Drafting license agreements for the use of the

Drafting license agreements for the use of the supplier’s trademark on a website where his products are proposed for sale Venice (Italy) – May 18, 2012 Avv. Marco Venturello

THE ISSUE TO BE DISCUSSED ü To what extent is a reseller who has purchased branded products entitled to sell them on the Internet without the permission of the brand owner ? ü And if the brand owner is willing to grant a license, which limitations can he impose on the reseller ? consequently ü What recommendations for the drafters ? Avv. Marco Venturello

THE ISSUE TO BE DISCUSSED § The products are original and genuine, the packaging has not been modified § There is not a problem of illegal parallel imports § The limits of the free use of a third party’s trademark, the notion of exhaustion, descriptive v. distinctive use of a trademark § The notion of consent and of licence: issues concerning the drafting Avv. Marco Venturello

THE ISSUE TO BE DISCUSSED The conflicting interests: Ø the trademark owners would like to have a full control of the chain of distribution of their branded products (extension of the exclusivity rights, of the legal monopoly granted by the IP rights) Ø the distributors (chain of distribution) would like to be free to trade, both from a geographical point of view (exhaustion of IP rights and parallel imports) and from the point of view of the different channels of distribution (e. g. Internet) Avv. Marco Venturello

THE ISSUE TO BE DISCUSSED The distribution of products: v In the “material world” v Through Internet: in this latter case there is a specific need to use the trademark Avv. Marco Venturello

THE FIELDS OF LAW INVOLVED Ø IP law: in this presentation limited to trademark law [see TRIPs, Regulation (EC) No 207/09 and Directive 2008/95/EC] Ø Contract law [see Directive 2000/31/EC] Ø Antitrust law [see The Treaty on the Functioning of the European Union and Commission Regulation (EC) No 2790/1999 – Commission Regulation (EC) No 330/2010] Ø Unfair competition law [see Paris Convention for the Protection of Industrial Property] Avv. Marco Venturello

ANTITRUST LAW q Quoted from the IDI website “Under EC Antitrust law the distributor must be free to use Internet because the promotion through Internet is considered (if not specifically directed to customers outside the territory) as a «passive sale» that cannot be inhibited. This means that a general prohibition to advertise on Internet would make the distribution agreement contrary to EC Antitrust law. The supplier may however verify that the advertising conforms to his image, provided this is not used as a pretext for simply inhibiting the use of Internet. ” Avv. Marco Venturello

ANTITRUST LAW q Quoted from the IDI website “It is advisable to avoid any clause prohibiting the distributor to establish Internet sites and to sell through Internet, because this could be seen as a hard core restriction which would cause the agreement not to be exempted by Regulation 2790/1999. The supplier may however exercise a certain control over the use of his trademarks by the distributor, for instance by requiring that any advertising with his trademarks (including Internet) will be subject to his prior approval. ” Avv. Marco Venturello

AGREEMENT ON TRADE RELATED ASPECTS OF IP RIGHTS (TRIPs) Part I — General Provisions and Basic Principles Article 6 Exhaustion For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. Avv. Marco Venturello

AGREEMENT ON TRADE RELATED ASPECTS OF IP RIGHTS (TRIPs) Part II — Standards concerning the availability, scope and use of Intellectual Property Rights Article 17 Exceptions Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties. Avv. Marco Venturello

Regulation (EC) No 207/09, of 26 February 2009, on the Community Trade Mark Article 12 Limitation of the effects of a Community trade mark A Community trade mark shall not entitle the proprietor to prohibit a third party from using in the course of trade: (a) his own name or address; (b) indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of the goods or of rendering of the service, or other characteristics of the goods or service; (c) the trade mark where it is necessary to indicate the intended purpose of a product or service, in particular as accessories or spare parts, provided he uses them in accordance with honest practices in industrial or commercial matters. Avv. Marco Venturello

Regulation (EC) No 207/09, of 26 February 2009, on the Community Trade Mark Article 13 Exhaustion of the rights conferred by a Community trade mark 1. A Community trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent. 2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market. Avv. Marco Venturello

Dior / Evora judgment of the Court, November 4, 1997, Case no. C 337/95 On a proper interpretation of Articles 5 and 7 of Directive 89/104 (today Directive 95/08), when trade marked goods have been put on the Community market by the proprietor of the trade mark or with his consent, a reseller, besides being free to resell those goods, is also free to make use of the trade mark in order to bring to the public's attention the further commercialization of those goods. Avv. Marco Venturello

Dior / Evora judgment of the Court, November 4, 1997, Case no. C 337/95 The proprietor of a trade mark may not rely on Article 7(2) of Directive 89/104 (today Directive 95/08) to oppose the use of the trade mark, by a reseller who habitually markets articles of the same kind, but not necessarily of the same quality, as the trade marked goods, in ways customary in the reseller's sector of trade, for the purpose of bringing to the public's attention the further commercialization of those goods, unless it is established that, given the specific circumstances of the case, the use of the trade mark for this purpose seriously damages the reputation of the trade mark. Avv. Marco Venturello

Dior / Evora judgment of the Court, November 4, 1997, Case no. C 337/95 A balance must be struck between the legitimate interest of the proprietor of the trade mark in being protected against resellers using his trade mark for advertising in a manner which could damage the reputation of the trade mark and the reseller's legitimate interest in being able to resell the goods in question by using advertising methods which are customary in his sector of trade. In the case of prestigious, luxury goods, the reseller must not act unfairly in relation to the legitimate interests of the proprietor of the trade mark. Avv. Marco Venturello

