International Exhaustion of Trade Marks and Parallel Imports in The US and The EU: How To Achieve Symmetry?

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International exhaustion of trade marks and

parallel imports in the US and the EU: How to
achieve symmetry?
Article in Queen Mary Journal of Intellectual Property January 2015

DOI: 10.4337/qmjip.2015.05.04
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Queen Mary Journal of Intellectual Property, Vol. 5 No. 1, pp. 6886
International exhaustion of trade marks and

parallel imports in the US and the EU:
how to achieve symmetry?
Andrea Zappalaglio*
University of Oxford, UK
The differences in the management of the exhaustion of trade mark rights and, consequently, of
parallel importations in the US and the EU cause some asymmetries in the international trade
between these two subjects, especially concerning the exchange of grey goods. The article con-
ducts a critical analysis of the origins of this problem and suggests that, given that a general
reform of the EU policy is highly unlikely, the Trans-Atlantic Trade and Investment Partner-
ship could be the right instrument for establishing a bilateral sui generis system of parallel
importations between the US and the EU. In this system, Europe should apply some American
concepts such as the common control doctrine, thus making its internal market more open
and competitive.
Keywords: trade mark exhaustion, parallel imports, EU trade mark law, US trade mark law,
Trans-Atlantic Trade and Investment Partnership, TRIPs Agreement, grey goods
1 INTRODUCTION
The present article is aimed at comparing the management of parallel imports (PI) of
trade-marked goods as well as the trade mark exhaustion regime in the EU and the
US. Furthermore, it will suggest some possible solutions to make the European market
more open and competitive, thus solving many problems created by EU laws overly
restrictive approach. Namely, it will be argued that the EU could choose a more radical
reform (ie, the adoption of international exhaustion), or a more balanced one (ie, the
adoption of the common control doctrine based on the US model). The latter model
will be deemed more appropriate. Finally, it will be submitted that since a large-scale
reform of the EU policy concerning PI is practically impossible, the Trans-Atlantic
Trade and Investment Partnership (TTIP) can be a good opportunity for introducing
these reforms, although within the limited frame of the US/EU relationship, thus solving
the asymmetries in the parallel trade between these two subjects.
The thesis will be developed through the four following sections. Section 2 will
contextualize the discussion by providing some background; section 3 will compare
US and EU approaches to PI in order to highlight their respective strengths and
weaknesses. Section 4 will analyse the ways in which the EU market could be
made more open to PI and more competitive, thus solving the asymmetries with
* Combined Bachelor and Master Degree in Law (University of Milan); LLM (University
College of London). Currently DPhil Researcher at the University of Oxford. For any comments,
please write to andrea.zappalaglio@law.ox.ac.uk.
2015 The Author Journal compilation 2015 Edward Elgar Publishing Ltd
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International exhaustion of trade marks and parallel imports in the US and the EU 69
the US. Finally, section 5 will identify the obstacles to a European reform of trade
mark exhaustion and will emphasize the opportunity presented by the TTIP.
2 BACKGROUND
Exhaustion is the principle according to which once the holder of an Intellectual Property
Right (IPR) has marketed a stock of protected goods, he loses his exclusive privileges in
relation to these products. In particular, he cannot prevent the free movement of the goods,
their resale, export or import. Although the present article will focus on trade marks only,
exhaustion applies to all forms of IP.1
There are three models of exhaustion: national, international and regional.2 These
different regimes determine whether a country allows PI, that is, the possibility for
a third party (the parallel importer) to buy protected goods (grey goods) lawfully
sold on a foreign market and to resell them on the domestic market of another country
independently from the official distribution channels.3
If a country applies the national exhaustion regime, the exclusive faculties of the
trade mark owner are deemed exhausted only over the goods that have been sold inside
the domestic market of that State.4 As a consequence, the resale of a product that bears
the trade mark is free only within the jurisdiction where the first sale has occurred, thus
no PI can take place. This regime prevents the partitioning of the domestic markets
and, therefore, it is the essential minimum model of exhaustion.5 At the same time,
however, it protects national enterprises from competition and free riding of foreign
parallel importers, and for this reason it has its strong supporters.6 Regional exhaustion
is a peculiar type of territorial exhaustion that instead of operating over the territory of
a single State, is adopted by a group of countries. European Community-wide exhaus-
tion is a typical example.
By contrast, if a country adopts the international exhaustion regime, it opens its inter-
nal market to imports of grey goods since the exclusive faculties of the trade mark owner
are deemed exhausted after the first sale has occurred anywhere in the world. 7
1. DT Keeling, Intellectual Property Rights in EU Law: Volume I, Free Movement and Com-
petition Law (Oxford University Press 2004) 7581; C Fink, Entering the Jungle of Intellectual
Property Rights Exhaustion and Parallel Importation in C Fink and KE Maskus (eds), Intellectual
Property and Development: Lessons from a Recent Economic Research (Oxford University Press
2005) 17188; L Bently and B Sherman, Intellectual Property Law (3rd edn, Oxford University
Press 2009) 1216; W Cornish, D Llewelyn and T Aplin, Intellectual Property: Patents, Copyright,
Trademarks and Allied Rights (8th edn, Sweet & Maxwell 2013) 19.0219.09.
2. Thomas Hays, Parallel Importation Under EU Law (Thompson, Sweet & Maxwell 2004)
814; Rose Ann MacGillivray, Parallel Importation (Canada Law Books Ltd 2010) 1426.
3. For some essential works on parallel importations see WA Rothnie, Parallel Imports
(Sweet & Maxwell 1993); Christopher Heath (ed), Parallel Imports in Asia (Kluwer Law Inter-
national 2004); C Stothers, Parallel Trade in Europe: Intellectual Property, Competition and
Regulatory Law (Hart Publishing 2007).
4. MacGillivray (n 2) 144.
5. Keeling (n 1) 78.
6. CE Barfield and MA Groombridge, Parallel Trade in the Pharmaceutical Industry: Implica-
tions for Innovation, Consumer Welfare, and Health Policy (1999) 10 Fordham IP Media & Ent
LJ 185; J Atik and HH Lidgard, Embracing Price Discrimination: the TRIPs and the Suppression
of Parallel Trade in Pharmaceuticals (2006) 27 U Pa J Intl Econ L 1043.
7. AJ Stack, TRIPs, Patent Exhaustion and Parallel Imports (1998) 1 JWIP 657, 666;
T Cottier and M Stucki, Parallel Imports in Patent, Copyright and Industrial Design Law: The
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70 Queen Mary Journal of Intellectual Property, Vol. 5 No. 1
This model is deemed to be beneficial to consumers since a market open to PI is more

