May 2009
Luxury Brands Get Luxury Treatment
Does your brand have an allure and prestigious image which bestows an aura of luxury? Well if it does you may be able to prevent your licensees from selling your branded goods through undesirable channels according to a recent decision from the European Courts.
A recent case involving luxury brand, Christian Dior, has clarified the position. Christian Dior sued one of its licensees, Société Industriele Lingerie (SIL), after it sold Christian Dior products to discount retail chain, Copad.
Christian Dior entered into a trade mark licence agreement with SIL in 2000 in respect of the manufacture and distribution of luxury corsetry goods bearing the Christian Dior trade mark. The agreement provided that in order to maintain the repute and prestige of the Christain Dior brand, SIL would not sell to discount stores. This is precisely what SIL did so Christian Dior sued them for trade mark infringement (as opposed to breach of contract).
SIL responded by saying that by granting the licence Christain Dior had consented to the sale of the trade marked goods. Therefore Christian Dior’s trade mark rights had been exhausted (under European trade mark law if a trade mark owner consents to the use of its trade mark within the European Community then this is known as exhaustion of rights and the trade mark owner is prevented from enforcing its trade mark rights against subsequent sellers further down the chain).
The question for the various French national courts and the top European court, the European Court of Justice (ECJ), was whether this did amount to exhaustion of rights or whether, due to the specific restrictions in the licensing agreement, SIL had in fact acted without the consent of Christian Dior and had caused damage to the trade mark. The ECJ stated that goods sold under the Christian Dior trade mark had “the allure and prestigious image which bestows on those goods an aura of luxury". By selling these goods through discount stores SIL had potentially damaged this so-called “allure” and “prestige”. Therefore Christian Dior were entitled to sue for trade mark infringement (in addition to breach of contract).
Briffa’s Opinion
This is a helpful decision since it highlights a specific risk with granting trade mark licences. A trade mark’s primary function is to protect the goodwill that is associated with your business. If your trade mark ends up in the wrong hands because you have licensed your rights to the wrong licensee then this could potentially cause significant damage to your goodwill.
In this case SIL (now in liquidation) were experiencing financial difficulties which caused them to breach the terms of the licence by flogging designer goods to discount stores. It is possibly for this reason that Christian Dior decided to sue them for trade mark infringement rather than breach of contract because infringement cases provide greater scope for pursuing company directors personally after a company goes into liquidation. Christian Dior succeeded in this case because it is a famous, luxury brand and the potential damage was obvious. However smaller trade mark owners may not be able to rely on this.
For this reason it is vital that you conduct due diligence on all potential licensees. Once you have done this then you will need a well drafted licence agreement to provide you with the maximum protection providing for restrictions (as in this case) and get out clauses in the case of licensees misbehaving.
For further information contact info@briffa.com.