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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Zino Davidoff SA v M & S Toiletries Ltd [2000] ScotCS 98 (4 April 2000) URL: http://www.bailii.org/scot/cases/ScotCS/2000/98.html Cite as: [2000] ScotCS 98

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[1] The pursuers make and market high quality toiletries, cosmetics and related goods. In connection with their business they are the proprietors of a number of registered trade marks. In particular they own UK trade mark 1455766 in Class 3, dated 14 February 1991. This registration was renewed for a period of ten years from 14 February 1998. They also own international trade mark 615313 in Class 3 dated 4 February 1994 registered under the Madrid Protocol for the United Kingdom. The registrations protect the use of the trade mark "Davidoff Cool Water" in relation to the goods which they make and market.

[2] The action, which came before me on Procedure Roll, concerns a consignment of packaged units of perfume and aftershave which were detained in Grangemouth on or about 24 June 1998 by officers of H M Customs and Excise. The consignment had arrived in Scotland in a container originally shipped from Singapore on 2 June 1998 and transhipped in Rotterdam on about 20-22 June 1998. The defenders were the consignees and importers of the said container and its contents. It is a matter of agreement on Record that the products were found to be genuine products manufactured by a licensee of the pursuers and that they were contained in packaging applied by said licensee. The pursuers further aver that

In the action the pursuers seek inter alia interdict against the defenders or anyone on their behalf from disposing of, selling, offering for sale, exporting, taking delivery of, parting with possession of, distributing or otherwise dealing with, any and all of the consignment.

[3] It was agreed before me that the "Exclusive Distributorship and Service Agreement" No.6/8 of process, was to be treated as the contract in terms of which the pursuers or their licensee regulated the marketing of the goods condescended upon outside the EEA, namely in Singapore. In that agreement Luxasia Singapore are referred to as "the Distributor". Article 2.1 of the said agreement provides:

The "Products" are defined as meaning all products manufactured by the Supplier or by a third party duly appointed for such purpose distributed directly or indirectly by the Distributor under the Tradmarks defined in the Agreement. The "Territory" is taken to mean all the domestic markets of Singapore, Malaysia, Indonesia, Philippines, Hong Kong, Taiwan, Thailand, Vietnam, Laos, Cambodia, Sri Lanka, Myanmar, excluding duty free outlets. Article 4.3 provides:

Article 7.2 provides:

Article 7.4 provides:

In terms of clause 13.3 the Distributor undertakes inter alia to inform the Supplier as soon as he becomes aware of any acts of infringement of any Trademark rights (13.2) and to assist the Supplier with any action to protect these rights (13.3) "Trademarks" are defined as including all marks whether registered or not under which the Supplier distributes directly or indirectly the Products on a world-wide basis. By Article 18 it is provided that the Agreement is to be governed by German law.

[4] Article 7 of the First Council Directive 89/104 EEC of 21 December 1988 to approximate the laws of the Members States relating to trade marks ("the Directive") provides:

From 1 January 1994 the Directive was one of the legislative acts incorporated into EEA law by the Agreement which established the EEA. Article 7(1) of the Directive was thereby amended so as to refer to marketing within the EEA rather than the Community.

[5] Section 12 of the Trade Marks Act 1994, passed inter alia to give effect to the Directive, provides:

[6] In this action the pursuers claim to be entitled to prohibit the defenders from inter alia marketing the products forming the relevant consignment within the United Kingdom under the said trade marks without their consent. In essence they seek to found on the primary rights conferred on trade mark proprietors by Article 5 of the Directive (section 10 of the Trade Marks Act 1994). It is their position that they have not consented to the goods being put on the market in the EEA in terms of Article 7 of the Directive (section 12(1) of the Trade Marks Act 1994).

[7] On Record there are essentially two principle lines of defence. In the first place it is averred

Standing the opinion of the Advocate General and judgment of the European Court of Justice in Sebago Inc. and Ancienne Maison Dubois et Fils SA v G B - Unic SA 1999 2 CMLR 1317, it was accepted before me that that argument could no longer be maintained.