Dior / Evora judgment of the Court, November 4, 1997, Case no. C 337/95 On a proper interpretation of Articles 30 and 36 of the Treaty (today Articles 36 and 42 of the Treaty on the Functioning of the European Union), the proprietor of a trade mark or holder of copyright may not oppose their use by a reseller who habitually markets articles of the same kind, but not necessarily of the same quality, as the protected goods, in ways customary in the reseller's sector of trade, for the purpose of bringing to the public's attention the further commercialization of those goods, unless it is established that, having regard to the specific circumstances of the case, the use of those goods for that purpose seriously damages their reputation. Avv. Marco Venturello

Dior / Copad judgment of the Court, April 23, 2009, Case no. C 59/08 Where a licensee puts luxury goods on the market in contravention of a provision in a licence agreement but must nevertheless be considered to have done so with the consent of the proprietor of the trade mark, the proprietor of the trade mark can rely on such a provision to oppose a resale of those goods on the basis of Article 7(2) of Directive 89/104 (today Directive 95/08), as amended by the Agreement on the European Economic Area, only if it can be established that, taking into account the particular circumstances of the case, such resale damages the reputation of the trade mark. Avv. Marco Venturello

Pierre Fabre Dermo-Cosmétique judgment of the Court, October 13, 2011, Case C 439/09 45. Pierre Fabre Dermo‑Cosmétique also refers to the need to maintain the prestigious image of the products at issue. 46. The aim of maintaining a prestigious image is not a legitimate aim for restricting competition and cannot therefore justify a finding that a contractual clause pursuing such an aim does not fall within Article 101(1) TFEU. Avv. Marco Venturello

Pierre Fabre Dermo-Cosmétique Opinion of the Advocate General Mazák, Case C 439/09 38. PFDC also claims that the ban is objectively justified due to the major risk of an increase in counterfeited products due to internet sales, with the resulting dangers for consumer health, and the risk of free riding which could lead to the disappearance of the services and advice provided in pharmacies as the owners of internet sites could free ride on the investments of distributors who do not have such sites. 39. In my view, the threat of counterfeiting and the risk of free riding are valid concerns in the context of selective distribution. Avv. Marco Venturello

Pierre Fabre Dermo-Cosmétique Opinion of the Advocate General Mazák, Case C 439/09 40. However, I am uncertain how the distribution by a selected distributor of a manufacturer’s products via the internet could itself lead to an increase in counterfeiting and how any detrimental effects resulting from such sales cannot be counteracted by adequate security measures. As regards the question of free riding, given that the setting up and operation of an internet site to a high standard undoubtedly entails costs, the very existence of free riding by internet distributors on the investments of distributors operating out of a physical outlet cannot be presumed. Moreover, I consider that a manufacturer can impose proportionate and non discriminatory conditions on its selective distributors selling via the internet in order to counteract such free riding, thereby ensuring that the manufacturer’s distribution network operates in a balanced and ‘equitable’ manner. In the light of such considerations, it would appear that the general and absolute ban is inordinate and not commensurate with the risks in question. 41. PFDC’s claims concerning counterfeiting and free riding Avv. Marco Venturello would appear therefore, subject to verification by the referring court, to be unfounded.

MODEL CLAUSES q Quoted from IDI website model contract in the version distributor friendly (Internet) The Distributor may advertise the Products and/or his activity as Distributor of the Supplier on Internet. Such advertising shall comply with Article 4. 2 [4. 2 (Conformity to the Supplier’s indications). Any advertising and promotion regarding the Supplier and/or the Products shall conform to the general standards indicated by the Supplier] (Use of the Trademarks) The Distributor may use the Supplier's trade marks, trade names or any other symbols (hereafter «Trademarks» ), for the purpose of advertising the sale of the Products and identifying himself as Distributor of the Supplier. Avv. Marco Venturello

MODEL CLAUSES q Quoted from IDI website model contract in the version supplier friendly (Internet) The Distributor may advertise the Products and/or his activity as Distributor of the Supplier on Internet, provided he informs the Supplier so that the latter can check that such advertising conforms to his trademark image. The costs of such advertising will be borne, unless otherwise agreed, by the Distributor. (Use of the Trademarks) The Distributor shall use the Supplier's trade marks, trade names or any other symbols (hereafter «Trademarks» ), but only for the limited purpose of advertising the sale of the Products and identifying himself as Distributor of the Supplier, such use of the Trademarks being made in the Supplier's sole interest. Any use of the Trademarks on the Distributor's letter paper, on advertising materials or on any other materials ad dressed to third parties or on Internet (especially on the Distributor's site, if any) shall require the prior written consent of the Avv. Marco Venturello Supplier.

Some examples of web-sites selling branded products: • Saldi Privati: www. saldiprivati. com • Privalia: www. privalia. it • Vente Privée: www. vente privee. com • Yoox: www. yoox. com • Solo. Alto. Design: www. soloaltodesign. net Avv. Marco Venturello

Avv. Marco Venturello (with the contribution of Dott. Arda Paragamyan) Via Vittorio Amedeo II n. 17, Torino, Italy Tel. 011 5185831 Fax 011 5185850 E mail marco. venturello@sleuresis. it Internet web site www. sleuresis. it Avv. Marco Venturello