Current Intelligence - Retention of ownership may prevent exhaustion

In this Current Intelligence note, published in our June issue, Carina Gommers and Tim Robrechts (Hoyng Rokh Monegier) discuss a recent decision of the Brussels Court of Appeal concerning the exhaustion of trade marks rights with respect to goods (in this case, printer cartridges) provided under a maintenance agreement. The court focused on the interplay between exhaustion and retention of title, possibly going a step beyond the current CJEU's case law on the issue.

Retention of ownership may prevent exhaustion 
Carina Gommers and Tim Robrechts
Hoyng Rokh Monegier
Email: carina.gommers@hoyngrokh.com and tim.robrechts@hoyngrokh.com

Xerox Corporation/Impro Europe BVBA, Brussels Court of Appeal (8th Div.), 20 October 2015, docket n° 2013/AR/2763

In its decision of 20 October 2015, the Brussels Court of Appeal had to rule on exhaustion of trade mark rights in a case with respect to printer cartridges. The court ruled that a contractual retention of ownership may bar exhaustion.

Legal context

Article 9(1)(a) of Council Regulation No 207/2009 of 26 February 2009 on the Community trade mark (‘Community Trade Mark Regulation’ or ‘CTMR’) provides protection against a third party who is, without the trade mark proprietor’s consent, using an identical sign in the course of trade for identical goods or services. The proprietor of a Benelux trade mark is entitled to the same exclusive right per Article 2.20(1) (a) of the Benelux Convention on Intellectual Property (‘BCIP’). In the meantime, Article 9(1) (a) CTMR has been replaced by Article 9(2) (a) of the EU Trade Mark Regulation (Regulation (EU) 2015/2424 of the European Parliament and of the Council of 16 December 2015).

Pursuant to Article 13(1) CTMR, the proprietor of a Community trade mark is not entitled to prohibit its use in relation to goods which have first been put on the market in the Community by the trade mark owner or with his consent (the equivalent provision in the Benelux is Article 2.23(3) BCIP). It should be noted that ‘in the Community’ is to be construed as ‘in the European Economic Area’ (‘EEA’).

Article 13(2) CTMR provides for an exception to the rule of exhaustion of rights: the first paragraph of Article 13 CTMR shall not apply where there exist legitimate reasons for the proprietor of a Community trade mark to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market (the equivalent provision in the Benelux is Article 2.23(3) BCIP).

The numbering of these articles remains unchanged in the new EU Trade Mark Regulation.

Facts

Impro Europe BVBA (‘Impro’) is a Belgian subsidiary of Impro Group, a US-based company specializing in the trade of supplies and parts for copiers and printers, with a focus on so-called consumables (eg toner cartridges). Impro buys unused toner cartridges and sells them through its webshop.

Xerox Corporation (‘Xerox’) sells a wide range of office consumables such as toner cartridges for private and professional use through its Belgian subsidiary Xerox NV. Xerox is the holder of various trade marks (ia ‘XEROX’, ‘PagePack’, ‘eClick’ and ‘Phaser’).

Various types of Xerox machines come with a standard maintenance agreement (‘PagePack’ or ‘eClick’ agreements) providing not only for technical support, but also the provision of toner cartridges. Cartridges provided in the framework of such a maintenance agreement bear the trade marks ‘PagePack’ or ‘eClick’. In addition, these mention the term ‘metered’, indicating that their supply depends on the meter configuration of the end user’s Xerox machine. According to the terms of the maintenance agreement, Xerox retains the title of these cartridges until depletion and surplus goods have to be returned to Xerox without compensation.

Xerox discovered that Impro offered this type of cartridge bearing the aforementioned trade marks in combination with the term ‘metered’ on the Belgian market. Xerox therefore requested and obtained descriptive seizure measures, after which it launched infringement proceedings against Impro.

Analysis

According to the first judge, Xerox’s products bearing the ‘PagePack’ or ‘eClick’ trade marks were put on the market with Xerox’s consent, thus resulting in the exhaustion of Xerox’s exclusive rights. Based on the exception to the exhaustion rule (Article 13(2) CTMR), the first judge nevertheless ordered Impro to destroy the Xerox consumables that were expired or on which packaging was damaged.

The Brussels Court of Appeal, however, rejects Impro’s exhaustion defence. The court considers that there were various indications that Xerox did not put its cartridges provided in the framework of a maintenance agreement on the market in the EEA, neither did Xerox consent to have said cartridges commercialized on the EEA market by a third party.