[8] The defenders further contend that the pursuers consented to the placing of the relevant goods on the market within the EEA. In particular it is averred -

It is further averred -

[9] The debate before me was restricted to the question of whether the defenders' averments relating to the alleged consent of the pursuers under Article 7(1) of the Directive (section 12(1) of the 1994 Act) were relevant (and whether in turn the pursuers' case contained relevant averments to negative the giving of such consent). I record, however, that it was accepted that whatever the court decided on this central issue there were still issues between the parties - also apparently suitable for debate - which would require to be resolved at a future date. In particular, even if the pursuers were successful, a question would still arise as to the propriety of the whole remedies which they sought. In particular the defenders would seek to take issue with the first broad conclusion for interdict and with the claim in conclusion 4 for an order for delivery up to the pursuers of the consignment in terms of section 16 of the Trade Marks Act 1994. Equally if the defenders were successful, a question remained as to whether the pursuers nevertheless had relevant averments to support the position that in any event they had legitimate reasons (in terms of Article 7.2 of the Directive and section 12(2) of the 1994 Act) to oppose any further dealings in the goods by the defenders. In particular, it is the pursuers' contention on Record that -

These averments, at Article 5 of condescendence, are further developed in condescendence 6. It was agreed before me that consideration of these other matters should properly be reserved for a later occasion.

[10] Although the order of presentation before me was different, it is simplest and most convenient to deal first with the defenders' position. Mr Connal accepted that the dispute between the parties related directly to the degree to which so-called parallel imports might be prevented by a trade mark proprietor. The proper function of trade marks was, as was well recognised, to guarantee the origin of the product to the consumer. Reference was made inter alia to the opinion of the Advocate General and judgment of the ECJ in Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH 1998 1 C.M.L.R. 953 (and in particular to the Advocate General's opinion at para.48), Sebago Inc. and Ancienne Maison Dubois et Fils SA v G B - Unic SA (and in particular to the Advocate General's opinion at para.26 and to the judgment of the court at para.16) and to Zino Davidoff SA v A & G Imports Limited 1999 All. E.R. 711 (and in particular to the opinion of Laddie J at paras.12 and 13.) Notwithstanding that, the apparent rationale for the pursuers' action was commercial and in particular to allow them to protect price differentials applying to their products as between Singapore and the United Kingdom. The pursuers themselves aver that their goods are sold at materially lower prices in the former market. It is no part of the function of a trade mark to enable the owner to divide up the market and exploit price differentials. To allow parallel importing of the type which the pursuers seek to prevent would bring advantages to consumers. It would promote price competition. The attraction of these arguments was noted in Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH (and in particular by the Advocate General at para.49), in Sebago Inc. and Ancienne Maison Dubois et Fils SA v G B - Unic SA (in particular by the Advocate General at para.26) and by Laddie J in Zino Davidoff SA v A & G Imports Limited (in particular at para.36). Against that background there was good reason to suppose that "consent" in Article 7.1 (and section 12(1) of the 1994 Act) should not be more narrowly construed than necessary. The language, on the face of it, had been chosen to be deliberately wide. No specific qualifications were added, for example, to the effect that consent required to be in writing. There was nothing in particular to indicate that consent could not be implied. On the face of it the circumstances in which a proprietor could give or withhold consent could be infinite. A proprietor who imposed strict conditions against import into the EEA in a relevant contract could none the less, in principle, be said to have consented if, in knowledge of subsequent import into the EEA, he did nothing to prevent it. The language of the Article would allow for consent to be assessed as a matter of fact and circumstance in any case. Such an approach did not offend against the purpose of the Directive to achieve harmonisation; such harmonisation being achieved by the need for consent itself.

[11] Against that background Mrs Connal argued that where, as in this case, it could be seen that the pursuers had not taken certain steps which they could have taken to prevent future import of the goods into the EEA (all against a background in which they must have known that there was a risk of parallel imports) it was reasonable to imply that they must have consented thereto. Although it was recognised that on one view the clauses of the relevant contract appeared to indicate a clear intention that the goods be the subject of retail sale within the Territory, the Suppliers did not seek to impose conditions on retail customers, nor on any others who might purchase outwith the category of sub-distributors, sub-agents and retailers. Further there was nothing to suggest from the labelling or packaging of the goods that the pursuers did not consent to import into the EEA. There was no express prohibition on such packaging. By such indications the pursuers' intention could have been underlined. Secondly such packaging or labelling could have been effective as a deterrent. It would be open to infer that the steps desiderated had deliberately not been taken - although this was not strictly necessary for the defenders' argument. The argument of the defenders followed, it was said, at least the approach of Laddie J in Zino Davidoff SA v A & G Imports Limited. The defenders however did not seek to support all the arguments and comments which had been made in that case. In particular, in the instant case, the defenders were content to look at the relevant conditions (which, as it happened, were exactly the same) without any reliance on or reference to what were described as the special aspects of English law relating to presumed consent which were considered in Zino Davidoff SA v A & G Imports Limited, in the context of agreement between parties in that case that the proper law of the contract was either English law or must be assumed to be the same as that law. In this case, the defenders' approach was to be commended regardless of the specific nature of the proper law of the contract. It was not an approach, despite what the pursuers might say, which allowed for international exhaustion of the trade mark proprietors' rights by the back door, contrary to the proper interpretation of the Directive confirmed in the case of Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH. In the alternative it was submitted that if the answer to the question was thought to depend upon the proper law of the contract, or contracts, of supply, proof should be allowed in relation to German law, which, it was accepted, was the proper law of the relevant agreement.