competitive and characterized by lower prices and a wider choice.8
In the US, the concept of exhaustion, often called first sale doctrine, was elaborated by
the case law in Adams v Burke (1873),9 a patent case, and then applied to trade marks in
Apollinaris Co Ltd v Scherer,10 in which the doctrine of universality was applied.
According to this case, trade mark law, as the law of personality, is valid everywhere
and not bound to any local limits, since a mark is always identical to itself in every
jurisdiction of the world.11 Following this reasoning, the court applied the international
exhaustion principle and allowed PI since the grey goods were perfectly genuine. How-
ever, this decision was overruled in A Bourjois & Co v Katzel,12 which established the
modern US system of trade mark exhaustion, based upon the more familiar principle
of territoriality,13 according to which IP law being territorially limited only events
that occurred inside the geographical borders of the jurisdiction can cause exhaustion.14
Today, the US, after Katzel,15 apply a system of territorial exhaustion in which PI are
admitted in case of common control between the US trade mark owner and the foreign
manufacturer.16 Nevertheless, this exception does not apply to cases in which there are
material quality differences between domestic and grey products.17 However, the mod-
ern concept of first sale doctrine seems to be evolving. In fact, while some recent deci-
sions of the Supreme Court are restrictive, like Bowman v Monsanto,18 other cases are
more liberal. For instance, in Kirtsaeng v Wiley19 the Supreme Court opened the door to
international exhaustion of copyrighted materials lawfully produced abroad, thus open-
ing interesting perspectives.
In the EU,20 instead, art 7 of the Directive 2008/95/EC to approximate the laws of
the Member States relating to trade marks (TMD), as interpreted in Silhouette,21
Scope of European and International Public Law in F Abbott, T Cottier and F Gurry (eds), The
International Intellectual Property System: Commentary and Material, Part I (Kluwer Law
International 1999).
8. JM Ammann, Intellectual Property Rights and Parallel Imports (1999) 26 LIEI 91, 91;
E Bonadio, Parallel Imports in a Global Market: Should a Generalised International Exhaustion
be the Next Step? (2011) 33 EIPR 153, 155.
9. 84 U.S. 453 (1873). See, A Benyamini, Patent Infringement in the European Community
(IIC Studies vol 13 1993).
10. 27 F.18 (C.C.N.Y. 1996).
11. Ibid 499500.
12. 260 U.S. 689 (1923).
13. TH Davis Jr, Territoriality and Exhaustion of Trademark Rights under the Laws of the North
Atlantic Nations (1999) 89 TMR 657; J Divol, LEnregistrement, Elements ssntiels de lHarmo-
nisation du Droit des Marques (Presses Universitaires de Strasbourg 2003) 12633; I Calboli,
Market Integration and (the Limits of ) the First Sale Rule in North American and European Trade-
mark Law (2011) 51 Santa Clara LR 1241.
14. M Barrett The United States Doctrine of Exhaustion: Parallel Import of Patented Goods
(2000) 27 N Ky LR 911 915.
15. Katzel (n 12).
16. Davis (n 13) 6748.
17. Ibid 678712.
18. Vernon Hugh Bowman v Monsanto Co, 106 S Ct 1593 (2013).
19. Supap Kirtsaeng v John Wiley & Sons, 133 S Ct 1351 (2013).
20. For an overview, see T Cook, EU Intellectual Property Law (Oxford University Press
2010) paras 4.534.54.
21. Case C-355/96 Silhouette International Schmied v Hartlauer Handelsgesellschaft [1998]
ECR 1-4799.

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provides that regional exhaustion is the only model adoptable by the Member States,
thus prohibiting all PI, even in cases of common control.
This narrow approach has two main consequences. From a general perspective, it
does not allow consumers to benefit from the lower prices of the parallel imported
goods and makes the EU market less competitive. As for the trade exchanges with
the US, it creates some unreasonable asymmetries. Namely, if the common origin
doctrine applies, it can occur that a trade-marked good can be parallel imported
from the EU to the US, but, given the same circumstances, the opposite journey can-
not occur. Therefore, while some EU-based parallel importers, in certain cases, can
exploit price differences in order to sell grey goods in the US, the opposite cannot
happen. In addition, while US consumers can benefit from the PI of low-priced
trade-marked grey goods, those in the EU can rely only on the limited intra-European
parallel trade.
This problematic phenomenon, which impacts on the fairness and reciprocity of the
EU/US exchanges, could now be solved. In fact, in June 2013 the US and EU started
negotiating the TTIP, a Free Trade Agreement (FTA) aimed at, among other things,
fostering US/EU commercial exchanges and investments. Even if negotiations will
deal only marginally with IP, PI are a strongly trade-related issue whose liberalization
could play an important role in boosting the US/EU trade exchanges and, in general, in
making the EU market more open.
3 THE ROOTS OF ASYMMETRY: THE US AND EU COMPARED
It is suggested that the US approach to parallel trade is, generally speaking, more ade-
quate than the European one but less predictable.22 However, while the latter is more
predictable, it is excessively restrictive and should be widened. In fact, the US allows
parallel imports of goods that have been marketed abroad under the common control of
the US trade mark owner, the latter, instead, banishes all PI. The following subsections
will compare these two approaches.
3.1 United States, liberal but sometimes unpredictable

In 1923 with Katzel the US adopted territorial exhaustion, thus restricting signifi-
cantly PI of trade-marked goods.23 Today, US law allows PI of trade-marked mate-
rial in two cases. First, is the case of the so-called round trip scenario, in which a
good manufactured in the US is sold abroad and then re-imported. In fact, both Kazel
and the more recent relevant legislation, namely the Genuine Goods Exclusion Act
(2000) embodied in 1526(a) USC,24 deal only with merchandise of foreign man-
ufacture. The second and most important case is where there is common control
or affiliation between the US company and the foreign manufacturer.25 The leading
22. For an overview, Mary La France, Trademark Law (2nd edn, Lexis Nexis 2009) 297311.
23. See also Osawa & Co v B & H Photo, 589 F Supp 1163 (S.D.N.Y. 1984); TH Hiebert,
Foundations of the Law of Parallel Importation: Duality and Universality in Nineteenth Century
Trademark Law (1990) 80 TMR 483.
24. 19 U.S.C. 1526(a) (2013) The law prohibits the importation into the United States of any
merchandise of foreign manufacture if such merchandise [] bears a trademark owned by a citizen
of, or by a corporation or association created or organized within, the United States [].
25. Rothnie (n 3) 7398; Davis (n 13) 6748.

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case on common control is the Supreme Courts decision in K Mart Corp v

Cartier Inc.26
Nevertheless, the law is further complicated by the material quality differences
rule (MQD), established by the leading case Lever Bros,27 that is, if the grey
goods are not qualitatively identical to the goods produced in the US, the latter cannot
be imported without infringing the trade mark.28
This rule becomes fully understandable by reading it together with the concept of
likelihood of confusion. This factor is not only the base of the trade mark infringement
test, but, as it emerges from the Restatement of Unfair Competition,29 it is also the
cornerstone of the judgement on whether PI constitute trade mark infringement. There-
fore, the rationale of the MQD rule is that PI must be stopped if they inject in the US
market physically different goods that can deceive consumers as to their nature and
origin even if they are not counterfeited.30 However, the concrete application of this
rule raises some doubts as to its certainty.
3.1.1 Material quality differences in action: a map to distinguish between

