These above complexities arise from a number of factors. Firstly, the intellectual property laws of member states are still not fully harmonised. Secondly, the question arises as to how competent the European Community, and in particular the European Court of Justice are to deal with substantive matters relating to intellectual property rights such as free movement of goods and the issue of re-labelling and repackaging.
This is principally because intellectual property rights are referred to only in Article 30 (previously Article 36) of the EC Treaty, which provides an exception to the fundamental principle of free movement of goods, which has not been altered by the Single European Act or the Maastricht Treaty. Â The development of a consistent community-wide approach to what constitutes a lawful use or an abuse of intellectual property rights will depend on the approach taken to certain fundamental matters. These include the consequences of differing national laws, the importance attached to the scope and function of intellectual rights, the extent to which the EC and national courts are empowered to determine matters and the application of general EC law principles. Â Functions and Usage of Trade Marks Â Article 2, of the Council Directive 89/104/EEC (The Trade Mark Directive) states that a trademark: Â ‘May consist of any sign capable of being represented graphically, particularly words, including personal names, designs, letters, numerals, the shape of goods or of their packaging, provided that such signs are capable of distinguishing the goods or services of one undertaking from those of other undertakings.’ Â Trade mark rights are territorial, which means that the right to a certain mark is valid only in a country where the mark has been registered or is otherwise protected. The protection is differently shaped in different states, which can cause problems with international trade, but many of these problems are coped with through international treaties making the rules uniform.
However, despite a history of more than a hundred years of broad international treaties harmonising trademark laws, there is no international rule on how to handle exhaustion of trademark rights. Â During previous decades, the European court of Justice (ECJ) has significantly changed its view on trade marks. In the 1970’s, the court expressed a low valuation of trademark rights, for example in the case of Sirena S.R.L. v. EDA S.R.L. the court regarded trademarks as no more than an obstacle to the free movement of goods.
However in 1990, Case C-10/89 SA CNL-SUCAL NV v. Hag GF AG the court found trademarks as an essential element in the system of undistorted competition which the treaty seeks to establish and maintain.” Â Trade marks are today increasingly important as instruments to connect between customers and the commercial origin of a product. From a trademark owners perspective, an advertising function can be identified. Every time a brand is viewed, the viewer will be reminded of the product, and maybe triggered to purchase the item. This is a function related to the market-steering function of a trade mark. Â Products from different producers are often very similar to each other in quality and design, Â which leaves the consumer with only the trademark as a guide for choice. To make its customers more loyal, trademark owners are trying to make their trademarks as strong as possible, by building strong identities around them, connecting them with a certain lifestyle, a process called “branding”. Â The importance of strong trademarks is accentuated on internet trade, as customers shopping on the net have no guarantee for the quality of the product other than the brand. Branding tends to be profitable for trade mark holders, as many customers are willing to pay comparatively high prices for products labelled with the strongest brands, irrespective of that other products might be of better quality. Examples of these successful branded trademarks are Coca-Cola, Levi’s and Tommy Hilfiger. The goal is of course to get as much revenue as possible from the marketing of the product, and with strong trademark measures like price differentiation’s and differentiation in quality between countries, dumping of excessive stocks on low price markets etc becomes possible.
This development however, is counteracted by the ever-increasing international trade in branded products. Â There exists a conflict of interests on this point, between trademark holders that want to Â maximise their profits, and persons trading branded goods in second hand, from low-price markets to high price markets.
Traders, who take advantage of price differences, are called “parallel traders”. They re-import goods that are dumped abroad, and parallel-import goods that are cheaper on its home market than in the importing country. They also side-import foreign goods similar to goods produced in the importing country.
It is obvious that parallel trade is likely to obstruct branding, because customers are simply likely to make their purchases from the cheapest source.