Comments for When Viking Gas refills Kosan Gas bottles: exhaustion or not?

(Sorry for the late answer, the prep was done before the last course, I just completely forgot to post it…)

1)
Once again, the Court of Justice makes a limitation of the scope of protection of trademark. The trademark must yield to the consumer’s property rights and free competition. This had already been set out in previous ECJ’s case such as Sebago/G-B Unic.

The Court confirms the following rule: Consumer are free to re-fill
the bottles they bought under Article 5 of the Directive, since Kosan’s rights had indeed been exhausted once it placed its containers onto the Danish market (EU zone), and it was not entitled to stop Viking from re-filling the Kosan containers with its own gas and providing them as re-fills to Kosan customers. In principles, trademark rights in the EU are exhausted once goods bearing the mark are placed on the market in the EU Community by or with the consent of the proprietor;

As in its previous cases, the Court’s judgment weighted the interests at stake: the consumer had a legitimate interest in refilling and reusing their composite bottle a large number of times in order to recoup their initial spendings (consumers are charged a higher price for this more technically effective bottle (higher prices than normal). Indeed, to force consumers to return to Kosan in order to refill their gas bottle would restrict competition in the internal market. The Court held that the consumers do not only buy gas, they also buy the bottle, a suitable container for ulterior refilling, weather it be from Kosan or another competitive suppliers. The Court held that since the composite bottle itself was a distinct product, the trademark associated with it was exhausted on the first sale: Kosan could not, in principle, contest the refilling of used composite bottles by Viking; they had an economic value that the consumer could benefit from by refilling it from the distributor of their choice. An opposite judgment would have led to some sort of monopoly from Kosan Gas (the other gas suppliers being prevented from using this more effective gas container), which the ECJ tries to temper as much as possible in its case-law. It would limits free competition (important principles of EU law), and would also limit the consumers from using the more expansive bottles they had bought and paid for. The Court says that a trademark right cannot be used to retain the leads in the economic, such as to obtain an unfair advantage or apply an unjustified price difference. In such case, the ECJ ruled that the trademark exhausts the exclusive rights.

2)
The practice of Viking Gas would be actionable under trademark law in the following circumstances: if there were legitimate reasons to oppose the further commercialization of the Kosan bottles, under Article 7 (2) of the Directive. What does it include?

There would be no exhaustion if a third party, here Vikign Gas, damaged the IP owner’s reputation, here Kosan Gas, or created an impression of a commercial connection between Kosan and Viking Gas. It would also include the circumstances in which the condition of the goods are changed or weakened, or, furthermore, deteriorated. Let’s develop…

Although Viking affixed its own branding to the re-filled Kosan bottles to indicate where the re-fills had been obtained, it made no attempt to remove or obscure the Kosan branding from the re-filled bottles. It was considered to be good enough by the ECJ. It was not considered to be confusing for the consumer.

If Viking Gas had taken the name and logo off the bottles for its replace it with it own branding, Kosan would have the argument of “condition’s changement”, which is a legitimate reason for opposing the Viking Gas refill, despite the exhaustion of Kosan’s rights. But at the same time, consumers can be confused about the origin of the refilled gas since both labels appears on the bottles every time consumers proceeded with a refill. Consumers more and more confront to the practice of co-branding, in particular, could interpret the presence of both Kosan and Viking branding on the re-filled Kosan bottles as an indication that the parties are co-operating in some way.

Plus, the fact that Viking refilled the bottles with its own gas constituted a risk of alteration or modification of the product (ie, the bottle). Kosan had a vested interest in having the bottles refilled by its own authorised distributor in order to maintain strict control of the quality of the gas sold, as any defect could have a clear impact on the trademark’s reputation.

