Leaving the EU and its impact on parallel imports
Written by Michael Coyle on 05 June 2014« Return to Reading Room
The Treaty of the Functioning of the European Union (TFEU), articles 34-36 are directed at Member States (MS) to ensure that any restrictions on the free movement of goods are eliminated. Article 34 deals specifically with imports and 35 with exports.
Art.36 permits obligations from art.34/35 if they can be justified on the grounds such as, amongst other things, industrial and commercial property.
Article 345 goes further and states in no way will the Treaty prejudice MS rules in relation to property ownership, which is based on art.5 under the principle of proportionality. The content and form of Union action shall not exceed what is necessary to achieve their objective, namely the free movement of goods. However this is based on the condition that MS do not discriminate on trade between each other which would adversely affect the principle of free movement of goods.
The principle of the exhaustion of rights according to Centrafarm v Winthrop confirms that once goods are circulated in another MS, either through the patentee’s (this has been extended to include trade marks) consent or by the owner, the right to block those goods entering another MS are exhausted. However Art.7(1) Directive 89/104 provides that in certain circumstances the rights of the owner will not be exhausted.
So how does this affect Britain if we were to leave the E.U.?
The scope of protection mentioned in the TFEU and art.7 Directive does not extend to products placed outside of the European Economic Area. Hypothetically speaking, imagine a British company produces products which are of interest to a former MS.
According to Phytheron v Bourdon “it is of no importance whether or not the product protected by the mark has been manufactured in a non-member country if it has in any event been lawfully put on the market, in the Member State from which it has been imported, by the owner of the mark or with the owner’s consent”. No explicit guidance has been given under EU legislation whether the products have not yet been placed within the EEA, until it was addressed by the ECJ in Silhouette International v Hartlauer.
In Silhouette the claimant sold out-of-date ranges of spectacles to Bulgaria (not part of EEA at the time), the defendant subsequently imported them into the EEA for resale. Silhouette objected to the imports on the basis that the goods had not been marketed in the EEA with their consent and therefore they had not exhausted their rights within the Union. The court held that Art.7(1) of the Directive permitted a trade mark (TM) owner to prevent importation of the goods unless he consented.
Subsequently in the conjoined cases of Zino Davidoff v A & G Imports Ltd the three claimants objected to the defendant’s importation of goods from Singapore and United States into the United Kingdom. In the first case, the distributors from Singapore were only required to sell the goods within a defined geographical area outside the EEA and likewise to retailers and sub distributors.
The defendants maintained (except one) that the claimants had given their consent to distributing the goods within the EEA within the meaning of Art.7 and therefore not entitled to prevent the defendants selling them. As consent is central the principle of exhaustion of rights, the ECJ were asked in Davidoff whether consent can be implied within the meaning of Silhouette.
The ECJ confirmed that it was implicit from the Directive 89/104 that there must be a harmonized concept of consent, and that consent need not be expressed, but could be implied , either way consent must indicate an intention to renounce those rights is unequivocally demonstrated.
‘Crucially the ECJ held that mere silence on part of the TM owner would not be enough to amount to consent and confirmed the regime of Community-wide exhaustion.’ Heide, T. Contrast to goods already within circulation which would not be subjected to tariffs, consent and the free movement of goods contained in art.34-35.
However once goods have entered the Union from a third country such as Russia, subject to external tariffs, will be regarded as free in circulation and treated like any other goods and art.30 will apply, Art.28(2) and Cooperativa Co-Frutta Srl v Amministratzione delle Finanze dello State.
In summarising, Britain would be able to determine freely how to regulate and protect businesses and possibly prevent other member states taking advantage of cheaper products. However companies that rely totally on importing goods into Britain would be subjected to increased tariffs and will not be able to benefit from the doctrine of the exhaustion of rights as E.U. law would no longer be able to protect these businesses.
Wriiten by Daniel Selby on work experience at Lawdit.
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