliberately continued to promote the appearance or image of a single global trademark”.

In the decision, the court recalled the essential function of a trademark, which is to guarantee the identity of the origin of the trademarked product.

“By behaving in a way that means that the trademark no longer independently fulfils its essential function within its own territorial field of application, the proprietor has himself compromised or distorted that function,” said the court.

As a consequence of this, the proprietor cannot rely on the necessity of protecting that function to oppose the importation of identical goods bearing the same mark.

The CJEU went on to say that even if Schweppes has not promoted the image of a single global trademark, it cannot oppose the importation where there are economic links.

This includes coordinated commercial policies or reaching an agreement in order to exercise joint control over the use of the trademark.

It concluded: “If such proprietors were permitted to protecting their territories against the parallel import of those goods, that would lead to a partitioning of the national markets which is not justified by the purpose of trademark rights and is, in particular, unnecessary in order to preserve the essential function of the marks concerned.”

The decision now falls to the national court to determine whether the conditions for the exhaustion of Schweppes’ right have been met with regard to the bottles of tonic water.

A spokesperson for Red Paralela said that it welcomed the decision as it halts the misuse of trademark rights by Schweppes.

“Now, in the CJEU decision, we see that our convictions were grounded, and that Schweppes' actions were against the basics of trademark law and European competition law,” they stated.

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