[12] Counsel for the pursuers, although not seeking to define absolutely the circumstances in which consent under Article 7 could be said to have been given, and not going so far as to submit that such consent could not in any case be implied, nevertheless submitted that it was clear on any reasonable view in this case, and in particular having regard to the conditions imposed in the supply agreement, that the pursuers could not be said to have consented to the putting of the relevant goods on the market in the EEA. On a proper construction of the conditions, in particular Articles 4.3, 7.2 and 7.4, it was clear that the pursuers intended that the goods be the subject ultimately of retail sale in the Territory and not beyond. This was to be achieved by sales either directly to retailers by the distributor (with retailers being obliged under clause 7.2 to refrain from sales outside the Territory) or by sales to retailers by sub-distributors or sub-agents of the distributor, who would nevertheless themselves be bound by the same conditions as the distributor (Article 7.4) - i.e. not to sell outwith the Territory and to oblige all retailers purchasing from them to refrain from such sales (Article 7.2). The agreement did not countenance parties in the chain who would not be so bound. There was no reason to suppose that retail customers, who would be expected to consume, would engage in parallel importing into the EEA. The defenders in argument had identified no others who in terms of the Distributorship Agreement could be expected to purchase and who would not be restricted appropriately. The pursuers, in short, had done all that they reasonably could in the Agreement to limit sales to the Territory. It was instructive to notice that although counsel for the defendants in Zino Davidoff SA v A & G Imports Limited had submitted that the conditions left -

Mr Connal for the pursuers had not sought to (nor could he) address similar arguments. Article 13 of the relevant conditions plainly reserved the pursuers' trade mark rights. Although the defenders sought to argue that clear notice should have been given on the labelling that the pursuers did not consent to the goods being sold within the EEA, this, so far as affording an indication of the pursuers' intention, added nothing to the terms of the supply agreement. Such steps, against the background of the commercial realities which pertained, were in any event likely to be ineffective, like the bar codes, the removal of which was recognised in Zino Davidoff SA v A & G Imports Limited as a way of deliberately disguising any weak link in the trade mark proprietors' chain of distribution. Such labelling or notices could be removed. They were, in any event unlikely to be commercially attractive suggesting, wrongly, a lesser quality. It was further important that the defenders did not seek to found upon what, they accepted, was an aspect of the law of England which played a significant part in the decision of Laddie J in Zino Davidoff SA v A & G Imports Limited - namely a rebuttable presumption that in the absence of full and explicit restrictions being imposed on purchasers at the time of purchase, the vendor was to be treated as consenting to the goods being used as the purchaser wished, including importation into the EEA - a proposition drawn from inter alia National Phonograph Co of Australia Limited v Menck 1911 AC 336 where it was applied in respect of patented goods. This was central to the court's decision. Although Scots law was not relevant to resolution of the present dispute it was uncertain whether such a principle would be applied, or applied in precisely the same way, here. Reference was made to Gloag on Contract at p.268. The decision of Laddie J was in any event only to the effect that the defendants had at least a credible and arguable defence and that therefore summary judgment should not pass against them. The argument for the defenders, made without reference to the proper law of the contract or contracts, was not sustainable. Further it was they, the defenders, who had introduced averments - in response to the pursuers' prima facie case under section 10 of the 1994 Act (Article 5 of the Directive) - that the pursuers must be taken impliedly to have consented to the proposed importation of the goods into the United Kingdom. That being so, it was for the defenders to make specific averments as to the proper law of any relevant contract, if that was necessary - particularly now that it was accepted (as it was not on Record) that German law applied to the Distributorship Agreement. In the absence of any specific reference to the content and effect of such law in the relevant context, there could be no question of any proof. It was not clear, for example, in the absence of such averment what "sufficient restriction" could effectively have been imposed "to prevent all distributors in the chain of distribution from importing goods into the EEA...".

