The owner of a luxury brand has the right to oppose sales through unauthorised e-commerce

The Court of Milan, with the order n. 3755 of 11 May 2021, established that sales methods, even through online sites, of a retailer outside the selective distribution network of a luxury brand that are detrimental to the prestige and reputation of the same can be prevented.

In this case, in fact, the principle of exhaustion of the trademark pursuant to art. 5 paragraph 1 CPI may not be applied and the owner of the trademark is granted the right to oppose such sales.

The decision concerned the case of a well-known high fashion company operating in the luxury field which took legal action claiming that it considered itself harmed by the conduct of a company that marketed and promoted without authorization certain products under its brand on the Internet.

That sales activity, according to the applicant, did not take account of the strict quality standards required by the applicant for the distributors in its sales network and, in general, of the standards relating to the sale of luxury products. The applicant also found that the traceability codes affixed to the packaging of those products had been tampered with.

The Court of Milan has first assessed the legality of the applicant’s selective distribution system, which is generally defined as ‘a distribution system in which the supplier undertakes to sell the goods or services covered by the contract, directly or indirectly, only to distributors selected on the basis of specified criteria and in which those distributors undertake not to sell those goods or services to unauthorised dealers in the territory which the supplier has reserved for that system’.

This system is abstractly suitable for preventing, restricting or distorting competition, but this mode of sale may be considered legitimate provided that the following conditions are met: (i) it is limited to luxury and prestige products, in order to preserve their quality and ensure their correct use; (ii) the limits imposed on free competition and generated by such sales arrangements do not go beyond what is necessary and are established objectively. This distribution system, especially for luxury brands, was and still is used in order to ensure that the products in question are promoted and marketed through appropriate channels and in line with the prestige of the brand itself, so as to preserve the connotation of exclusivity and prestige.

The Court of Milan held that the selective distribution system of the well-known fashion brand was to be considered lawful and proportionate, as the clauses contained in the relevant agreements were intended solely to safeguard the prestige and high reputation of the brand. For example, it was envisaged that the brand’s products should not be combined with other products bearing other brands, that a personalized consultancy service should be guaranteed, that the high quality of the website should be ensured, while there was no restrictive prescription relating to prices, territory and supplies.

Having therefore recognised the lawfulness of the applicant’s selective distribution system, the Tribunale di Milano focused on the defendant’s conduct, in order to verify whether or not she complied with the quality standards imposed by the applicant for its authorised distributors.

It is in this context that the “principle of exhaustion” pursuant to Article 5 of the CPI is inserted, according to which the exclusive powers attributed to the owner are exhausted with the first placing on the market of the products by the owner or with his consent unless there are “legitimate reasons” that justify the opposition of the trademark owner to the further marketing of his products (Art. 5 paragraph 2 CPI).

The Court, on this point, joined the consolidated jurisprudential orientation according to which the methods of sale and presentation of the products not in line with the reputation and prestige enjoyed by the brand are to be considered “legitimate reasons”, with consequent actual prejudice to the image of luxury of the same.

In the present case, the Court of Milan found that the derogation provided for in art. 5 paragraph 2 CPI, as the defendant had not applied the standards required by the fashion brand to preserve its prestige and notoriety: the original identification codes of the products appeared to have been removed, the website presented the image of an advertising campaign no longer in progress whose exploitation rights had now expired, the products were combined with other products of lower quality.

The Judge therefore excluded the operation of the principle of exhaustion and consequently recognized the legitimate exercise by the applicant of the right to oppose the sale pursuant to Article 5 paragraph 2 of the CPI

Consequently, the Court upheld the appeal by ordering the injunction, assisted by criminal law, to the further marketing, offer for sale, promotion and advertising of the applicant’s branded products on the defendant’s e-commerce site, as well as the publication of the device of the order on the website of the same.