We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
28 April 2014
The growing problem of counterfeiting is a constant concern for many rights holders. Barcodes have often been used by rights holders and manufacturers to identify genuine goods, as a weapon in the fight against illegal manufacturing and the import of counterfeit and grey-market products. However, barcodes may be used for more than this: they can identify not only the origin of the goods, but also the chain of distribution.
The Norwegian Court of Appeal recently ruled that removal of barcodes from goods that were legitimately parallel imported to Norway did not qualify as a 'legitimate interest' that the rights holder could assert.
PJS International SA owned the trademark PARAJUMPERS. Together with its exclusive licensee and Norwegian distributor, it sought an interim injunction to prohibit the sale by Norwegian retailer Coop Norge Handel AS of parallel-imported goods, on the grounds that Coop had removed barcodes from PARAJUMPERS jackets sold in Coop's shops.
It was undisputed that the goods offered in Coop's stores were genuine and legally parallel imported by Coop. Coop had not altered the jackets or their packaging, but had removed a label with PJS's barcodes and added a new label with its own barcodes. The trademark PARAJUMPERS was not used on either JPS's original barcode label or Coop's new barcode label.
JPS argued that the barcodes were an important element of its anti-counterfeiting strategy and also made it possible for JPS to withdraw defective goods from the market. It argued that these considerations should carry greater weight than the considerations of free trade underlying the principles of exhaustion of rights. Coop, on the other hand, claimed that since the barcodes also revealed information regarding the distribution system of the goods, their removal was necessary to facilitate parallel imports. Coop also argued that since traditional means could be used to confirm that the goods were genuine, JPS had no legitimate interest in opposing the removal of the labels.
The Court of Appeal acknowledged that the use of barcodes would make it easier for JPS to identify counterfeit products, but also found that the barcodes could be used to identify the distributor that had sold the products outside the exclusive distribution system. Although identification of genuine goods through traditional means would be more inconvenient for JPS, the court stated that by including information referring to its distribution system in the barcodes, JPS could stop leaks within its distribution system and hence obstruct perfectly legitimate parallel imports. If the goods had been sold within the European Economic Area (EEA) market with the rights holder's consent, the rights holder would no longer hold a legitimate interest in controlling the further distribution of the goods. Therefore, the loss of the opportunity to track the distribution chain within the EEA did not constitute a sufficiently good reason to oppose Coop's sales of the goods.
With regard to JPS's claim that the barcodes were used to withdraw defective goods, the court stated that, for these types of product (ie, clothing), the ability to recall defective goods is not as important as for other types of product, such as nutrients, medicines and perfumes.
The court concluded that barcodes are, in general terms, an effective tool in the fight against counterfeiting. However, in this particular case, the barcodes included more information than was necessary to serve this purpose, as they included information that could be used to prevent parallel imports. Hence, instead of a legitimate interest in favour of the rights holder, the court stated that the parallel importers had a legitimate interest to remove the barcodes. JPS had also failed to prove that the barcodes were necessary to identify counterfeit goods, since Coop had evidenced by traditional means that the goods were genuine and legally parallel imported to Norway.
The Court of Appeal concluded that distributors that sell products to parallel importers depend on keeping their source hidden. If they cannot guarantee such anonymity, they will be excluded by their source, reducing the possibility of free trade, parallel imports and competition involving exclusive brands.
The court's decision seems well balanced, given the type of product at issue. However, with other types of product, such as nutrients and medicines, one could reach the opposite conclusion, as maintaining the possibility to recall defective goods may be a legitimate interest, as JPS argued. In addition, given the rapid escalation of the problem of counterfeiting, it is important that considerations of free trade do not prevail against legitimate interests in opposing the removal of labels that exclusively serve the purpose of identifying counterfeit goods.
For further information on this topic please contact Celine Varmann Jørgensen at Bryn Aarflot AS by telephone (+47 92 83 16 19), fax (+47 22 00 31 31) or email (email@example.com). The Bryn Aarflot AS website is available at www.baa.no.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.