Fragrance brands face a pot pourri

Editorial: Jeremy Phillips

Citation: Journal of Intellectual Property Law & Practice 2009 4(10):685; doi:10.1093/jiplp/jpp153

It has been a good summer for the luxury scent industry. The decision of the European Court of Justice in Case C-59/08 Copad v Christian Dior has given owners of famous and expensive brands the encouragement to review their marketing policy in the knowledge that the sale of products, once placed in the safe hands of carefully selected distributors, may still be policed by them when those goods have fallen into the clutches of less prestigious sellers. Then came the bonus of the same court's subsequent ruling in Case C-487/07 L'Oréal v Bellure that the invocation of a well-known trade mark as a means of describing to a consumer the fact that a competing cut-price product resembled it would in most practical instances constitute an infringement of the registered right.

Will the good times last? It is difficult to predict. Copad enables the brand owners to invoke the need to protect the ‘aura of luxury’ that surrounds their expensive products, but the reasoning of the Court appears to be based on the assumption that perfumes are expensive and luxurious items that people purchase for themselves. Is this so? A recent online survey on the IPKat weblog suggests not. Admittedly, the number of respondents was small (134) and there were no means of ascertaining how representative of the relevant consumer this sample was. However, its results were revealing.

Just under one quarter of the respondents indicated that their normal mode of acquiring a perfume was via the chic and glamorous ambience of an up-market parfumerie, the traditional outlet for such products in continental Europe. In contrast, exactly 50% reported a greater degree of interest in competitive pricing than in the glamour of the purchasing experience: this group can be divided into two uneven sectors: the larger group (31%) who restrained their purchase habits until they visited a duty-free shop and the remaining 19% who bought their fancy scents online. The remaining 36% did not purchase perfumes, but rather received them as gifts.

It cannot be denied that some degree of glamour and excitement attaches itself to the purchase of expensive branded goods at a duty-free shop, since many such outlets are pleasantly appointed and share the vicarious frisson of excitement and adventure which many of us still experience when travelling abroad. However, the overall picture is one of a market of which a full 76% of respondents do not seek to acquire their fragrances from a distributor selected by the manufacturer and 50% avoid making their purchases there for reasons that include, but are probably not limited to, price sensitivity. In situations such as this, it is inevitable that the European Commission will be invited to reconsider its position on the desirability of allowing selective distribution agreements that have the effect of maintaining higher prices. It is equally inevitable that the perfume industry will be asked to respond to questions such as ‘are your luxury products less luxurious in markets where selected outlets face greater price competition?’

Regarding the protection given against the use of well-known brands in the marketing of smell-alike products, the perfume industry appears to be better placed. The ruling of the Court is arguably based upon a fudging of the distinction between a competing product being an imitation of (i) the brand owner's product qua product (ie as a genre) and (ii) the brand owner's product qua branded product sourced by that brand owner. In other words, there is a difference between the manufacturer of a smell-alike product saying ‘my product imitates brand X fragrance’ and ‘my product imitates the characteristics and functionality of a product which, when manufactured by the brand owner, is sold under the brand X’.

For as long as it is difficult or impossible for the Court, or indeed the consumer, to appreciate the subtle differences of these messages, the leading brands should feel secure enough. They have a ruling in their favour, they have a war chest that will tolerate protracted large scale litigation, and, most importantly, they have every reason for wishing to preserve the market position that they have worked so long and hard to achieve. While the long term may presage a diminution in their ability to determine how and where their precious goods are sold, and while the protection against free-riders remains—like an umbrella in the rain—capable of offering cover that extends beyond the object of protection, the short term looks rosy.

ECJ rules on jurisdiction for IP licence disputes

Author: Paul Joseph (Freshfields Bruckhaus Deringer)

Citation: Journal of Intellectual Property Law & Practice 2009 4(9):616-617; doi:10.1093/jiplp/jpp118

Falco Privatstiftung and Thomas Rabitsch v Gisela Weller-Lindhorst, Case C-533/07, Court of Justice of the European Communities, 23 April 2009

The European Court of Justice (‘ECJ’) has ruled that an IP licence does not constitute a contract for ‘the provision of services’ under Article 5(1)(b) of the Brussels Regulation. One of the other grounds of jurisdiction (most likely defendant's domicile) must be applied instead.

Legal context

Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‘Brussels Regulation’) harmonizes the rules on jurisdiction among the courts of the EU. Article 2 sets out the basic rule that a person domiciled in a Member State should be sued in the courts of that Member State. This basic rule is supplemented by the rules on special jurisdiction set out in Article 5 which provide various additional grounds for jurisdiction in the courts of other Member States, for example the court of the place where a tort is committed (Article 5(3)) or the court of the place where a trust is domiciled (Article 5(6)).