Article 7 of the Council directive 89/104 mentions that “the trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent”. But this “shall not apply where there exists legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market”. We have already seen cases concerning this article. The first case, “Silhouette/Hartlauer”, concerned the different types of exhaustion (international, national and regional). The second case, “Sebago/GB”, was about exhaustion and individual product. And the fird case, “Dior/Evora”, was about advertising. The question was the following: could advertising impair the prestige that Dior could invoke. Here, the case also concerns the rule of exhaustion. But the issues at stake are a bit different from the issues seen in the previous cases. The question here is whether the trade mark of Kosan Gas can prohibit Viking Gas from using the bottles to be refilled? The answer is no. There are different reasons for this answer. First, it would hinder the purchasers to be free to exercise their property rights. It would also unduly reduce competition on the market. According to this, the sale of the composite bottle exhausts the rights that the licensee of the right to the trade mark constituted by the shape of the composite bottle and proprietor of the marks affixed to that bottle derives from those marks and transfers to the purchaser the right to use that bottle freely, including the right to exchange it or have it refilled, once the original gas has been consumed, by an undertaking of his choice, that is to say, not only by that licensee and proprietor, but also by one of its competitors. But we must not forget that the proprietor of the good may oppose further commercialisation of those goods where legitimate reasons for such opposition exist and especially where the condition of the goods is changed or impaired after they have been put on the market. On that point, the Court has therefore already held that such a legitimate reason also exists when the use by a third party of a sign identical with, or similar to, a trade mark seriously damages the reputation of that mark or when that use is carried out in such a way as to give the impression that there is a commercial connection between the trade mark proprietor and that third party, and in particular that the third party is affiliated to the proprietor’s distribution network or that there is a special relationship between those two persons. According to the Court, the labelling of the composite bottles and the circumstances in which they are exchanged must not lead the average consumer who is reasonably well informed and reasonably observant and circumspect to consider that there is a connection between the two undertakings at issue in the main proceedings or that the gas used to refill those bottles comes from Kosan Gas. In order to assess whether such an erroneous impression is precluded, it is necessary to take into account the practices in that sector and, in particular, whether consumers are accustomed to the gas bottles being filled by other dealers. Furthermore, it appears to be reasonable to assume that a consumer who goes directly to Viking Gas either to exchange his empty gas bottle for a full bottle or to have his own bottle refilled is more readily in a position to be aware that there is no connection between Viking Gas and Kosan Gas. As regards the fact that the composite bottles bear word and figurative marks made up of the name and logo of Kosan Gas which remain, according to the findings of the national court, visible in spite of the labelling affixed by Viking Gas to those bottles, it must be pointed out that this constitutes a relevant factor in so far as it seems to rule out that labelling from altering the condition of the bottles by masking their origin. To resume, we can say that Kosan Gas cannot prohibit Viking Gas from using the bottles to be refilled for three reasons:
– It would hinder purchasers to exercise their property rights
– It would unduly reduce competition on the market
– The exception of article 7 (2) of the directive does not apply because there is no damage to the reputation of Kosan Gas because there is no connection possible between it and Viking Gas. And Kosan Gas could only introduce an action against Viking Gas if the conditions enumerated at article 7 (2) were met.

To start with and to respond the first question, I do not really think that this particular case adds much to the existing case law on trademark exhaustion; the new aspect it just brings to the table is the fact that the trademark involved in this case is a tridimensional one that protects the shape of the composite bottles.
But from the point of view of the holding of the case and with the object of responding the second answer, the only way that the action of Viking Gas could be actionable is if indeed there is an exhaustion of the trademark as a result of the sale by Kosan Gas of the bottles filled with gas.

In order to see whether there is or not, the Court refers to the Directive 89/104, which comes to homogenize the trademarks aspect at a European level. Over there we find a limit to the rights of proprietor (in this case licensee) given by the trademark as they are confronted to the free movement of goods, principle established all over the European Union. We find it in the article 7, known as exhaustion of the Trademark.

The ECJ comes to determine whether there is or not an exhaustion of the trade mark and as a result if Kosan can prevent Viking from refilling its bottles with gas in the first place; and in the second place whether, even if there was an exhaustion, Kosan could prevent Viking from doing it under the article 7.2 of the Directive, an exception to the exhaustion.

