Higher Regional Court of Düsseldorf allows luxury cosmetics manufacturer to prohibit online and offline sales of its products by German supermarket chain

• 29/06/2018
• Articles

On 6 March 2018, the Higher Regional Court of Düsseldorf held that Japanese luxury cosmetics manufacturer Kanebo could prevent German retail chain Real from selling its products under the brands Kanebo and Sensai EU-wide, both online and in brick and mortar stores.

Kanebo’s skin and hair care products, makeup and perfumes are marketed under a qualitative selective distribution system. Kanebo holds word and figurative trade mark registrations with the European Union Intellectual Property Office (“EUIPO”). The retail chain Real, which does not form part of Kanebo’s selective distribution network, mainly sells groceries, but also sells household products, electrical appliances, textiles and cosmetics. Real placed Kanebo’s products on the market in both physical stores and online.

As a general rule, under the exhaustion principle, the owner of an EU trade mark cannot prevent the re-sale of his product which was placed on the EEA market by himself or with his consent.

Kanebo, which did not have any contractual links with Real, based its action on Article 15(2) of Regulation 2017/1001 (the European Union Trade Mark Regulation or “TMR”) which was implemented by Section 24(2) of the German Trade Mark Act. This provision states, as an exception to the principle of exhaustion, that a trade mark owner is entitled to prohibit the use of his trademark if there are legitimate reasons to oppose further commercialisation of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market.

The Higher Regional Court of Düsseldorf considered that the exception to the principle of trade mark rights exhaustion has to be interpreted restrictively, but still applies if, like in the present case, there is a threat of reputational damage.

The Court referred to the case law of the Court of Justice of the European Union (the “ECJ”) which has repeatedly recognised the interest of owners of prestigious brands to secure the luxury image of their goods. The ECJ held in Copad (Case C-59/08) that the reputation of a luxury trade mark may be harmed by the sale of products through discounters. A selective distribution network for luxury goods that primarily aims to preserve the luxury image of the goods was considered compatible with Article 101(1) TFEU since it secures the quality of the luxury goods and their proper use. The Higher Regional Court of Düsseldorf also relied on Coty (Case C-230/16), in which the ECJ held that producers of luxury products may prohibit the distribution of their goods through third party online platforms, as long as online sales are not per se prohibited (see VBB on Competition law, Volume 2017, No.12).

The Higher Regional Court of Düsseldorf recognised that the above case-law did not emerge exclusively in a competition context as some cases only involved trade mark law. It justified the reference to competition cases by pointing out that the ECJ in competition cases such as Coty equally relied on reasoning that was used in trade mark cases, such as Copad. The Higher Regional Court of Düsseldorf, therefore, concluded that the ECJ takes the view that such cases have to be dealt with in a uniform fashion, irrespective of whether competition law or trade mark law applies.

The Court then found that the circumstances of the sale of Kanebo's luxury cosmetics by Real were likely to damage the reputation of the trademark. The sales environment, both online and offline, was not comparable to the luxurious environment in which the products were usually sold by the manufacturer through its selective distribution system.

The Court considered of particular relevance that Real sold the goods alongside mass-produced and discounted products of all kinds, that no product consultation took place, that the platform (on which third parties could sell as well) focused on price, with highlighted special offers, crossed out prices and the indication of the percentage saved compared to the original price. Furthermore, the Court noted that the products counted towards a PAYBACK system which included all products and that financing was possible, which made them seem easily affordable.

The Court concluded that all these factors seriously undermined the prestigious image of the products, since this form of distribution ultimately negates Kanebo’s claim of the exclusive and luxurious appeal of its branded products.

This conclusion was not affected by the fact that the goods were available on online sales platforms such as Douglas, www.ebay.de and www.amazon.de. Douglas forms part of Kanebo’s selective distribution system. Therefore, the Court considered that the danger resulting from the fact that Kanebo does not have the possibility to control the conditions of sale does not apply. Furthermore, the Douglas online shop was not open to products of all kinds, was not mainly focused on price, had a different presentation from that of Real and provided detailed product descriptions.  In relation to eBay and Amazon, Kanebo succeeded to convince the Court that the products sold on these platforms were grey market products which were not offered by Kanebo or its authorised distribution partners. In addition, Kanebo showed that it took action against such offers, where possible.

The present decision is interesting in that it expressly aligns trademark and competition law. It demonstrates the potential for trade mark owners and brand manufacturers of other high-quality products, such as technical devices with a prestigious image, to claim that the online and offline sales of products offered outside a qualitative selective distribution network should be prohibited, not only where there is a danger that the product has been changed or impaired after being placed on the market, but also where the sales may harm the products’ reputation.