Silhouette manufactured and marketed high quality fashion sunglasses under the trade mark ‘Silhouette’ in Austria. They sought to change such sunglasses seasonally. Silhouette refused to sell their glasses to Hartlaur who sell spectacles in numerous branches in Austria at low prices. Silhouette felt that selling to them would jeopardise their reputation of fashionable, quality products. Silhouette consented to the sale of outdated sunglasses in non-member states, especially Bulgaria at low prices that are affordable in that country. Hartlaur brought Silhouette glasses in Bulgaria and re-imported them into Austria for re-sale in their shops. The Austrian Court applied International exhaustion. The case was sent to the ECJ with the following questions: 1. ‘Is Article 7 (1) of the Directive 89/104/EEC to be interpreted as meaning that the trademark entitles its proprietor to prohibit a third party from using the mark for goods which have been put on the market under the state which is not a contracting state?’ 2. ‘ May the proprietor of the trademark on the basis of article 7 (1) of the Directive alone seek an order that the third party cease using trademark goods which have been put on the market under that mark in a state which is not a contracting state?’ Firstly, the ECJ noted that the directive does not prescribe international exhaustion. If so, as the Advocate General pointed out , the directive would have referred only to marketing in the community. The view of Hartlaur was that Article 7 would nevertheless allow a member state to provide international exhaustion. The reason being that the Article would be limited to require the member state to provide for trademark exhaustion within the community. According to this view, the Directive does not comprehensively resolve the question of exhaustion, but leaves it open for a member state to adopt rules going further than those explicitly laid down. However, the court found this interpretation contrary to the Directive. Not only the wording of Article 7, but also the purpose and the scheme of the Directive points out, that it fully harmonises the question of exhaustion, not leaving it open for member states to provide for international exhaustion. The court continued that interpretation is fully capable to safeguard the functioning of the internal market. A situation, in which some member states could provide for international exhaustion, while others provided for community exhaustion, would give rise to trade barriers between member states. The commission and some of the member states in the proceedings further elaborated argument: if a member state were free to determine whether trademark owners could prevent importation from third countries, the same products could be subject of parallel imports into one member state but not in another. It would be no solution to this, to let goods once imported into a member state providing for international exhaustion to benefit from the free movement on the internal market. Finally the court pointed out that the community authorities always could extend the exhaustion to products put on the market in non-member countries by entering into international agreements, as already had been done through the EEA. The judgement might at first glance seem contrary to some aspects of the court’s case law. The court has a number of times, emphasised that the function of trademarks is to point out the origin of the product to the consumer. As Sweden argued during proceedings, it is no part of that function to enable the trademark owner to divide the market. This argument was answered by the General Advocate, which on the one hand agreed on the Swedish point, but on the other hand, he added that the case law in which the function of origin has been discussed, was developed in the context of the community market, not the world market, and that Articles 28 and 36 do not regulate the relationship between the community and third countries. The consequence of Silhouette is that regional, community-wide exhaustion now is compulsory to all members of the European Union. While some countries already applied it before the judgements, others like Sweden have to adapt. Parallel importers cannot continue the importation of trademarked products from third countries without risking litigation. Parallel importation form other member states can, however, continue as usual, and there seems to be no reason not to allow the parallel importation of a trademarked product form a third country, if it sold in the EU under another trademark.
When a matter is taken to court, parties can, in some instances, make an offer to reach an agreement before the dispute proceeds to trial