The paragraph 30 and 32 of the judgment are really important in this regard: in the first one the ECJ determines that the bottles are products themselves, as they have got economic value. This leads to latter one even more important because the ECJ had already established that in a previous ruling (C 16/03 Peak Holding) “that a sale which allows the realisation of the economic value of a mark exhausts the exclusive rights conferred by Directive 89/104”, in this case the sale of the confronted composite bottles. This is deeply related with the principle of freedom of movement of goods abovementioned; the Court comes as well to rise the problem of the lack of competence that would be in the market if Kosan Gas is allowed to do as it claims (prevent all the others).

The key paragraph to ascertain whether there is an exhaustion of the Trademark or not is the 35th one; the Court comes to recognize that the sale implies an exhaustion and therefore the private buyers of the bottles can change or refill the bottles.

The remaining question to analyze here is whether the article 7.2 could be applicable and so even if there was an exhaustion, could Kosan prevent others to further commercialization; the ECJ comes to say that there have to be legitimate reasons for that, and gives a little bit of guidance over that matter, even if it states that this question in particular is for the National Courts to decide.

1) Strictly speaking, there is nothing new with that decision. It only marginally concerns itself with the rules of exhaustion, which are not question per se, but is more a matter of risk of confusion, about which there is no shortage of case law. Still, the specifics involved (i.e. the refilling of recipient) might prove influencial in the future, as surmised by Italy.

2) The exhaustion here is fudamentally due to two things: a) Kosan Gas has put its bottle and its gas onto the European market, and b) the use that Viking Gas makes of it does not harm Kosan.

a) The introduction of the gas on the European market is a given, the introduction of the bottle is almost certainly one as well. Perhaps it would have been possible to imagine a way of making the bottle available to the customers without actually transfering the ownership over them, but rather by allowing temporarily their use. Ultimately, such a system would probably drive the customer away with unnecessary complication (for them, at any rate). Thus we can conclude that both gas and bottle are in the European market, and that any action must now prove that Viking Gas’s use of the bottles present Kosan with legitimate reason to oppose it.

b) Until then I have made no explicit separation between the laws applying to the gas itself, and those applying to the bottle. As indicated in the case, the rules of exhaustion mean that Kosan cannot prevent anyone from reselling its bottles and whatever gas they still contain. Where lies the argument is in the reusing of the trademarked bottles, if another company fills them with gas.
It should first be noted, and indeed the judges did so, that article 7 §2 explicitly puts a change or impairment in the condition of a good among the legitimate reasons for an exception to paragraph 1. If Viking’s label had covered Kosan’s, it might have been enough to decide that the bottle can no longer be traced back to Kosan, which would give them the legitimate reason they were looking for.
On the contrary, the absence of any new label or, broadly speaking, elements that would not allow a normally careful buyer to realize that the gas contained in a reused Kosan bottle did not, in fact, come from Kosan, would constitute a risk for said Kosan. Then, an action would be possible.

The bottle were sold; any normal use of them that shouldn’t involve Kosan’s responsability cannot be prevented by them.

1) For me, the Viking Gas v. Kosan Gas case does not add much to the existing case law on the trademark exhaustion. In this case, Kosan Gas wants to prohibit the commercialisation of its gas bottles protected as verbal and figurative marks. The Court of Justice concludes that articles 5 and 7 of Directive 89/104 do not confer to the holder (Kosan Gas) an exclusive right to control the use of gas bottles after the sale of those bottles. As the bottles have been put on the EU market, the exhaustion rule does apply and the consumer may contact any company of its choice to refill or exchange the bottles.

We saw other cases about trademark exhaustion. The case law of the Court of Justice seems to be constant. In Silhouette v. Hartlauer, the Court excluded the rule of international exhaustion. In Dior v. Evora, the Court decided that when the holder puts the goods on the EU market or gives his consent to do so, a distributor (of discounted products) may use the mark to announce to the public the commercialisation of the products. In the Davidoff case, the Court defined the notion of consent in the sense of Article 7 of the Directive. The Court decided that consent could be implicit. The Van Doren case concerns the question of the burden of proof. The parallel trader has to prove that the goods have been previously put in the EU market. But if the parallel trader shows that there is a real risk of closing national markets, it is the trademark owner that has to prove that there is no consent to sell the goods on the EU market.

