First Judgement Rendered by the Spanish Supreme Court in relation to Online Sales of Luxury Cosmetics out of the Selective Distribution System
Amaya Ortiz
The Spanish Supreme Court, through its Judgment no. 267/2016 of 22nd of April 2016 (ECLI:ES:TS:2016:1669), has supported the line of case law previously consolidated by the European Union Trademark Court, according to which the application of the principle of exhaustion of trademark rights is found justified when the circumstances under which the products are commercialized – outside the selective distribution system- entail a negative affectation for the trademark functions, and, therefore, damage the trademark.
This way, the Supreme Court makes a broad interpretation of article 13 of Regulation 207/2009 (REUTM), as its literal wording suggests, when declaring that the circumstances that damage the trademark’s image are not limited to the alteration of the packaging. In this sense, the Supreme Court specifically determines that: “the damage that the circumstances under which the products are subsequently commercialized can cause is not limited to the fact that such circumstances could raise doubts as to the commercial origin of the product. It can actually as well consist in a negative affectation to the trademark’s reputation, to the reputation associated to the products and services bearing the sign. This is due to the close link existing between the commercial origin of the product and its quality. “
It should be pointed out at this stage that article 13 of REUTM concerns all EU trademarks, regardless of its degree of dissemination throughout the market, its image and reputation, so it seems obvious that when applying the referred article, the negative circumstances affecting the image of a luxury trademark may not coincide with the ones affecting mass-market trademarks; I believe that high-range trademarks require a plus of protection in this sense.
In the same way, it should be considered that, exactly for this reason is it that in the case of luxury trademarks, a selective distribution system is allowed, which article 1. e) of Regulation no 330/2010 of vertical agreements and concerted practices defines as:
“1. […] e) selective distribution system’ means a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorized distributors within the territory reserved by the supplier to operate that system”
In other words, additionally to the protection against clear attacks to the image of any trademark (such as acts of denigration, alteration of products or packaging or defective relabeling, as mere examples) covered by article 13 of REUTM, in the case of luxury or high-range trademarks, the legislator allows the implementation of a selective distribution system through which special sale conditions exclusively directed to preserve the image and reputation of these kind of trademarks holding a highly over the average image and reputation are determined.
Having said that, and returning to the judgment recently rendered by the Supreme Court in relation to a matter regarding sales of luxury cosmetics by a third non-authorized party, the Court partially adopts the criteria established by the Appeal Court in the Judgment subject to appeal before the Supreme Court and determines the implications that some of these sale conditions have in the image of the trademarks. In particular, the Supreme Court declares that: “the domain name used by the defendant, “outletbelleza”, which the Appeal Court considers that is associated to a low cost commerce, a commerce of discontinued products or out-of-season products, is incompatible with the refined and exclusive service that the plaintiff’s trademarks intend to preserve; or the weak image of the luxury trademarks that the defendant’s website transmits, as a consequence of the fact that the searching system is essentially alphabetical, without distinguishing between trademarks and because of the absence of products, limited stock and shortage of new products”.
However, the judgment rendered by the Supreme Court declares that the imposition of certain requirements (requirement of a physical point of sale, consultancy services or sales after trying testers) may imply, de facto, the prohibition of the sale of those products on the Internet to dealers without physical point of sale open to the public. The Supreme Court has supported this interpretation by making reference to CJUE of 13th of October 2011, C-439/09, “Pierre Fabre Dermo-Cosmétique”, paragraph 47:
“[…] in the context of a selective distribution system, a contractual clause requiring sales of cosmetics and personal care products to be made in a physical space where a qualified pharmacist must be present, resulting in a ban on the use of the internet for those sales, amounts to a restriction by object within the meaning of that provision where, following an individual and specific examination of the content and objective of that contractual clause and the legal and economic context of which it forms a part, it is apparent that, having regard to the properties of the products at issue, that clause is not objectively justified.”
As a conclusion, we may say that in any case, the particular and specific circumstances of each individual case and of the products should be analyzed, since this is an eminently case practice matter. Nevertheless, several questions could be raise as to the above reproduced jurisprudence and as to the position adopted by the Supreme Court when basing its decision on it. For instance: Is the prohibition – related to the requirement of consultancy service- of online sales actually sustainable when, for example, it has been proven that the authorized distributors offer an online consultancy service? Are the criteria applied in Judgment “Pierre Fabre”, where the consultancy service is required in a physical point of sale face-to-face, comparable or applicable to a case in which a not face-to-face online consultancy service is required? And last, but not least, can we put on the same level the imposition of a condition which is de facto impossible to implement because it’s absolutely incompatible with the nature of the business (like the face-to-face consultancy service provided online or “virtually”) and a condition which it has been proven to be implemented de facto in the usual course of online trade for any kind of products? (online consultancy service through chat, e-mail or telephone). Additionally, how can this jurisprudence fit in the content of paragraph 54 of the Directives of the Competition Commission, which states that: “under the block exemption, the supplier may, for example, require its distributors to have one or more physical points of sale or exhibition rooms as a condition to be part of the distribution system”? We believe that all these criteria should be examined in future cases and applicable from the perspective of the preservation of the luxury image of the selective trademarks and, therefore, also from the consumer’s expectations of this kind of product and always considering the nature and real limitations of the type of business at issue.
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