good and bad law
US courts themselves have recognized in some decisions that in order to trigger the
MQD rule, the threshold adopted is very low.31 The analysis of some cases demon-
strates that this approach leads from time to time to disputable and over-restrictive
decisions. In particular, the present article suggests distinguishing among three cate-
gories of cases: first, rulings that can be deemed correct; second, rulings that, although
theoretically correct, increase uncertainty; third, disputable rulings.
The cases that belong to the first category are those in which grey goods are clearly
different from domestic ones. For instance, Lever 32 concerned PI of soap from the UK
to the US. The US-made soap made more foam, smelled differently and contained an
antibacterial agent whereas the UK-made soap did not. Hence, the differences were so
clear that the two products where substantively different. The same conclusions apply
to Nestl v Casa Helvetia33 where the Italian-made Perugina chocolates differed from
the Venezuela-made ones in the recipe, shape, packaging and other characteristics.
These are examples of good solutions that protect consumers from the risk of buying
truly different goods, thus safeguarding the distinctive function of the trade marks. In
addition, they are in line with some traditional common law decisions such as in the
English case, Colgate Palmolive v Markwell Finance,34 in which PI of toothpaste
from Brazil to the UK were enjoined since the two products were so different that
the resale constituted passing off.35
26. 486 U.S. 281 (1988). For a detailed analysis see RR Hopp, K Mart v Cartier: the Supreme
Court Decides the Gray Market Problem (1990) 14 Md J Intl L 21.
27. Lever Bros Co v United States, 981 F.2d 1330 (DC Cir 1993).
28. Davis (n 13) 678712; LJ Oswald, Statutory and Judicial Approaches to Gray Market
Goods: The Material Differences Standard (20062007) 95 Kentucky LJ 107.
29. The American Law Institute, Restatement Third, Unfair Competition (1995) para 24.
30. RB Kelly, An Overview of the Influx of Grey Market Goods into the United States
(1986) 11 NCJ Intl L & Com Reg 231, 232.
31. For instance, Zino Davidoff SA v CVS Corp, 571 F.3d 238 (2d Cir 2009).
32. Lever (n 27).
33. Socit Des Produits Nestl SA v Casa Helvetia Inc, 982 F.2d 633 (1st Cir 1992).
34. [1989] RPC 497.
35. See Rothnie (n 3) 329.

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The second category encompasses those rulings in which a material difference

virtually exists but it does not really influence the essence of what the clients get.
An example is Ferrero USA Inc v Ozak Trading Inc36 in which PI of Tic-Tac breath
mints were stopped due to differences in calories and size. However, it is submitted
that when grey goods are standard products widely sold worldwide the assessment of
the MQD should depend on the consumers perception and not on chemical analyses.
Consumers who want to buy Tic-Tacs get exactly what they want and a negligible
difference in calories cannot radically change the circumstances. In addition, such
a narrow decision introduces a high degree of uncertainty since, in theory, two pro-
ducts are never identical and this may raise the question of how far this can bring us.
According to McCarthy [t]he premise of the material differences rule is that the
consumer in fact does not get what she expects and does not get the genuine pro-
duct.37 However, this rule of thumb is violated by the third category of cases, the dis-
putable ones, that encompasses two classes of rulings. First of all, are those rulings
concerning aesthetic material differences. In Herend,38 PI of porcelain statues
from Hungary were stopped because the Plaintiff, unable to prove the existence of
quality differences, argued that their design would not have met the taste of American
consumers. This decision can hardly be accepted. If no qualitative differences exist,
consumers should be left free to choose the design they prefer.
Another line of disputable cases is the one in which the MQD consist in the instruc-
tional labels and not in the substance of the product. In Certain Agricultural Tractors39
some Japanese tractors, identical to US ones, could not be parallel imported because
the instructional labels were in Japanese. However, it is suggested that MQD should be
found only if the products are not fit for use in the US,40 their marketing is not in accor-
dance with domestic regulations41 or in other cases of serious substantive issues, but not
when there is the lack of certain information that can be easily found on the Internet or
by contacting the US retailer.
3.2 European Union: an anti-parallel imports fortress

The Community-wide exhaustion regime, adopted by the EU, hermetically closes the
internal market from all PI from outside the European Economic Area (EEA). This
policy is the source of the asymmetries concerning US/EU parallel trade. A critical
review of the EU leading cases concerning the international exhaustion of trade
marks will demonstrate this.42
36. 753 F Supp 1240 (D.N.J. 1991).

37. T McCarthy, McCarthy on Trademarks and Unfair Competition (4th edn, Thompson Reuters
2012) para 29.51.75.
38. Martins Herend Imports, Inc v Diamond & Gem Trading USA, 112 F.3d (5th Cir. 1997). See
also, Fender Musical Instruments Corp v Unlimited Music Ctr, 35 U.S.P.Q. 2d 1053 (D Conn 1995).
39. 44 U.S.P.Q. 2d 1385 (USITC 1997).
40. Gamut Trading Co v USITC, 200 F.3d 775 (Fed Cir 1999).
41. Novartis Animal Health US Inc v LM Connelly & Sons Pty Ltd [2005] 27 Intl Trade Rep
2114 (SD NY).
42. See Hays (n 2) 265311. See also M Farquharson and V Smith, Parallel Trade in Europe
(Sweet and Maxwell 1998); S Enchelmaier, The Inexhaustible Question: Free Movement of
Goods and Intellectual Property in the European Court of Justices Case Law 20022006
(2007) 38 IIC 353; G Westkamp, Intellectual Property, Competition Rules and the Emerging Inter-
nal Market: Some Thoughts on the European Exhaustion Doctrine (2007) 11 Marq IP LR 291.

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3.2.1 Building Fortress Europe: a synthetic review of ECJs case law

The development of Community-wide exhaustion in Europe is characterized by a line of
cases that has rejected international exhaustion and banned all PI from outside the EU.
The key juridical problem is the ambiguous wording of art 7(1) TMD (also adopted for
the Trademark Regulation),43 according to which The 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.
The article restates the two main requirements for triggering exhaustion within the
internal market: the consent of the trade mark owner,44 and the marketing of the pro-
duct in the Community.45 However, as emphasized by Hays, it does not specify
whether regional exhaustion is the minimum possible standard or the only one.46
The answer was provided by Silhouette, the first of a consistent line of decisions
that have confirmed the impossibility of any kind of PI from outside the EU.47 In
that case Hartlauer, the Defendant, bought some Silhouette spectacles in Bulgaria
(not an EU Member at that time) and offered them for sale in Austria. Silhouette
reacted but both the Austrian Court of First Instance and the Court of Appeal ruled
against it since Austria adopted the international regime.
Nevertheless, the ECJ decided in favour of Silhouette, holding that the TMD must
be construed as embodying a complete harmonisation of the rules relating to the rights
conferred by a trade mark.48 Hence, Community-wide exhaustion is the only possible
standard.49
In Sebago 50 a Belgian parallel importer had resold in the Community a stock of
shoes lawfully bought from an authorized distributor in El Salvador. The Plaintiff
acted to stop it. The Defendant argued that, first, the goods had been regularly pur-
chased and, second, by not preventing its licensee in El Salvador from exporting its
goods into the Community, the Plaintiff had given his implied consent to the market-
ing of the shoes there, and that, however, the same product was already sold in Europe.
The ECJ ruled in favour of the Plaintiff and held that ... the rights conferred by the
trade mark are exhausted only in respect of the individual items of the product which
have been put on the market with the proprietors consent in the territory there defined.51
In practice, the trade mark owners consent and, therefore, exhaustion, are not only
something that is always up to the parallel importer to prove, as held in the leading
case Van Doren,52 but it also depends on the individual history of each product.53
43. Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community

Trademark.
44. This requirement is considered crucial since the earliest cases. See, Case C-16/74 Centra-
farm BV and Others v Winthorp BV [1974] ECR 1183 [7][10].
45. Case C16/03 Peak Holding v Axolin-Elinor [2004] ECR I11313.
46. Hays (n 2) 296. See also, I Calboli, Trademark Exhaustion in the European Union:
Community-Wide or International? The Saga Continues (2002) 6 Marq IP LR 46, 59.
47. Silhouette (n 21). See Stothers (n 3) 3423. For an early anticipation of similar conclusions
see Case C-51/75 EMI Records v CBS United Kingdom [1978] ECR-811.
48. Silhouette (n 21) [25].
49. Ammann (n 8) 133. See also I Govaere, The Quest of a Master Key to Control Parallel
Imports (20012002) 4 Cambridge YB Eur Legal Stud 192.
50. Case C-173/98 Sebago Inc and Ancienne Maison Dubois & Fils SA v G-B Unic SA [1999]
ECR I-4103. See Stothers (n 3) 344.
51. Sebago (n 50) [19].
52. Case C-244/00 Van Doren + Q GmbH v Lifestyle Sports [2003] ECR I-3051.
53. Hays (n 2) 301.

