Trade Marks and Exhaustion of Rights

Lawyers tend to get very excited about arguments about the burden of proof. To a non-lawyer, such arguments can seem dry and technical. However, in terms of litigation tactics it can really matter who has to prove what – whether A has to prove that such-and-such is the case or B has to prove the contrary.

The case of Honda Motor Co Ltd. v David Silver Spares Ltd. is a recent example of the kind of issue that can arise. It concerned the exhaustion of rights doctrine. This states that goods released onto the market in one part of the European Economic Area (EEA) with the trader’s consent may be freely traded throughout the whole EEA. The trader cannot subsequently rely on his trademarks or other intellectual property rights to stop those goods being sold in other parts of the EEA. The doctrine is designed to stop traders partitioning the market and maintaining different prices in different parts of the EEA. However, much to the chagrin of certain consumer groups and would-be importers of cheap jeans, sunglasses and DVDs etc, the European Court has refused to apply the doctrine to goods first placed on the market outside the EEA. Accordingly, where goods were first placed on the market can be a crucial issue.

Honda owns various UK and Community trademarks covering motorcycle parts. David Silver Spares (DSS) is the leading UK supplier of spare parts for Honda motorcycles. Honda sued DSS for trademark infringement, alleging that motorcycle parts dealt in by DSS had been put on the market in the EEA without Honda’s consent. DSS applied to the court for the claim to be struck out.

The judge dismissed the strike-out application, ruling that it was for DSS to show, at least, that it had an arguable exhaustion of rights defence. DSS had to prove that the goods had been marketed in the EEA. Generally, it was not up to Honda to prove that the parts DSS offered for sale were first placed on the market outside the EEA.

Does this decision tip the balance too far in favour of big manufacturers? Can a manufacturer simply pick on a trader, sue him for trademark infringement and demand that he produces evidence of the source of every product supplied by him? The Judge thought not. The courts have powers to stop trademark law being used oppressively. For example, the courts may limit the extent to which a party is required to disclose relevant documents if the disclosure being sought would be unduly expensive, inconvenient or troublesome in comparison with the likely benefit. Before offering goods for sale, importers should check that the trademark owner consented to the first sale of the goods in the EEA.

If you would like to know more, please contact Simon Daw or Nick Crook.

Filed: 22/11/2010 10:50:11