2) The practice of Viking Gas would be actionable under trademark law if Kosan Gas would have been able to rely on a proper reason for the purposes of Article 7(2) of Directive.
Article 7(2) of Directive provides that: “the proprietor of a mark may, despite the putting on the market of goods bearing his mark, oppose further commercialisation of those goods where legitimate reasons for such opposition exist and especially where the condition of the goods is changed or impaired after they have been put on the market”. The Court had to examine whether the commercialisation of the bottles refilled by Viking Gas was carried out in such a way as to give the impression that there is a commercial connection between that undertaking and Kosan Gas which would entitle Kosan Gas to oppose that commercialisation. The Court concluded that those bottles were protected under verbal and figurative marks made up of the name and logo of Kosan Gas. The name and logo remained visible in spite of the labelling added by Viking Gas to those bottles. Therefore, the Court ruled that Kosan Gas couldn’t prohibit the commercialization.

I don’t think that the new decision of the CJEU add much to the existing case on trademark exhaustion because it simply gives the well-established meaning to Art. 5 and 7 of the directive 89/104. in fact, these articles give a complete harmonisation of the rules relating to the rights conferred by a trade mark and define the rights of proprietors of trademarks in the European Union. Art. 7 gives an exception to the exclusive right given by art. 5 if the goods have been put on the market in the European Economic Area (EEA) by the proprietor himself or with his consent. In this case, Kosan gas has produced the composite bottle and so holds the exclusive right for the use in Denmark of the three-dimensional mark constituted by the shape of those bottles and is the proprietor of the word and figurative marks affixed to them. Furthermore, we have to interpret art. 7 of the directive in such a way that the composite bottles, which are intended for re-use a number of times, do not constitute mere packaging of the original product, but have an independent economic value and must be regarded as goods in themselves and so the packaging in itself can exhaust the trademark right. We can finally add that the Court already hold that ”the realisation of the economic value of a mark exhausts the exclusive rights conferred by Directive 89/104” and it’s what happened here : the sale of composite bottles allows the licensee (so Viking Gas) and the proprietor (Kosan gas) to realise the economic value of the marks relating to those bottles.

Question 1:

Concerning exhaustion of the trade mark, Kosan Gas considered that the product protected by the trade mark was the gas contained in the containers, so a consumer could resell an unused bottle of gas but they could not reuse the packaging of Kosan’s Gas. Similarly, Viking Gas was not free to reuse Kosan’s bottle for its own product.

The case of Viking Gas is a simple application of Article 7, in fact the gas bottles of Kosan Gas were already sold in the Community and therefore as stated by Article 7 the proprietor is not entitled to prohibit the use of his trademark if the goods have already been put on the market of the Community under that trademark by the proprietor or with his consent.

The court considers that the filling of the gas bottles can not be an act of infringement even if another brand has been added on the gas bottles.

Question 2:

As stated by §2 of Article 7 the proprietor of the Trade mark shall be protected if there exist legitimate reasons for the proprietor to oppose further commercialization of the goods. As pointed out by the court this would be the case if a third party use potentially damaged Kosan’s reputation or created an erroneous impression of a commercial connection with Kosan.

The main focus of this decision is the protection of the consumer, in fact the court wants to protect the consumer from being linked to only one producer of gas which would be the proprietor of the trademark. This would limit the freedom to utilise the purchased bottle and would unduly restrict competition in the downstream market for gas refills.

If there were no consumer involved would the court have justified her decision the same way? As said by the Advocate General in C-119/10 Frisdranken Industrie Winters BV v. Red Bull GmbH, the fact that the refill is done on demand of the consumer does not constitute a use of the trade mark. Therefore we could think that if Viking Gas had refilled the bottles without the intervention of a consumer the court could have conclude that the proprietor had legitimate reasons to oppose further commercialization because the condition of the good was changed after they have been put on the market.

(Is it possible to withdraw my previous comment? I’ve completed it with the cases we saw yesterday.)