Article 5(1) states that a person may be sued

(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
– in the case of the sale of goods, the Member State where, under the contract, the goods were delivered or should have been delivered;
– in the case of the provision of services, the Member State where, under the contract, the services were provided or should have been provided
(c) if subparagraph (b) does not apply then subparagraph (a) applied.

The text of Article 5(1) of the Brussels Regulation expands on and supersedes Article 5(1) of the earlier Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (the ‘Brussels Convention’). The Brussels Convention simply contained the wording in Article 5(1)(a) of the Brussels Regulation and did not include the extra detail in 5(1)(b).

Facts

The case concerned the exploitation of rights in the music of Johann (Hans) Hölzel, better known by his stage-name ‘Falco’. Falco was an Austrian rap, pop, and rock musician who had sprung to international fame through his 1986 hit single ‘Rock me Amadeus’. Falco died in a road traffic accident in 1998 at the age of 40. The claimants were both domiciled in Austria: Thomas Rabitsch, a former band member, and Falco Privatstiftung, a foundation established to manage the copyright in Falco's works. The defendant domiciled in Germany was Gisela Weller-Lindhorst, a media seller. The parties entered into a licence agreement under which the defendant was licensed to distribute in Germany, Austria, and Switzerland a video recording of a Falco concert. The defendant did this but also engaged in the allegedly unlicensed distribution of audio recordings of Falco's music in these territories.

The claimants brought proceedings against the defendant for the non-payment of royalties in relation to the video recordings, and a copyright infringement claim in relation to the audio recordings.

The courts' findings on jurisdiction and the key question referred to the ECJ are summarized in the table below.

Court Does the Austrian court have jurisdiction over the copyrightinfringement claim (audio recordings)? Does the Austrian court have jurisdiction over the royalty dispute under the licence (video recordings)? Commercial Court, Vienna Yes—tort committed in Austria. Article 5(3) Yes—close connection to the copyright infringement action Higher Regional Court,Vienna Yes—tort committed in Austria. Article 5(3) No—jurisdiction governed by Article 5(1)(a) and main obligation to be performed in Germany where payment due. Article 5(1)(b) not relevant because a licence is not a provision of a service Supreme Court, Austria: Key Reference Is a contract under which the owner of an IP right grants the other contracting party the right to use that right a contract regarding ‘the provision of services’ within the meaning of Article 5(1) (b) of the Regulation?

Analysis

The ECJ held that as the Brussels Regulation itself does not define the concept of a contract for ‘the provision of services’, it must be interpreted in light of the origins and objectives of the Regulation; namely to establish highly predictable rules of jurisdiction and achieve legal certainty.

On a common sense approach, the concept of ‘services’ implies that the ‘provider’ at least carries out a particular activity in return for remuneration. The ECJ took the view that the owner of an IP right does not perform any particular activity in granting a licence to a third party to use that right, but merely undertakes not to challenge the use of that right by that third party.

The ECJ backed up its reasoning by pointing out that the main jurisdictional rule under the Brussels Regulation is that a party should be sued in the country of its domicile (Article 2). Since the rules on special jurisdiction set out in Article 5 should be narrowly interpreted, Article 5(1)(b) should be confined to the special cases of true contracts for the sale of goods or the provision of services and not to other activities that only arguably fall under such headings. As stated explicitly in Article 5(1)(c), if Article 5(1)(b) does not apply then the general rule in Article 5(1)(a) (that the court of the place where the main obligation is to be performed has jurisdiction) would apply. The Higher Regional Court had earlier ruled that this would result in German, not Austrian jurisdiction (since the main obligation, the payment of the debt, was to take place in Germany).

In response to a further question referred by the Austrian Supreme Court, the ECJ added that, in determining questions of jurisdiction, the courts must continue to have regard to the principles established in the case law of the ECJ on Article 5(1) of the Brussels Convention (notwithstanding that having been superseded by the Brussels Regulation). As the Advocate General pointed out, the additions to Article 5(1) made in the Brussels Regulation should be seen as merely taking into the account the interpretation through case law provided by the Court to the same provision of the Brussels Convention.

Practical significance

It is trite but true that contractual parties who wish to be certain about court will take jurisdiction over contractual disputes need to deal with the point explicitly in the contract by way of an exclusive jurisdiction clause. This judgment does not change that. Nor does the judgment explain how the courts should deal with a situation where a contract contains both an IP licence and also an obligation to provide goods or services. Take the example of a distribution agreement under which the principal both provides goods to the distributor and also grants a trade mark licence enabling the distributor to market those goods under the appropriate brands. Would the court of the distributor's domicile be required to take jurisdiction over a dispute involving the supply of goods under Article 5(1)(b) but not over the brand licence? It might depend on how the payment obligations are structured—an interesting point perhaps for the academically inquisitive or those that are attracted to litigation spanning several years. Everyone else should stick to exclusive jurisdiction clauses.

Correspondence: Email: paul.joseph@freshfields.com