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Hence, it is submitted that while Silhouette created the Fortress Europe, Sebago made it
impregnable.
The last case of paramount importance is Davidoff 54 concerning the PI of toiletries
and cosmetic products from Singapore to the UK. Once again, the ECJ held that:
the effect of the Directive is to limit exhaustion of the rights conferred on the proprietor of a
trade mark to cases where goods have been put on the market in the EEA and to allow the pro-
prietor to market his products outside that area without exhausting his rights within the EEA.55
Therefore, Davidoff confirms and reinforces Silhouette in toto.56
3.3 Results of the analysis: the US approach is better although imperfect

The aim of this section is to highlight the strengths and weaknesses of the exhaustion
regime adopted in the US and EU in order to argue that the US system is more open
and, therefore, better for consumers, but often unpredictable, while the European sys-
tem is predictable but unreasonably narrow. The argument has been supported by
showing that the US first sale doctrine allows PI, although almost exclusively in
cases of common control.
It is suggested that the MQD rule, if well applied, is reasonable. In fact, it protects con-
sumers by ensuring that grey and white goods are equivalent. Hence, the US system is
liberal without threatening the distinctive function of the mark and the safety of consumers.
However, the narrow interpretation of the MQD exception given by the courts is disputa-
ble. In fact, instead of letting consumers choose the type of product they prefer (eg cheaper
but with some instructions in a foreign language), they favour the official distribution chan-
nels after conducting restrictive case-by-case analyses that penalize certainty and, as a con-
sequence, parallel importers who cannot be sure about their rights.
The EU, instead, is completely closed to PI and, for this reason, the law is (almost)
perfectly predictable. However, this complete closure makes the internal market less
competitive and, as a consequence, it penalizes consumers who cannot buy grey
goods at a cheaper price. Not only that. As noticed by Stothers, sometimes grey
goods are not stopped at the EU border. Therefore, retailers who buy grey goods dis-
guised as white ones may be liable for infringement. Hence, such an anti-PI system
threatens, to a certain extent, the entire EU commerce in trade-marked merchandise
as well as the competitiveness of the internal market.57
4 HOW TO ELIMINATE ASYMMETRIES? TWO POSSIBLE REFORMS
There are two possible reforms of EU law that could make the internal market more
open to PI, hence more competitive, and solve the asymmetries concerning grey
54. Case C-414/99 Zino Davidoff and Levi Strauss v Tesco Stores Ltd. [2001] ECRI-8691. See
Stothers (n 3) 3456.
55. Davidoff (n 54) [32].
56. This line of cases has remained constant and is diligently applied at domestic level. For instance,
in 2012 the UK Supreme Court confirmed that the principle of free movement of goods cannot restrict
the proprietors right to prevent the first marketing within the Community of goods imported from
outside the EEA. Therefore, it ruled against the Defendant who had imported in the UK some
disk drives first marketed in the US by the Plaintiff who did not consent to their resale in Europe.
See Oracle America Inc v M-Tech Data Ltd [2012] UKSC 27, [2012] 1 WRL 2026.
57. Stothers (n 3) 3756.

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trade between the US and EU. First, the international exhaustion regime relating to
trade marks can be adopted; secondly, following US law, the common control princi-
ple could be introduced. This second option will be considered to be the most suitable
as it balances the interests of trade mark owners and consumers.
4.1 International exhaustion: the radical way

By adopting the international exhaustion regime, the EU would allow limitless PI from
extra-European countries, thus solving the current asymmetries in US/EU parallel
trade. Indeed, the EU would even become more liberal than the US. In fact, as antici-
pated in section 2,58 if the EU adopted the international exhaustion regime, trade marks
would be exhausted in the very moment in which the goods that bear them were mar-
keted anywhere in the world. Therefore, EU trade mark owners could not prevent the
resale in Europe of goods marketed abroad at lower prices.
Therefore, such reform would radically open the European market, thus fostering
competition, and solve all problems of reciprocity with the US in the field of PI. This
choice would bring some further advantages but would also raise some objections.
These issues will be discussed in the two following subsections.
4.1.1 Advantages of international exhaustion: no more barriers and beyond

The adoption of international exhaustion would be advantageous for at least three reasons.
First, this regime, by allowing PI, enhances trade between countries, removes trade barriers
and fosters competition, particularly in sectors such as pharmaceuticals and food, thus ben-
efiting consumers.59 By contrast, a regime of national exhaustion may lead to the exercise
of IPRs in a manner that would constitute a distortion of competition through the com-
partmentalization of international markets.60 Second, from an economic perspective,
some scholars supporting this model of exhaustion maintain that the benefits flowing
from national exhaustion are insufficient to justify the block of parallel trade and that
this should be allowed only in exceptional circumstances.61 Finally, international exhaus-
tion is more compatible with international standards. In fact, the WTO system has the
main aim of expanding ... the trade in goods and services.62 According to some leading
scholars, international exhaustion and PI are the best way for achieving this result.63
4.1.2 Free riding objection: not effectively applicable to trade marks

It may be argued that international exhaustion of trade marks allows free riding. In
other words, parallel importers may reap the benefits of the IPR without contributing
to the holders expenses.64 In addition, restrictions on parallel trade give IPR holders
58. Text to n 7.
59. Ammann (n 8) 91; Bonadio (n 8) 155.
60. AA Yusuf and AM von Hase, Intellectual Property Protection and International Trade:
Exhaustion of Rights Revisited (1992) 16 W Comp 115, 125.
61. FM Abbott, First Report (final) to the Committee on International Trade Law Association
on the Subject of Parallel Importation (1998) 1 J Intl Econ L 607, 608, 635.
62. Agreement Establishing the World Trade Organization 1994, Preamble para 1.
63. Abbott (n 61) 611; Ammann (n 8) 91.
64. RM Andrade, The Parallel Importation of Unauthorized Genuine Goods: Analysis and
Observations of the Gray Market (1993) 14 U Pa J Intl BL 409, 428; Hiebert (n 23) 483.