[13] Further, there were more general considerations which called in question the approach adopted on behalf of the defenders.

[14] In the first place, as was recognised by the Advocate General and by the court in the case of Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH, Article 7(1) is a derogation from the rights conferred on the trade mark owner by Article 5(1) (see in particular the opinion of the Advocate General at para.34 and the opinion of the Court at paras.17 and 18). In these circumstances, as was expressly indicated by the Advocate General, "In general derogations should not be construed broadly" (para.34). Against that background before a trade mark proprietor could properly be said to have consented to the putting on the market of particular goods by a third party a reasonable construction would suggest that he must at least have had knowledge of the third party's actings or proposed actings in relation to the goods. This is how "consent" in the equivalent provision of Article 13.A.8 of the BMW has been interpreted by the Benelux Court of Justice in the case of Kipling v G B Unic (unreported - 6 December 1999). In that case, although it was not clear that the plaintiffs had prohibited their supplier of goods in the United States from exporting those goods again, nevertheless it was said

This, it was argued, was consistent with the approach of the Higher Regional Court of Frankfurt am Main in the unreported decision of Parfums Christian Dior GmbH v dm-Drogerie markt GmbH & Co KG (18 February 1999). In that case the court proceeded on the view, in circumstances where it was clear from the relevant agreements that the plaintiffs intended distribution in certain countries outside the EEA, that while the plaintiffs agreed to distribute in those countries they could not be said to have agreed to the import of such products into the EEA. At all events, such approaches were manifestly inconsistent with the defenders' approach, which sought to construe "consent" in a very wide way - indeed in a way which appeared to equiparate consent with failure to take steps to prevent.

[15] Secondly, it was clearly established that Article 7(1) of the Trade Mark Directive only provided for Community wide, and not for international, exhaustion of the proprietor's rights, and that on its proper construction Member States were precluded from adopting the principle of international exhaustion (Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH). As indicated by the Advocate General this was a conclusion which fell to be reached

(para.62). Reference was further made to paras.41 and 42 of the same opinion where it was said -

These views were essentially repeated at para.27 of the opinion of the Court. Further, these views were reached despite recognition of the apparently attractive arguments on the other side - essentially based on the function of any trade mark - similar to those presented by the defenders in the present case. Reference was made to para.49 of the Advocate General's opinion in Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH and para.26 of his opinion in Sebago Inc. and Ancienne Maison Dubois et Fils SA v G B - Unic SA. In para.30 of the latter case the Advocate General said "The Court cannot in my view be expected to stand legislation on its head in order to achieve an objective, even were it to be considered desirable." Against that background it had to be recognised that the approach adopted by the defenders came close to saying that unless a proprietor successfully ("effectively") blocked every avenue of possible later importation into the EEA, he was at risk of being held to have consented to such importation. In circumstances where any chain of distribution was contemplated the difficulties of imposing "effective" contractual conditions capable of preventing subsequent third party action were notorious - not least in Scotland given the history of the attempts of distillers of whisky to prevent third party bottling. The argument of the defenders, in short, ran the risk of allowing for international exhaustion by the back door. It would have the undesirable consequence of leading to a proliferation of conditions and notices despite general understanding that many such conditions would be likely to prove ineffective in circumstances where commercial reality underlined the profitability of parallel importing.

[16] Thirdly, it was argued that the approach of the defenders, which left it open to national laws (including potentially the national laws of Member States) to determine in a particular case whether consent had been given, tended to offend against the essential purpose of harmonisation behind the Directive. The Advocate General and the court in Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellshaft mbH had emphasised, under reference to the first, third and ninth recitals of the preamble to the Directive, that it sought to ensure, with certain limited exceptions, that trade marks "enjoy the same protection under the legal systems of all the Member States" and that the aim of approximation was directed at those provisions of national law "which most directly effect the function of the internal market". It was, as already seen, recognised that international exhaustion was one of the matters most directly effecting the functioning of the internal market. Reference was in particular made to paras.35, 39, 40 and 41 of the opinion of the Advocate General and paras.23-25 of the Opinion of the Court. At para.25 of the latter it was said -

Against that background there was much to be said for the view that on the same facts the decision as to whether relevant consent had or had not been given should be the same irrespective of the nationality of the deciding court or any specialty of the law which governed the contract. It should not be open to any Member State to adopt an approach which tended to make it easier for international exhaustion to be established. The approach the defenders tended, it was argued, to offend against these principles. By contrast an approach which at least recognised a requirement for the trade mark proprietor to know of the proposed importation would be more likely to provide for consistency.