Firstly, the court establishes that the PagePack and eClick agreements contain a retention of title clause in favour of Xerox as well as an obligation to return unused cartridges without compensation. In support of the latter obligation, Xerox submitted evidence of correspondence with end users regarding the uncompensated return of surplus toner cartridges as well as evidence of an employee position specifically dedicated to the implementation and follow-up of this return policy.

Secondly, the Brussels Court of Appeal also found that Xerox took further precise precautionary measures to clearly externalize the contractual restriction—ie the retention of title—by distinguishing the cartridges at issue from those sold without maintenance services. In particular, they have a different packaging, and bear the PagePack or eClick trade marks. In addition, the cartridges could not be ordered through the regular purchase channel for all Xerox users without a maintenance agreement. Although not a trade mark, the court finally considers the use of the term ‘metered’ in combination with the ‘Phaser’ and ‘XEROX’ trade marks as another indication that the respective cartridges were supplied in accordance with a maintenance agreement and thus subject to the retention of title and return clauses.

Thirdly, the Brussels Court of Appeal held it important that these type of contractual restrictions were not uncommon in the sector and that Impro should have been aware thereof, since it is a professional reseller operating in the same sector.

Impro’s argument that the Xerox products were effectively acquired by Xerox’s clients as they were already paid for through the maintenance fee was rejected by the court. According to the court, Xerox’s cartridges were merely put at the disposal of the end user in the scope of a maintenance agreement and were indeed not placed on the market by Xerox, nor with its consent. The court ruled that Xerox’s trade mark rights are therefore not exhausted and considered Impro’s trade in such cartridges infringing.

Practical significance

The Brussels Court of Appeal ruled that contractual provisions—in combination with specific circumstances—that convey the trademark proprietor’s intention may prevail over exhaustion rules. Hence, the fact that the trade mark proprietor’s intention is somehow externalized seems to be decisive and not the trade mark proprietor’s intention as such.

The court’s reasoning is in line with the CJEU’s ruling in the Coty Prestige v Simex case (CJEU, 3 June 2010, C-127/09) and the Copad v Dior case (CJEU, 23 April 2009, C-58/09). The CJEU held in those cases that contractual restrictions imposed by the trade mark owner may indeed bar exhaustion. According to the CJEU in Coty Prestige v Simex, such contractual post-sale restrictions may indeed be effective insofar as they are externalized, namely visible for third parties (eg explicit ‘demonstration’ and ‘not for sale’ notices on perfume packaging). Hence, such contractual restrictions will necessarily have an impact on the position of third parties (see, to the contrary, CJEU, 30 November 2004,Peak Holding v Axolin-Elinor, C-16/03, where the CJEU held that contractual restrictions barring exhaustion could only affect the relationship between the parties to the contract).

At the same time, we consider that this decision of the Brussels Court of Appeal goes further than what was already decided by the CJEU, since the former court has not considered it not required that restrictions such as a retention of title are explicitly mentioned on the packaging of the product. Externalization by other means (eg through either a dedicated trade mark or sign, or a specific word) seems to suffice. This opens the door for different contractual possibilities and more importantly different means of externalization thereof to convey the trade mark proprietor’s intention to the downstream purchaser.

A discussion on the possible effect of post-sale restrictions vis-à-vis third parties also led to a recent decision in the US. The United States Court of Appeals for the Federal Circuit held that such restrictions with respect to patented goods may have effect against any subsequent purchasers having knowledge thereof, even in the absence of a contractual relationship (Lexmark Int’l, Inc. v Impression 24 Prods., Inc., Nos. 14-1617, -1619, 12 February 2016). Also there, third parties’ knowledge of the patentee’s intention appears to be the decisive factor.

It will be interesting to see to what extent the CJEU, if and when confronted with similar facts, will confirm that trade mark proprietors may contractually mitigate exhaustion rules, especially in cases where the contractual restrictions are supported by less obvious accompanying circumstances.

© The Author(s) (2016). Published by Oxford University Press. All rights reserved.

Editorial - Something is rotten in the state of the EPO

In our latest issue, Editorial Board member Darren Smyth passionately discusses recent troubling events at the EPO, calling for prompt and incisive actions to address these issues, rethinking the structure and governance of the EPO. You can read the editorial below - Darren concludes his piece by noting that "[t]he EPO represents a unique problem and demands a unique solution, which must now be found". Which solution(s) would readers suggest?