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the ability to charge the highest possible price in each national market and therefore
tend to raise their overall profitability, thus boosting their investments.65
However, these arguments may be strong in relation to patents and copyrights but
they are not equally convincing in the field of trade marks. In fact, Fink rightfully
maintains that they can only be applied to the IPR aimed at stimulating inventive
and creative activities (patents, copyrights ...) but not to trade marks, whose rationale
is completely different, their being indications of origin.66
The present article submits that, after all, the doctrine of universality,67 theorized by
Joseph Kohler,68 the father of the principle of exhaustion in Europe, is correct. If a
trade-marked good is genuine, and grey goods are so, the mark will ensure the identity
of its producer no matter how many times and where it has been marketed and re-sold;
therefore, it is not a matter of identity but of quality.
US IP law demonstrates itself to be well aware of this. In fact, its main concern is
that consumers may confuse foreign goods of different kind and quality with domes-
tic ones.69 If this happens, PI cannot occur. The consumers safety is an understand-
able concern. However, it is submitted that it is not per se a reason for outlawing
completely international exhaustion. In fact, confusion can be prevented by simply
providing consumers with adequate information, for example the provenance of
the products can be clearly emphasized on boxes and packages. If this is done,
a leading scholar like Watal argues that consumers could benefit from a greater
choice of similar products, white and grey, having different prices and qualitative
standards.70
Finally, it may be argued that in the field of trade marks, free riding consists
in using the existing goodwill of the mark and its owner as a springboard.71 How-
ever, exhaustion by definition prevents the IPR owner from exploiting his monopoly
forever. The trade mark owner has already been remunerated with the privilege of
marketing the goods for the first time at the price he prefers. According to the long-
standing case law of the ECJ, this represents the specific subject matter of the trade
mark.72 Parallel importers do nothing but lawfully pay the cost chosen by the trade
mark owner. In addition, it is suggested that official distributors are not helpless in
the face of this phenomenon. They can, in fact, distinguish their products from the
grey ones by providing pre- and post-sale services, consumer information services,
special warranties, and so on.
Therefore, since the function of trade marks is not to reward an inventor or an
author but to distinguish the products of one manufacturer from those of another,
the only problem that can arise is the consumers confusion as to the quality and
the provenance of the goods, and this can be easily avoided.
65. Barrett (n 14) 915.

66. The ECJ held that the essential function of a trademark is to be an indication of origin in,
among others, Case C-10/89 SA CNL-SUCAL v HAG AG [1990] ECR I-3711 (HAG II) [9]. Fink
(n 1) 178. See also Stothers (n 3) 334.
67. Text to n 10.
68. See Hiebert (n 23) 2.
69. Text to n 28.
70. J Watal, Intellectual Property Rights in the WTO and Developing Countries (Kluwer Aca-
demic Publishers 2001) 297.
71. VN Palladino, Gray Market Goods: The United States Trademark Owners View (1989) 79
TMR 158, 2067.
72. Centrafarm v Winthorp (n 44) [8].

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4.2 Common control: an interesting mediation between the interests

of trade mark owners and consumers
Alternatively to the adoption of international exhaustion, the EU may adopt something
similar to the US common control doctrine. The strength of this proposal lies in the
fact that it mediates between two different interests. First, it is less radical than inter-
national exhaustion, hence it would be easily accepted by the European trade mark
owners; second, it would certify the origin and quality of the products, thus safeguard-
ing consumers who, in addition, would benefit from a wider choice of goods. As stated
rightfully by Abbott: The interests of consumers relating to the parallel imports ques-
tion are broader than only an interest in low prices. Consumers also have interests in
the quality of products, the availability of variety and in support for the use of pro-
ducts (instruction, servicing, etc.).73 It is suggested that the adoption of the common
control doctrine can satisfy all these legitimate consumers concerns.
It is also pertinent to reflect on whether the introduction of this doctrine should be
followed by the adoption of the US MQD exception. The answer must be yes since it
assures more effectively that the grey goods are of the same quality as the domestically
produced ones. However, it is necessary to reiterate the statement already made while
describing US law,74 that is, such an exception should be applied only in cases where
the foreign goods are clearly and significantly different from the domestic ones, other-
wise less choice would be available to consumers and the law would be more
unpredictable.
It may be argued that no one has actually proposed the introduction of the common
control doctrine in the EU and that it is pretty far from the ECJs civil law-oriented
way of reasoning. However, now it will be shown that if some well-known cases
had been decided by applying this doctrine, the outcome would have been much fairer.
It is possible to take Silhouette and Davidoff as examples.
In Silhouette, the Plaintiff, active both inside and outside the EEA, had sold 21,000
out-of-fashion spectacle frames in Bulgaria;75 therefore, the conditions for common
control were present. If the ECJ had authorized the resale of these goods in Austria,
the local consumers would have had the opportunity to buy perfectly genuine Silhou-
ette spectacle frames at a lower price. In addition, it is submitted that the fact that the
products were out-of-fashion does not reasonably constitute a material difference
since the products were safe and made by the trade mark owner himself. It would
only increase the possibility for consumers to choose between new and old-fashioned
merchandise.
In Davidoff, instead, the Plaintiff was the proprietor of two trade marks registered in
the UK and used for a wide range of toiletries and cosmetic products. Goods bearing
those marks were sold both by the Plaintiff directly or on his behalf both within and
outside the EEA. The Defendant acquired stocks of Davidoff products manufactured
within the EEA and originally placed on the market in Singapore by Davidoff.76 In
this round trip scenario, common control doctrine would apply. In fact, not only did
the trade mark owner market the same goods both in the EEA and in Singapore,
but they all had the same characteristics. Therefore, no MQD could possibly exist
because both the original and the grey goods were identical. If a similar case was
73. Abbott (n 61) 61213.

74. Text to n 31.
75. Silhouette (n 21) [6][13].
76. Davidoff (n 54) [7][15].

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judged by a US court, the Defendant would almost certainly win and consumers would
enjoy different prices for the same goods.
4.3 Synthesis: both international exhaustion and common control doctrine

would improve EU law but the latter is more adequate
In this section, two possible reforms have been proposed in order to break Fortress
Europe. First, it has been submitted that international exhaustion can be adopted.
Alternatively, in the same scenario, the EU could introduce an equivalent of the US
common control doctrine restricted by the MQD exception.
In both cases the reform would also solve the asymmetries in the EU/US parallel
trade. However, the present article states that the latter would be the most suitable
approach. In fact, it would open the European internal market in a way that would ben-
efit consumers without creating any risk of deception and, at the same time, it would
not make the European trade mark owners too exposed to low-priced PI.
However, the next section will show that today the generalized introduction into EU
law of this US-inspired mechanism seems impossible. For this reason, this article sug-
gests that the TTIP could present an interesting chance to introduce this system in rela-
tion to the EU/US parallel trade. This bilateral solution would not constitute a radical
turning point in the EU policy, however it would be enough to solve the abovemen-
tioned asymmetries concerning parallel trade between these two areas.
5 WHY AN EXTENSIVE EU REFORM IS IMPOSSIBLE

AND THE OPPORTUNITY OF THE TTIP
In this section a historical analysis will show that a major reform of the current
European system of exhaustion is highly unlikely. For this reason, the TTIP repre-
sents a good chance for solving the asymmetries at least of the EU/US parallel
trade in a limited bilateral way.
Three points will demonstrate this argument. First, the debate on the adoption of the
international exhaustion regime in relation to trade marks in Europe ended ten years
ago. Secondly, the most recent case law on Community-wide exhaustion is becoming
more restrictive even in relation to the intra-communitarian PI. This approach contrasts
with the interesting evolution of the case law that is taking place in the US. Thirdly and
finally, it will be shown why the TTIP could be a good opportunity for liberalizing PI,
at least in the EU/US trade relationships, thus making them more symmetric and fair.
5.1 In Europe the debate on exhaustion is exhausted

The debate on the most suitable model of exhaustion to be adopted in Europe was
lively from the 1990s up to around 20002003. After that, however, the discussion
ceased. Today, it seems almost impossible that these talks will be reignited in the
future. A history of this debate will clarify this statement. For the sake of synthesis,
only the discussion papers developed by the European Institutions will be considered;
however, a complete analysis of all the studies concerning the topic can be found in the
work of Stothers.77
77. See Stothers (n 3) 3616.