When she issues a preliminary ruling on Article 7 of the Council Directive 89/104 which harmonizes the laws of the Member States relating to trademarks in the case C-46/10 Viking Gas A/S v Kosan Gas A/S, the CJEU follows previous case-law on trademark exhaustion and doesn’t add to much to those cases. In that case the CJEU decided that it isn‘t a problem for the firm Viking Gas to sell gas by refilling composite bottles of gas whose shape is protected by a three-dimensional trademark and whose use is protected by an exclusive license given to another firm which produces gas (Kosan Gas). It’s important to point that Viking Gas only refills bottles that were previously bought by consumers, they are thus the proprietors of the bottles and the name and logo of Kosan Gas protected as word and figurative marks remain on the bottles.
The answer to the question asked to the Court can be summarized by paragraph 42 : « it is apparent from the foregoing that the answer to the questions referred is that Articles 5 and 7 of Directive 89/104 must be interpreted as meaning that the holder of an exclusive licence for the use of composite gas bottles intended for re‑use, the shape of which is protected as a three-dimensional mark and to which the holder has affixed its own name and logo that are registered both as word and figurative marks, may not prevent those bottles, after consumers have purchased them and consumed the gas initially contained in them, from being exchanged by a third party, on payment, for composite bottles filled with gas which does not come from the holder of that licence, unless that holder is able to rely on a proper reason for the purposes of Article 7(2) of Directive 89/104 ».
To answer the question, the CJEU refers to previous existing cases about Article 5 and 7 of the directive.
The first one is Case C-324/08 Makro Zelfbedieningsgroothandel and Others [2009] which asserted that the article 5 confers on the trade mark proprietor exclusive rights which entitle him to prevent any third party from offering goods bearing the mark, putting them on the market or stocking them for these purposes and that an exception to this possibility is incorporated in Article 7(1) of the directive : the trade mark proprietor’s rights are exhausted where the goods have been put on the market in the European Economic Area (EEA) by the proprietor himself or with his consent.
The CJEU also follows Coty Prestige Lancaster Group case-law when it says that the fact that Kosan Gas, the licensee, put its product on the market in the EEA is equivalent to the renunciation of the exclusive right.
This assessment refers also to the Silhouette case we saw during lesson in which there was no exhaustion of the trade mark proprietor’s rights because the good had not been marketed in Europe. The findings of the Case C‑16/03 Peak Holding [2004] were also used when the CJEU says that the fact that the sale of composite bottles allows Kosan Gas to realize the economic value of the marks relating to those bottles and that fact, in itself, exhausts the exclusive right.
Article 7(2) states that article 7(1) “shall not apply where there exist legitimate reasons for the proprietor 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”. In the Dior case, we saw that if a publicity alter the public’s perception of the quality of the good, it could be an exception to the exhaustion of the right but it can’t apply here because the Kosan Gas logo is still appearing on the bottles.
The Case C-59/08 Copad [2009] ECR I-3421 which says that legitimate reasons that the proprietor of a mark can invoke to oppose to further commercialization even if the proprietor of a mark put its product on the market, aren’t just the ones given by Article 7 (2), was also cited. In the case Case C‑558/08 Portakabin and Portakabin [2010] ECR I-0000, the Court had already held that a legitimate reason also exists when that use of a third party “is carried out in such a way as to give the impression that there is a commercial connection between the trade mark proprietor and that third party, and in particular that the third party is affiliated to the proprietor’s distribution network or that there is a special relationship between those two persons”. Here, to assess that it is not the case with the use of the bottles by Viking Gas, the CJEU pointed factual elements and refers to a “reasonably well informed and reasonably observant consumer » and to « the practices of the sector ». That’s what the Court adds to the previous case law on the exhaustion of this right.
Some practical situations would have led to the success of an action under trademark law:
1) If the bottle had not been marketed inside EEA (Silhouette case).
2) If Kosan Gas had given an implied consent which can ‘be inferred from facts and circumstances prior to, simultaneous with or subsequent to the placing of the goods on the market outside the EEA’(Davidoff case).
3) If the use of the bottles had given the impression that there is a commercial connection between the trade mark proprietor and that third party.
4) If Viking Gas had withdrawn or hidden the name and the logo of Kosan Gas on the bottle because it alter the condition of the bottles (par. 43 of the case + Dior case). Moreover, it infringes the exclusive license they have on the bottles.