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The European Court of Justice got into women’s underwear in a recent case from the French Cour de Cassation.
In Case C-59/08, Copad SA v Christian Dior couture SA, Société industrielle lingerie (SIL), the fashion house Dior argued that when one of its licensees sold its luxury lingerie to a discount store in breach of the licence, the sale constituted not only a breach of contract, but also an infringement of its trade mark.
The background to this was a licence agreement concluded in 2000 between Dior and Société industrielle lingerie (SIL) regarding the manufacture and distribution of “luxury corsetry goods” bearing the Christian Dior trade mark. The agreement stipulated that in order to maintain the repute and prestige of the Dior mark, SIL could not sell to discount stores outside of the selective distribution network without prior written consent. Moreover, the licensee agreed to take all necessary steps to ensure that its distributors or retailers complied with this restriction.
In 2002, SIL encountered economic difficulties and asked Dior for permission to market the goods to downmarket retailers outside of the selective distribution network. Dior refused such permission, but SIL, nevertheless sold Dior goods to Copad, a company operating a discount store business. Dior sued SIL and Copad in the French national court for trade mark infringement, contending that the resale was in contravention of the agreement. In defense, the resellers pleaded exhaustion of Dior’s trade mark rights because the goods had been put on the market in the EEA (European Economic Association) with Dior’s consent.
Dior did exhaust its domestic remedies and the case made it up to the Cour de Cassation, the court of last instance in France. That court referred several questions to the European Court of Justice regarding the interpretation of the Trade Mark Directive (Council Directive 89/104/EEC), seeking a preliminary ruling.
The ECJ answered those questions in favor of Dior. First, the court held that Dior, as the proprietor of a trade mark, can invoke the rights conferred by that trade mark upon breach of a licence that bans, on grounds of the trade mark’s prestige, sales to discount stores so long as it has been established that contravention “damages the allure and prestigious image which bestows on those goods an aura of luxury”. The court opined that the quality of luxury goods is not only the result of their material characteristics, but also of the allure and prestigious image which gives them the aura of luxury. The selective distribution system here, which seeks to ensure that the goods are displayed, positioned, advertised and packaged in a way that enhances their value, is significant in sustaining the aura of luxury surrounding the goods. It is therefore conceivable that the sale of these goods outside of the permitted network could affect the quality of the goods so that a contractual provision barring such sale falls within the scope of the Directive.
Second, the court held that SIL’s sale to Copad, in breach of the ban on selling to discount stores, may be deemed to have taken place without the consent of Dior and therefore precludes exhaustion of the proprietor’s rights. In such case, the license agreement does not constitute the absolute and unconditional consent of the proprietor to the licensee putting the marked goods on the market.
Finally, the court held that damage to the reputation of a trade mark may be a legitimate reason to oppose the resale of the goods.
Some commentators see this verdict as a triumph for luxury goods manufacturers who want to make sure that their upmarket goods are not sold at downmarket stores. But this has yet to be seen. It is still necessary to prove that the resale will harm the brand’s aura of luxury and we do not know what sort of proof the courts will demand.

Sources:
http://curia.europa.eu
http://ipkitten.blogspot.com
www.lawgazette.co.uk
http://adelepace.wordpress.com
http://fashionistaatlaw.blogspot.com