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After the adoption of the TMD on 21 December 1988, the European institutions and
trade organizations started debating about its interpretation and, in particular, about the
future choices that the EU could make on the issue of exhaustion. As national courts
showed great divergences in their positions, so the Member States were fiercely divided
between the supporters of a more liberal exhaustion regime and those who were against it.78
After Silhouette, decided in 1998, the European Commission felt the necessity of
studying the economic effects of a change of exhaustion regime. In order to do so it
commissioned the NERA report.79 This document portrayed the status of PI in Europe
in 1999 and tried to foresee the economic consequences of the adoption of the inter-
national exhaustion regime.80 This paper was summarized in a Working Document
(WD) of the Commission in order to become the basis for further discussions of the
Council in 1999.81
The WD supports Community-wide exhaustion by stating that it is essential to pro-
tect EU competitiveness and innovation by guaranteeing a return of the investment in
new products. Furthermore, it adds that changing to international exhaustion would put
the European industry at a disadvantage compared to companies incorporated in coun-
tries that do not apply the same regime.82 Nevertheless, the study also listed a series of
arguments in favour of international exhaustion. In particular, it recognized that PI
would have increased inter-brand competition, by reducing the possibility of market
compartmentalization.83
In the last analysis, however, the conclusions of the NERA report are not particu-
larly revealing. According to them, although the short-term effects of the adoption of
international exhaustion appeared small in macroeconomic terms, the long-term con-
sequences were likely to be both more important and more difficult to predict.84 Mem-
ber States and other interested parties discussed these results in April 1999. As
expected, they and the other interested parties appeared still divided.85
In May 2000, after these unfruitful consultations, the Commission concluded officially
that: first, a change from Community exhaustion would not, at least in the short term, lead
to a significant fall in prices; second, it would expose EU companies to competitive dis-
advantages in respect of extra-European countries that are not as liberal; and third, that the
extension of the internal market is enough to ensure a decrease in the prices. Eventually, it
decided not to submit any proposal to modify the current system of exhaustion.86
The debate was reignited on 15 February 2001 when the European Parliament
published a draft report (also known as the Mayer Report) advocating the transi-
tion to international exhaustion in order to prevent the increase in the prices within
78. For an overview of these discussions see Calboli (n 46); C Seville, EU Intellectual Prop-
erty Law and Policy (Elgar EU Law 2009) 35972. See also H Cohen Jehoram, Parallel Imports
and Intellectual Property Rights (1999) 30 IIC 495.
79. The economic consequences of the choice of a regime of exhaustion in the area of trade
marks, NERA/SJ Berwin & Co/IFF Research (1999).
80. For an analysis of the contents of the NERA Report see Stothers (n 3) 363; Seville
(n 78) 370.
81. Commission Services, Exhaustion of Trade Mark Rights Working Document from the
Commission Services (1999) <http://ec.europa.eu/internal_market/indprop/docs/tm/exhaust_en.
pdf> accessed September 2013.
82. WD (n 81) 1516.
83. Ibid 16.
84. NERA (n 79) 1246.
85. Calboli (n 46) 81 and WD (n 81) 18.
86. See Calboli (n 46) 823; Seville (n 78) 371.

via Emily Milsom
the Community.87 However, this initiative seems to have had no practical conse-
quences.88 Finally, in another working paper published in 2003,89 the Commission
considered possible abuses of trade mark rights within the EU in the context of Com-
munity exhaustion and concluded that the existing law assured an adequate balance
between the interests of both trade mark owners and consumers.90
After that, the institutional debate ceased. Nevertheless, this article suggests that the
issue should be re-discussed for at least two reasons. First, the NERA Report has
always been unreliable and, in any event, does not portray the current status of the
internal market. In fact, the number of companies that were interviewed in order to
have some data on PI in Europe was not enough to conduct a good statistical analysis.
A total of 5500 companies and other enterprises were contacted but only 137 inter-
views actually took place: a response rate of less than 3 per cent.91 This led NERA
itself to admit that ... any numerical estimates from the survey must be treated with
caution and cannot be scaled up to give aggregate estimates.92
Second, one of the strongest arguments in favour of Community-wide exhaustion is
that PI taking place in an internal market formed by 28 countries should be enough to
cause a fall in prices and foster competition. However, this may not be true. In fact, a
recent study by Granlund and Kksal dedicated to pharmaceutical products has shown
that although PI do cause a decrease in the prices, the enlargement of the EU that occurred
between 2003 and 2007 seems to have had no real effects due to factors such as consu-
mers negative perception of goods of foreign origin and ad hoc derogations to EU
rules specifically aimed at preventing the parallel trade of pharmaceuticals.93
Therefore, new analyses should be conducted on the issue of PI in the EU since the
existing data are unreliable. Unfortunately, this will not happen. In the last ten years
the Commission has never returned to this matter and the EU IP law has constantly
adopted the Community-wide exhaustion model.94 As for future law, it should be
remembered that Community-wide exhaustion is also provided by art 6 of EU Regula-
tion 1257/2012 on Unitary Patent Protection. Hence no changes are likely to occur in
the near future.
5.2 Possible future developments: the US evolves, the EU devolves?

A comparative analysis of some recent US and EU decisions will show that not only is
the debate in Europe inactive, but that the newest case law may even favour a more
87. Committee on Legal Affairs and the Internal Market, On the Problem of Exhaustion of
Trademark Rights (2187/2000(COS)).
88. Calboli (n 46) 83.
89. European Commission, Commission Staff Working Paper. Possible Abuses of Trademark
Rights within the EU in the Context of Community Exhaustion (21 May 2003) <http://ec.europa.
eu/internal_market/indprop/docs/tm/sec-2003-575_en.pdf> accessed September 2013.
90. Stothers (n 3) 353; Seville (n 78) 372.
91. MacGillivray (n 2) 33.
92. NERA (n 79) 48.
93. D Granlund and MY Kksal, EU Enlargement, Parallel Trade and Price Competition in
Pharmaceuticals. Whats to Blame? Derogation or Perception? (2011) <http://umu.diva-portal.
org/smash/record.jsf?pid=diva2:442531> accessed September 2013.
94. In addition to art 7 TMD, it is possible to mention, among others, art 13 Regulation 40/95
on the Community Trademark and art 16 Regulation (EC) No 2100/94 on Community Plant
Variety Rights.

