Unbelievable but true, genuine products can be trademark infringing – it’s all a question of exhaustion. In terms of trademark law an exhaustion of trademark rights implies that once a branded product has been placed or commercialized on the market by the trademark holder or with his consent, he cannot prohibit the further commercialization of that product. His rights in respect of a specific individual item or consignment are „exhausted“ by the act of selling it.
The German Federal Supreme Court (BGH) just decided in two cases of the sports gear manufacturer Converse Inc. concerning allegedly faked Converse shoes and parallel imports.
In the first case the U.S. based Converse Inc., owner of the trademark “Converse” sued a German shoe distributor for trademark infringement. According to the trademark holder Converse Inc. the shoes sold by the distributor were fakes. The distributor defended himself arguing that the shoes were placed on the market with the trademark holder’s consent, and therefore Converse’s trademark rights were exhausted.
The defendant must also prove whether the respective shoes in question were placed on the European market with Converse’s consent. The said burden of proof rule is not effective if the trademark holder operates a distribution system which serves to prevent parallel imports and if there is a risk of market foreclosure, in the event the distributor had to disclose his supply chain. In the current case it is not clear, if the Converse labeled shoes were genuine or fake, therefore the Court remitted the case to the court of appeal for taking the necessary assessment of fact.
In the second case the exclusive distributor of Converse Inc. for Germany Austria and Switzerland sued a major trading company for trademark infringement. The trading company was accused for selling goods which were originally designated for the U.S. market in the European Union. The defendant argues that the goods were brought to the European market by the trademark owner himself.
The Federal Supreme Court approved the plaintiff’s right of prohibition. According to the defendant the goods were sold by a Slovenian supplier who left Converse’s distribution system earlier before the sale of the goods in question. Thus, the trademark holder has no opportunity to influence the future distribution behavior of its former supplier and foreclose the markets of the Member States. The defendant did not offer any prove that the Slovenian distributer actually received the goods in question from the trademark holder, therefore the provisions of exhaustion were not applicable in this case.
Commercial purchasers of branded goods are obliged to a high degree of attentiveness to where the purchased goods come from and for which market they are intended, in particular if there is a selective distribution system of the trademark holder involved.