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26 July 2010
Under Italian law, parallel imports are generally considered legitimate if the goods in question come from an EU member state in which they have been marketed either by the rights holder or with its consent.
Such conduct does not breach the rights in the trademark, as the exhaustion principle applies: after the first sale within an EU or EEA member state, a rights holder cannot object to the further circulation of its products. Nor does such conduct breach unfair competition law - as any prohibition of sale is invalid, a third party's violation of such a prohibition does not interfere with the principles of fair commercial practice.
However, an exception applies where there are legitimate grounds for objection under Article 5 of the Industrial Property Code, "in particular, when the status of such products is modified or altered after their introduction into the market".(1) The relevant provisions implement the position established by EU case law,(2) setting out the prerequisites for admissible repackaging. This issue is particularly relevant to pharmaceutical products, for which repackaging is prohibited where, among other things, "the presentation of the repackaged product has the potential to harm the reputation of the trademark".(3)
A successful objection to the further commercialization of trademarked goods or the promotional use of a trademark depends essentially on a comparison of such activities with the normal manner and circumstances of presentation and the context of the original products within the official sales network. In general, the more prestigious the normal sales channels, the stronger the contrast with unauthorized forms of commercialization, in which the trademarked goods in question may be presented alongside miscellaneous branded or unbranded products of different kinds.
These rules apply in respect of the European Union and the European Economic Area; thus, resale can be prohibited only in relation to products destined for external markets. The principle of exhaustion applies exclusively within the European Union. As a result, original products that have been re-imported into Italy from states outside the European Union and the European Economic Area have been deemed counterfeit by Italian courts.(4)
The criterion for establishing whether a specific product can benefit from the principle of exhaustion is the consent of the rights holder to its marketing within the European Union or the European Economic Area. Accordingly, such consent determines exhaustion (barring contractual agreements to the contrary between the parties), just as the absence of consent determines that the products being distributed cannot be original.
Italian law allows parallel importers to use an associated trademark in the advertisement of such products, provided that the limits indicated by EU case law are observed. However, even with regard to products marketed with the rights owner's consent within the European Union or the European Economic Area, a party may not sell original products in a way that abuses the trademark's reputation. Such abuse may involve giving the trademark disproportionate prominence in advertisements(5) or setting low prices for products bearing trademarks that have strong consumer appeal as a way of attracting custom and encouraging further sales of other products.(6)
The Italian courts have tended to rely on the prohibition against misleading advertising in trademark cases where advertising is deceptive by virtue of the omission of information. This principle also applies where the previous year's stock is sold with no specific mention of this fact.
However, the position is almost completely different when the rights holder has implemented a selective distribution system that limits - on a formal and regulated basis - the affiliation of its own distribution network to outlets (or methods or circumstances of sale) with specific qualitative characteristics. Such a system is considered compatible with antitrust legislation where it is necessary for technical reasons - for example, certain complex products may require a particular after-sales service that not all retailers can provide. Equally, antitrust law makes an exception where the trademark's reputation and prestige must be preserved, provided that distributors are selected according to objective and qualitative criteria. Such criteria may include not only the "capacity, competence, professionalism and reliability of the distributors", but also "the location of their stores" and their "ability to maintain an adequate stock of products".(7) However, EU case law has followed a relatively rigid interpretation in order to prevent the number of distribution outlets - that is, a mere quantitative limitation - from being presented as an indication of a form of selective distribution.
Article 4(c) of EU Regulation 99/2790 expressly allows clauses that impose a "restriction on active or passive sales to end users by members of a selective distribution system". In such cases it is legitimate to include limitations on post-sale guarantees for purchases made from outlets that do not belong to the official network. According to previous court decisions, this seems to imply a right of action against parallel sales on the grounds of unfair competition where rights holders can show that the parallel vendors obtained the goods from official vendors, even though they were aware of a (legitimate) prohibition against resale that applied to the latter.(8)
A rights holder wishing to follow this path would be advised to consider:
A form of monitoring and a system of penalties should be implemented to enable the rights holder to take action against vendors that breach the conditions, and to emphasize the closed character of the network. However, the trademark owner must take care to allow any party that meets the specified requirements to participate; thus, the requirements must be considered carefully and phrased precisely.
In addition, the courts seem inclined to consider that an act of unfair competition is committed where parallel sales erode the conditions imposed by the rights holder in respect of its trademarked products. This gives rights holders another basis on which to take action and discourage parallel sales.
An efficient distribution policy that exploits all of the opportunities presented by statute and case law is the only viable means of limiting the negative impact of the exhaustion principle and thereby preserving the profitability of the brand equity in the trademark.
(4) For example, the Milan Court of Appeal decisions of July 22 1994 and October 11 1996, the Court of Bologna decision of August 21 1995, the Court of Milan decision of November 20 1995 and the Court of Treviso decision of March 20 1996. The Court of Cassation's Decision 27081 of December 21 2007 only appears to be an exception: it held that the parallel import into Italy of original products from outside the European Economic Area did not infringe the trademark in question, but was nonetheless an act of unfair competition.
(8) See, for example, an account of the Court of Milan's decisions of July 9 1981 in Foro Pad, 1981, I, pages 153 et seq, and of April 23 1990 in Giur Ann Dir Ind, 1990, pages 480 et seq. See also Supreme Court Decision 6887 of July 30 1996, in Giur It, 1997, I, 1, pages 615 et seq.
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