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restrictive approach. This situation contrasts with the one in the US, in which, thanks
to a number of cases, such as Kirtsaeng, the law seems to be evolving towards being
more open to PI.
5.2.1 United States: a potential revolution

Kirtsaeng95 will probably become one of the most important decisions on international
exhaustion in the recent legal history of the US. In that case, the Defendant started
buying academic textbooks made in Thailand and reselling them in the US. The Plain-
tiff sued for copyright infringement. The Defendant argued that the right had
exhausted but lost both on first instance and on appeal, despite the District Court
admitted that both the relevant case and statutory law, in particular 109(a) US Copy-
right Law96 that introduces copyrights exhaustion, were not completely clear on the
point. However, it held that it was possible to conclude that the first sale doctrine
applied only to copyrighted material made and sold in the US.97
On 19 March 2013 the Supreme Court reversed the judgement of the Court of
Appeal by holding that the relevant provisions on the first sale doctrine are not terri-
torially limited. In particular, there was no proof that when the Congress drafted 109
(a) they had in mind any limitation whatsoever. The only explicit requirement is that
the goods have to be lawfully made and marketed.98
However, Ginsburg J, Kennedy J and Scalia J submitted a strong dissenting opinion
in which they argued that: first, PI frustrates the possibility for US copyright owners to
practice price discrimination; second, the rationale of the entire Copyright Law is to
intensively protect copyright owners and this interpretation of the law contradicts
such an aim; and third, there are grounds for demonstrating that 109(a) is geographi-
cally limited.99 Nevertheless, it is argued that the sentence that reveals the true thinking
behind these dissenting opinions is the following [t]he Courts bold departure from
Congress design is all the more stunning, for it places the United States at the van-
guard of the movement for international exhaustion of copyrights a movement the
United States has steadfastly resisted on the world stage.100
Hence, at the heart of this dissenting opinion lies a conservative vision of the world
in which countries are divided between international-exhaustion-friendly or non-
friendly. The US, large producers of IP, should side with the latter. Indeed, this
case makes the position of the US on this matter much closer to that of large develop-
ing countries like China that are huge IP importers rather than exporters.101 However,
95. Kirtsaeng (n 19).

96. 17 U.S.C. 19 (2013) the owner of a particular copy or phonorecord lawfully made
under this title is entitled, without the authority of the copyright owner, to sell or otherwise
dispose of the possession of that copy or phonorecord.
97. John Wiley & Sons, Inc v Kirtsaeng, 654 F3d 210 (2d Cir 2011) 21822.
98. Kirtsaeng (n 19) 13602.
99. Ibid 137391.
100. Ibid 1373.
101. Art 69(1) of the new Chinese Patent Law (2009) provides for international exhaustion. The
new Trademark Law, which came into force on 1 May 2014, does not deal with the issue
directly. However, under art 57(3) only the seller who consciously sells counterfeited goods
infringes the mark. Hence, he who markets grey goods should not. See also, X Yu, The Regime
of Exhaustion and Parallel Imports in China: A Study Based on the Newly Amended Chinese
Laws and Related Cases (2004) 26 EIPR 105.

via Emily Milsom
such a courageous decision is praiseworthy as it radically opens the US market to

copyrighted material, making it more easily available and cheaper. In addition, it
will probably influence other branches of US IP Law.
Also the field of US patent law is passing through an interesting evolution. In fact, some
cases seem to anticipate a liberalization. For instance, in Ninestar v ITC102 the Defendant, a
Chinese company, appealed against a civil penalty for having imported some exhausted
ink cartridges after having refilled them. The Defendant argued, among other things, that
the patent right had exhausted. In order to support this argument, he claimed that the pre-
vious cases on patent exhaustion and in particular the leading (and similar) one, Jazz
Photo,103 had been wrongly decided and, in any event, had been overruled.
The Defendant lost and filed a petition for a writ of certiorari, requesting the
Supreme Court to consider whether the Plaintiffs right was exhausted by the first
sale which occurred on a foreign market. This request was refused on 25 March
2013. According to some commentators, this decision anticipates the content of the
future ruling of the Supreme Court on this matter.104 However, according to others,
a decision on Ninestar could have been influenced by Kirtsaeng and, therefore,
decided in favour of international exhaustion.105
The direction that future decisions in this field will follow is hard to foresee. However, it
is maintained that Kirtsaeng cannot be completely ignored since if such a liberal position is
coupled with a restrictive one in relation to patents, the result will be a partially incoherent
system of IP law. Therefore, in the US the debate on international exhaustion is alive and,
after Kirtsaeng, new decisions favourable to PI may occur in relation to other IPRs.
5.2.2 The European Union: unsatisfactory new case law

While US IP law seems to be evolving, some recent decisions of the ECJ seem to be
aimed at making the law even more restrictive.106 In particular, the new case law has
restated the narrow view on the requirement of consent and, in addition, it has added
new legitimate reasons for preventing PI.
As for consent, in the leading case Davidoff,107 already described above,108 the ECJ has
clarified that the consent to the first sale equally amounts to the consent to the exhaus-
tion.109 Therefore, given its importance, it must be clearly and unequivocally expressed.
It can also be conveyed by the implied conduct of the owner. Nonetheless, this conduct
must be extremely meaningful. Furthermore, it is the parallel importer who has to prove
102. Ninestar Technology Co v USITC, 667 F.3d 1373 (Fed Cir 2012).
103. Jazz Photo Corp v USITC, 264 F.3d 1094 (Fed Cir 2001). See also, M Barrett, A Fond
Farewell to Parallel Imports of Patented Goods: The United States and the Rule of International
Exhaustion (2002) 12 EIPR 571, 5746.
104. AR Bialek and K Losier, Supreme Court Declines to Decide Whether the First Sale Doctrine
Should Apply to Patent Law Wilson Elser Publications, 1 April 2013 <http://www.wilsonelser.com/
news_and_insights/client_alerts/1388-supreme_court_declines_to_decide_whether_the_first>
accessed September 2013.
105. HC Wegner, Top Ten Patent Cases (Supreme Court) [Feb. 21, 2013] Gray on Claims,
21 February 2013 <http://www.grayonclaims.com/hal/> accessed September 2013.
106. I Calboli Reviewing the (Shrinking) Principle of Trademark Exhaustion in the European
Union (Ten Years Later) (2012) 16 Marq IP LR 257.
107. Davidoff (n 54). See Hays (n 2) 31230; Stothers (n 3) 3456.
108. Text to n 77.
109. See Seville (n 78) 363.

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the consent of the trade mark owner to exhaustion, and that can be difficult since the latter
will never certify it on paper.110 Hence, these cumulative factors create a de facto
presumption of non-consent that it is up to the parallel importer to overcome.111
This restrictive trend is not over. In fact, the ECJ in Makro has restated and maybe
even reinforced Davidoff.112 These were the facts: the Defendant, Makro, started sell-
ing apparel legitimately bought from Cosmos, a company that had received the goods
from Flexi, a licensee of Diesel, the Plaintiff, who, however, did not have permission
to sell the goods to Cosmos. The Defendant was confident of being authorized for the
resale of the goods since he had regularly bought them. Despite this, the Plaintiff sued
him in the Netherlands and the ECJ, answering to which the Dutch Supreme Court
reaffirmed the Davidoff case and held that on the basis of the Davidoff test the products
were marketed without the consent of the trade mark owner. Therefore, this case main-
tains the EU case law on consent as extremely favourable to trade mark owners, per-
haps making it even more restrictive as it may hit retailers who had no idea whether the
trade mark owner had consented or not to the distribution of the goods.
Furthermore, in order to restrict the possibility of intra-communitarian PI, the case
law is broadening the scope of art 7(2) TMD (art 13(2) TMReg) that allows trade mark
owners to block grey goods if there are legitimate reasons.113 These reasons are gener-
ally connected to the repackaging and relabeling of goods,114 however, in Evora the ECJ
has introduced a new ground, that is, the need to protect the aura of luxury and
exclusivity of the products.115
This case can be criticized for at least two reasons. First, as stated by Calboli, it
neglects the bases of the concept of exhaustion according to which after the first
sale of the product the trade mark owner must be considered remunerated and the
buyer free to dispose of the goods. In addition, trade mark protection should protect
consumers from confusion and only indirectly protect the goodwill of their owners.116
Second, it is stated that it allows every trade mark owner to, at least try to, stop PI only
by arguing that his products are exclusive and classy.
Therefore, contrary to the US, in the EU the ECJ will hardly interpret the provisions
on trade mark exhaustion in a liberal way, and, on the contrary, it is likely that this
anti-PI trend will continue in the future and become even more restrictive.
5.3 An opportunity: the TTIP as a chance for a limited opening

