The resale of trademarked products is a very common phenomenon in today’s market. From clothing and accessories to electronic devices and vehicles, public access to these items has spawned a thriving secondary market. However, this market raises crucial questions about legality and the rights of trademark owners. How is it possible that these products are resold without trademark owners taking strong measures to stop this practice? What regulates the legality of this trade?
The resale of branded products versus the rights of the owner
In principle, registering a trademark grants its owner an exclusive right that includes prohibiting third parties from using that intangible asset in commerce for identical or similar products or services. According to Article 34 of the Trademark Law (LM), the owner of a trademark may prevent the offering, importation, exportation, and use of the trademark for advertising purposes by any individual or entity. This right is essential to protect the integrity and value of a registered trademark.
In reality, despite these exclusive rights, there is a very dynamic secondary market where a wide variety of branded products are traded.
To understand how the resale of trademarked products is permitted in the second-hand market, it is necessary to analyze the scope of trademark protection. The Court of Justice of the European Union (CJEU), through case law, clarifies that the exclusive rights conferred by trademarks can generally be invoked against economic operators. In other words, the owner of a trademark cannot exercise their right against an individual who resells a branded product on a non-professional basis.
However, this protection changes when sales made by a private individual exceed certain limits. If the sales are frequent, large in volume, or have the characteristics of a commercial activity, the seller is considered to be operating within the “economic traffic.” In such a case, the trademark owner may exercise their rights to prevent such activity.
Practical example of case law in cases of resale of trademarked products
The above conclusion follows from the judgment of the CJEU of July 12, 2011, in a case involving the cosmetics brand L’Oréal against the e-commerce platform eBay. In summary, like many brands, L’Oréal distributes its products through a closed distribution network. Within this network, authorized distributors are prohibited from supplying products to other distributors. In May 2007, L’Oréal informed eBay of its concern about large-scale operations on eBay’s European websites that infringed its intellectual property rights.
Unsatisfied with the response, L’Oréal asked the Court to declare eBay and the individuals sued liable for the sales made by the latter, infringing the rights attributed to L’Oréal in relation, specifically, to the Community figurative mark “Amor Amor” and the national word mark “Lancôme.”
L’Oréal considered that these sales infringed its trademark rights because some of the items were not intended for sale (demonstration items or samples). Others were intended for sale in North America and not in the European Economic Area. Worse still, some of the items were sold without packaging.
What is trademark exhaustion and what are its requirements?
Despite the restrictions mentioned above, numerous companies and professionals are engaged in the trade and resale of trademarked products. The key to their ability to do so lies in Article 36 of the Trademark Law (LM), which states in its first paragraph:
“The right conferred by the registration of a trademark shall not entitle the proprietor to prohibit third parties from using the trademark on products marketed in the European Economic Area under that trademark by the proprietor or with his consent.”
In addition, Article 15 of the European Union Trademark Regulation (EUTMR) establishes the principle of exhaustion of trademark rights. According to this principle, the exclusive right conferred by the trademark on its owner is limited to the first sale of the product within the European Economic Area (EEA) by the trademark owner or an authorized party. Resellers often try to invoke this exhaustion of trademark rights, but a number of conditions must be met to protect the trademark owner from losing their rights to their trademark in relation to resale.
Requirements for trademark exhaustion
Even so, for the aforementioned exhaustion to occur and the resale of branded items to be permitted, the following requirements must be met:
- Distribution for sale. For trademark rights to be considered exhausted, the first distribution of the products must be for sale. Any other form of disposal of the products, such as free distribution for promotional or advertising purposes, does not terminate the trademark rights. The aforementioned CJEU ruling (L’Oréal vs. eBay) established this principle.
- Sale within the EEA. Trademark rights are only exhausted when the first sale occurs within the EEA. Sales outside this area do not exhaust trademark rights. Consequently, the owner may oppose the import and resale of trademarked products legally purchased outside the EEA.
- Sale by the trademark owner or by a third party with their consent. This includes licensees, but it is essential to comply with the terms of the license agreement for the sale by the licensee to exhaust the trademark right.
Resale of trademarked products on e-commerce platforms
The issue of reselling products online within e-commerce undoubtedly raises specific questions. Experience shows that for a product to be considered sold in the EEA, it is not sufficient for the seller’s website to be accessible from this region. The CJEU ruling that we have used as an example clarifies that a sale is considered to have been made within the EEA when it can be demonstrated that the offer of the product, even if it is in a third country, is intended for consumers in the EEA.
But beware! The accessibility of a website from the EEA does not in itself automatically mean that the offer is aimed at European consumers. Other indicators must be assessed to determine whether European consumers are the target audience for the offer. In particular, the seller’s indications as to the geographical areas to which they are willing to ship the item. These indications may include factors such as the use of a specific EEA language, the currency for the transaction, or the availability of shipping options to the EEA.
In fact, the principle of exhaustion of trademark rights has further limitations. The resale of trademarked products is not permitted in all cases, even if the first sale was made in the EEA with the consent of the trademark owner. In this regard, Article 36.2 of the Trademark Law (TM) and Article 15.2 of the EUTMR are clear in stating that trademark rights are not exhausted when there are legitimate reasons justifying the owner’s opposition to the further marketing of the products. In particular, if they have been modified or altered after being put on the market.
Grounds for opposition
- Damage to the reputation of the trademark. The way in which a product is resold may negatively affect the image of the trademark, which is particularly relevant for high-end products. The CJEU emphasizes that for luxury goods, the perception of exclusivity is essential. Therefore, any damage to this perception may affect the perceived quality of the product and justify opposition to its resale. Circumstances that may indicate a detrimental effect include limitations on product lines, lack of stock, lack of new products, non-acceptance of returns, and the presentation of products alongside others of inferior quality. Even the name of the website and the presentation of products in alphabetical order can damage the brand image.
- Removal of external packaging. In this case, the owner must demonstrate that, due to the removal of the packaging, consumers cannot access important information about the product, such as the manufacturer’s identification.
- Repackaging. Similarly, the repackaging of products prior to resale is also restricted, unless necessary to comply with the regulations of the importing country. The new packaging must indicate who is responsible for the repackaging. This information must be communicated to the trademark owner before it is carried out. Even so, the owner may oppose the resale if the new packaging damages their image and the prestige of the trademark.
We protect your rights in cases of resale of trademarked products
At ISERN Patentes y Marcas, we have 100 years of experience in registering and protecting trademarks in Spain and abroad. We are attentive to any situation that may harm your rights as the owner in cases of resale of trademarked products. Our team of lawyers will advise you and take the necessary actions to counteract the damage and demand due compensation. Contact us and visit us at any of our 12 offices!