Something is rotten in the state of the EPO 

Darren Smyth 
Email: dsmyth@eip.com
When the drafters of the European Patent Convention conceived of a system whereby the heads of the national patent offices would form an Administrative Council (AC) as a kind of legislature that would exercise oversight over the executive powers of the President, they must have believed they invented a good system. Who could be more disinterested and impartial than the national offices, which were actually competitors of the European Patent Office itself? What the drafters could not have realized, but has now become apparent, it is that the national offices might come to rely financially on the EPO, either in the form of income from renewal fees for patents where the national office has done no examination, or more directly in the form of cooperation and assistance funds. 
Recently, the EPO has been beset by problems. A programme of reform has been pushed through which has led to widespread industrial unrest amongst the workforce, and distrust between the examiners and senior management. The problems have been exacerbated by the fact that the only legal recourse for aggrieved EPO employees is the International Labour Organisation, which has an immense backlog (partly caused by the number of EPO grievances) leading to a delay of many years before cases are decided. While there was little dispute that some reform was needed, the pace and character of the reforms, as well as their style of introduction, created a toxic atmosphere, the scale and causes of which were denied by the management, and relatively unrecognized outside of the EPO itself. The relatively generous salaries of EPO examiners led to a lack of sympathy in some quarters. The wider world only noticed the increasingly troubled situation at the EPO when a member of the Boards of Appeal of the EPO was suspended by the President without the prior sanction of the AC, an action that appeared to compromise the judicial independence of the Boards of Appeal. This occurred shortly after a seminal decision of the Enlarged Board of Appeal (EBA), which upheld an objection of suspicion of partiality against its Chairman, on the sole basis of his dual administrative role within the management of the Office. The response of the President, transferring some administrative powers from the EBA Chairman to himself, seemed to make the problem worse rather than better. 
The judicial independence of the Boards of Appeal is crucial to the finality of their decisions. If the Boards are not accepted as a judicial instance, a national court could decline to give effect to their judgments on the basis of lack of compliance with European legal norms such as those embodied in Article 6 ECHR (right to fair trial). Before recent events, although national courts had always accepted the judicial character of the Boards, Board members took the view, supported by some commentators, that more autonomy was desirable. However, a proposal to increase the autonomy of the Boards had been shelved by the current administration. 
It was clear that action needed to be taken, but new proposals from the President to modify the administrative structure of the Boards seemed to conflate independence with efficiency, and also addressed other matters, such as the management of possible conflicts of interest of Board members, which had never in reality seemed to be a problem. There was more concern with the appearance of independence, such as the physical location of the Boards, than independence itself. 
These developments caused the wider IP community in Europe to take an interest in the situation. The EPI, national patent attorney associations, and industry bodies, as well as the Boards themselves, made representations to the President and, when these seemed to fall on deaf ears, to the AC directly. Now, finally, it seems that consideration will be given to an autonomous structure for the Boards. But consideration also needs to be given to the wider governance of the Organisation. The EPO is a transnational body with immunity from jurisdiction and execution (which led to the moniker “Eponia” - a quasi-State). It is free from both direct political control and judicial review. Therefore, the oversight afforded by the AC is the only check of the executive. Can it now be considered that the AC structure is capable of providing resilient governance, when in many cases this may involve biting the hand that feeds them? Something more robust is surely required. 
Where does the answer lie? The closest comparable institution is OHIM, which does not provide a model since it is an EU body, and its decisions are subject to two instances of judicial appeal. The EPO represents a unique problem and demands a unique solution, which must now be found. 
© The Author(s) (2016). Published by Oxford University Press. All rights reserved.

June issue now out - what's in it?

As readers know, JIPLP is renowned, among other things, for running ahead of schedule. Unfortunately, our latest issues have been delayed due to unexpected production hitches that affected most of the law journals published by OUP. These issues, which originated from OUP's shift to a new typesetter, have now been resolved and we hope to catch up with our publication schedule as soon as possible. In the meanwhile, let me remind you that many articles, case notes and reviews are available online before issues are formally published - you can read them through OUP's Advance Access feature (freely available to all subscribers).

Here's what you can find in our latest issue, which is now available in print and online. If you are not a subscriber, you can find more information about our subscription schemes here. You can also purchase short-term access to individual articles by visiting the relevant page on JIPLP's website.


Table of Contents

Volume 11 Issue 6 June 2016

Editorial

Current Intelligence

Articles

From GRUR Int.

IP in Review