Lexicon > Exhaustion of rights

IP Lexicon

Exhaustion of rights

The rule of exhaustion of rights is contained in Article 15 of Directive (EU) No. 2015/2436 on trademarks as well as in Article 4, § 2, of Directive (EU) No. 2001/29 on copyright, which provides that:

“The right of distribution in the Community in respect of the original or copies of a work shall not be exhausted until the first sale or other transfer of ownership in the Community of that subject matter by the right holder or with his consent.”

The provisions as codified in French law are as follows:

  • With respect to trademarks, the law provides that:

“The right conferred by the mark shall not entitle its proprietor to prohibit its use in relation to goods which have been put on the market in the European Union or in the European Economic Area under that mark by the proprietor or with his consent.

However, the owner of the trademark may oppose any new marketing act if he or she can justify legitimate reasons, particularly with regard to the modification or alteration of the condition of the goods” (article 713-4 of the Intellectual Property Code);

  • In terms of copyright, the law provides that:

“Once the first sale of one or more physical copies of a work has been authorized by the author or his successors in title in the territory of a Member State of the European Community or another State party to the Agreement on the European Economic Area, the sale of such copies of the work may no longer be prohibited in the Member States of the European Community and the States party to the Agreement on the European Economic Area. (article L.122-3-1 of the Intellectual Property Code).

This rule also applies to designs (article L.513-8 of the Intellectual Property Code) and patents (article L.613-6 of the Intellectual Property Code).

The legal concept of exhaustion of rights is a limit to the monopoly conferred by intellectual property assets by neutralizing the exclusive right of the rights holder .

Thus, the owner of an intellectual property right who has put into circulation in a Member State of the European Economic Area (EEA), in particular, products bearing his brand or objects of the copyright owner will not be able to prohibit its use in the EEA, unless there are legitimate grounds for prohibition.

Under these conditions, the intellectual property rights are exhausted as soon as the product is put on the market for the first time by the owner or with his consent.

  • First commercialization: it is the sale of the product by the holder to a third party;
  • Consent: when the holder has given his authorization to put the products on the market.

What are the legitimate reasons that may prevent the application of exhaustion?

The text refers to ” the subsequent modification or alteration of the condition of the products” .

In such a case, the guarantee function of the trademark is infringed and it will not be possible to invoke exhaustion.

Thus, the case law considers that, in principle, the repackaging of products with the reapplication of the trademark is likely to constitute a modification or alteration of the condition of the products.

Exhaustion of rights is a defense in infringement actions. The burden of proof is on the person claiming exhaustion. Thus, it is necessary to be able to justify that the conditions for its application are met.

It is particularly interesting to focus on the case of a trademark license agreement that contains clauses limiting the exploitation to a given territory.

In a DIOR case (ECJ, April 23, 2009, Case C-59/08), it was considered that :

“Article 8(2) of First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trade marks, as amended by the Agreement on the European Economic Area of 2 May 1992, must be interpreted as meaning that the proprietor of the trade mark may invoke the rights conferred by the trade mark against a licensee who infringes a clause in the licensing agreement prohibiting, for reasons of the trade mark’s prestige, the sale to discounters of goods such as those at issue in the main proceedings, in so far as it is established that that infringement, because of the circumstances of the main proceedings, undermines the look and image of prestige which give the goods a feeling of luxury.

Article 7(1) of Directive 89/104, as amended by the Agreement on the European Economic Area, must be interpreted as meaning that the placing on the market of goods bearing the trademark by the licensee, in disregard of a clause in the license agreement, is done without the consent of the trademark ownerwhere it is established that this clause corresponds to one of those provided for in Article 8(2) of that Directive.

Where the placing on the market of prestige goods by the licensee in breach of a clause in the licensing agreement must nevertheless be regarded as having been done with the consent of the proprietor of the trade mark, the latter may invoke such a clause to oppose a resale of those goods on the basis of Article 7(2) of Directive 89/104, as amended by the Agreement on the European Economic Area, only where it is established, having regard to the circumstances of the case, that such a resale would be detrimental to the repute of the mark. “

Under these conditions, if a territorial clause is not respected by the licensee, the owner can only invoke such a clause to oppose a resale of the goods if it is established that such a resale is detrimental to the reputation of the trademark.

Point of jurisprudence Pierre CARDIN

Pierre Cardin and the Pierre Cardin management company sued a retailer and a wholesaler marketing products under the “Pierre Cardin” trademark for infringement.

Exhaustion of rights was raised as a defense.

It was established that the parties had a regular business relationship. The Court of Appeal considered that the Court had rightly found, in particular in view of the purchase orders and invoices produced, that the garments came from a manufacturer under license from PIERRE CARDIN, and that these garments had therefore been placed on the EEA market by the owner of the trademarks, or at least with his consent, and that it had consequently held that the proof of exhaustion of trademark rights was sufficiently established.

In these circumstances, the infringement claims were dismissed.

Furthermore, it was considered that Pierre Cardin and the Pierre Cardin management company had implemented measures contrary to competition rules by inserting contractual clauses in brand licensing agreements contributing to the establishment of an exclusive distribution network, having the effect of generally restricting passive sales, and by taking measures to prevent the wholesaler from continuing to market Pierre Cardin products thus acquired (Cour d’appel de Paris, June 28, 2019, No. 18-01.801)

The Bouchara Law firm assists you in particular in :

  • Infringement actions;
  • The defences and in particular the invocation of the exhaustion of rights ;
  • The filing of your intellectual property assets before the Offices(INPI for France, EUIPO for the European Union etc…);
  • Protection and defense of your intellectual property rights (creations and works of the mind, trademarks, designs, etc.).