[17] Lastly, counsel for the pursuers argued that the approach favoured by the defenders would be likely to lead to uncertainty in application - and in particular in the ascertainment of what would, or would not, in a particular case be regarded as "sufficient" and "effective" steps to impose restrictions. In cases where a chain of contracts preceded a sale to the party who wished to import into the EEA it would not be clear which contractual provisions were to be scrutinised and the proper law of contracts within a chain might differ.

[18] Leaving aside the more general considerations thus referred to in argument by counsel for the pursuers, I have come to the clear view that their attack on the relevance of the case made by the defenders in this case must succeed. It was not seriously disputed that the relevant contractual provisions disclosed a clear intention that the goods, the subject of the Distributorship Agreement, should be the subject of retail sales within the Territory and not beyond. Nor was it disputed that the agreement sought to provide that all distributors in the potential chain of distribution which was contemplated, up to and including sales to retailers, would require to impose on purchasers restrictions on sale outwith the Territory. Arguments apparently to a contrary effect in Zino Davidoff SA v A & G Imports Limited were not advanced before me. Mr Connal was unable to point to circumstances envisaged within the contract in which purchasers other than retail customers would purchase outwith the category of sub-distributors, sub-agents and retailers. The argument that consent to the import of the relevant goods into the United Kingdom (or elsewhere in the EEA) could be implied from such a contract regardless of its proper law was not argued in Zino Davidoff SA v A & G Imports Limited. It has also to be recognised that in that case Laddie J required only to ask whether the defendants had a credible or arguable defence in the face of an application for summary judgment. Even in that context, however, it seems plain that an essential and important part of the view which he reached (and of the argument advanced by counsel for the plaintiffs) was that

(para.39). Mr Connal made it plain that he did not, in argument, seek to found in this case (whether based on Scots law or otherwise) upon any law of contract to a similar effect, and the submission made by counsel for the pursuers that it was uncertain whether Scots law would adopt an approach similar to that adopted in National Phonograph Co of Australia Limited v Menck was not challenged.

[19] The additional step the absence of which was said to be critical - namely the placing of some notice on the label or packaging - was suggested primarily as being necessary to underline the intentions of the pursuers not to allow import into the EEA. This was not, it seemed to me, seriously in dispute, and could already be gleaned from the terms of the relevant contract. Further, I consider that counsel for the pursuers were well founded in doubting the efficacy of any such step against the accepted background that the commercial realities indicated that parallel importing was not unlikely even in the face of clear apparent wishes of the trade mark proprietor. Notices could be obliterated or removed. As was recognised in Zino Davidoff SA v A & G Imports Limited "it is because the defendant and its suppliers do not wish to help the plaintiff identify the weak links in its distribution network that the codes have been wholly or partially obliterated".

[20] In the whole circumstances it seems to me to be impossible to say that the omission of the steps desiderated by the defenders was deliberate. Further, if it is the defenders' intention to found upon any provisions of the now accepted proper law (namely German law) it is for them, the parties, who, faced with an action based on Article 5 (and section 10 of the 1994 Act), have introduced the question of whether the pursuers have impliedly consented under the derogation provision in Article 7(1) (section 12 of the Act), to make specific averments as to the nature and import of German law. Although they deny the pursuers' averments to the effect that German law does not provide for implied consent to the placing of the said products on the market, the defenders make no such specific averments.

[21] In all the circumstances, in my view, the averments of the defenders in the last two sentences of Answer 5 and the last three sentences of Answer 6 are irrelevant and should not be remitted to probation. Although it is agreed that these averments now form the essential core of the defence, questions still remain, as indicated above, in relation to the remedies which the pursuers seek and I shall, as agreed, put the case out By Order for consideration of further procedure.

[22] As to the more general arguments advanced by counsel for the pursuers, in relation to the proper approach to consent in Article 7(1), these too appear to me to be at least substantially well founded. I do not think it appropriate, however, to say more than that in circumstances where, as I was informed, references have been made to the European Court of Justice both by the court in Zino Davidoff SA v A & G Imports Limited, itself and by Pumfrey J in two cases in which Levi Strauss & Company and Levi Strauss (UK) Ltd are claimants (the first against Costco (UK) Limited, the second against Tesco Stores Limited and Others). Neither party before me invited me to make a similar reference, both apparently being content that the matter now be resolved. In these circumstances, and having regard to the relatively narrow basis upon which I have felt able to decide the matter, I have come to the view that it is unnecessary for me to do so.