of the EU market
The sections above have shown that a general opening of the EU market to PI is highly
unlikely and that every large-scale proposal for reform would be destined to remain
110. Van Doren (n 52). See Hays (n 2) 33159. See also A Easey and R Massey, Parallel
Imports: Consent by Conduct (2008) 3 J IP Law & Prac 642.
111. L Rubini, Is the Siege of Fortress Europe Really Over? The Exhaustion in the EC, Com-
petition and International Trade (2002) 29 LIEI 205.
112. Case C-324/08 Makro Zelfbedieningsgroothandel CV v Diesel SpA [2009] ECR 1-10019.
Calboli (n 106) 276.
113. Calboli (n 106) 276.
114. Case C-436/93 Bristol-Myers Squibb v Paranova Case [1996] ECR 1-3457; Case C-348/04
Boehringer Ingelheim and Others v Swingward and Others [2007] ECR I-03391. See Stothers
(n 3) 74112.
115. Case C-337/95 Parfums Christian Dior SA v Evora [1997] ECR 1-1603.
116. Calboli (n 106) 278.

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pure theory. For this reason, the present article suggests that the TTIP may be a good
opportunity for introducing a bilateral sui generis model of exhaustion limited to
US/EU parallel trade. This solution will not amount to a global reform of the EU policy,
nevertheless, it would influence a market that is worth 2 billion every day.117
As anticipated in the Introduction, the TTIP is an FTA aimed at strengthening and
liberalizing the commercial relationships between the US and the EU. Even if it focuses
only marginally on IP, this can represent a good chance for adding an ad hoc provision
that would solve the problems of symmetry concerning PI between the two parties.
This provision would be perfectly coherent with the liberal ends of the treaty.
Such provision may raise some problems in the WTO legal framework that is
centred upon the principle of the most-favoured-nation clause (MFNC). This princi-
ple, enshrined in all the main annexes to the WTO Treaty, provides that all the privi-
leges and advantages accorded to the nationals of one Member State must be
unconditionally extended to all other Members. Hence, allowing PI in relation to
just one country may violate this principle, and the TRIPs Agreement does not contain
a general exception to the MFNC in the case of FTAs.
However, it can simply be argued that an FTA derogates the TRIPs just as every lex
specialis derogates to a lex generalis. In this regard, it is apposite to notice that the
WTO Dispute Settlement Body has never decided a case concerning the content of
an FTA that may have violated the TRIPs.118 This demonstrates that the Member
States recognize that the privileges conferred by an FTA are legitimate and unable
to seriously impair the rights of the other Members.
Finally, it is submitted that this provision should follow the US model and provide
for trade mark exhaustion in case of common control, subject to the MQD exception,
as well as in the case of a round trip scenario. As argued above,119 this is the best
reform and, in the context of the TTIP, it may be the only possible one. In fact, it
being a bilateral treaty, from the European perspective, the crucial event for exhaus-
tion to occur, that is, the first sale in common control conditions, should take place
only in the US territory and not everywhere in the world, as in the case of interna-
tional exhaustion.
In conclusion, the TTIP could be an ideal chance for opening the EU market to PI
of grey goods marketed in the US in common control conditions subject to the MQD
exception. The rule should provide for exhaustion in cases of common control and
round trip scenarios, taking into account only the first sale that occurred in the US.
6 CONCLUSIONS
The aim of the present article was to investigate the reasons for the asymmetries con-
cerning the exchanges in grey goods between the EU and the US and to find the best
way to make the trade between these two subjects more symmetrical, fairer and pre-
dictable. The origin of these asymmetries has been identified in the over-restrictive
approach of the EU that does not allow PI at all. By contrast, it has been argued
117. For more information, see European Commission What is the Transatlantic Trade and
Investment Partnership? available at <http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/>
accessed July 2014.
118. See the DSB database <http://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_
index_e.htm> accessed September 2013.
119. Section 3.2.

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that the US common control doctrine, limited by MQD exception, is a better solution
since it allows PI but prevents any risk of confusion.
The article has shown that two reforms of EU law would solve these asymmetries.
First, the adoption of an international exhaustion regime; second, the introduction of a
US-inspired common control doctrine limited by the MQD exception. Both these
reforms would open the EEA to PI from anywhere, including the US, thus making
the exchanges of grey goods between these two subjects perfectly symmetrical. How-
ever, an historical analysis of the policy followed by the European Commission and by
the Members States concerning PI from outside the EEA has shown that a generalized
reform of EU law is unrealistic.
For this reason, it has been suggested that the recent US/EU FTA on trade and invest-
ments, the TTIP, may provide an effective bilateral solution to these structural inconve-
niences. This treaty would apply only to EU/US parallel trade; however, even if it were
not to amount to a large-scale reform of EU law, which is hardly conceivable, it would
solve the abovementioned asymmetries and would, at least partially, open Fortress Eur-
ope to PI from outside the EEA, thus benefiting consumers.
Hence, the present article suggests that an ad hoc rule concerning PI should be
added to the TTIP. This rule should be inspired by the US tradition and provide for
exhaustion in cases of common control or round trip scenarios, subject to the MQD
exception. This solution would balance the interests of consumers and trade mark own-
ers. At the same time, it would make the system of PI between the EU and the US
perfectly symmetrical, thus increasing predictability in the market of grey goods
between these two subjects for the benefit of consumers.

via Emily Milsom
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International Exhaustion of Trade Marks and Parallel Imports in The US and The EU: How To Achieve Symmetry?

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International Exhaustion of Trade Marks and Parallel Imports in The US and The EU: How To Achieve Symmetry?

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See

International exhaustion of trade marks and

Article in Queen Mary Journal of Intellectual Property January 2015

International exhaustion of trade marks and

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This model is deemed to be beneficial to consumers since a market open to PI is more

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3 THE ROOTS OF ASYMMETRY: THE US AND EU COMPARED

3.1 United States, liberal but sometimes unpredictable

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case on common control is the Supreme Courts decision in K Mart Corp v

3.1.1 Material quality differences in action: a map to distinguish between

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The second category encompasses those rulings in which a material difference

3.2 European Union: an anti-parallel imports fortress

36. 753 F Supp 1240 (D.N.J. 1991).

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3.2.1 Building Fortress Europe: a synthetic review of ECJs case law

43. Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community

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3.3 Results of the analysis: the US approach is better although imperfect

4 HOW TO ELIMINATE ASYMMETRIES? TWO POSSIBLE REFORMS

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4.1 International exhaustion: the radical way

4.1.1 Advantages of international exhaustion: no more barriers and beyond

4.1.2 Free riding objection: not effectively applicable to trade marks

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65. Barrett (n 14) 915.

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4.2 Common control: an interesting mediation between the interests

73. Abbott (n 61) 61213.

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4.3 Synthesis: both international exhaustion and common control doctrine

5 WHY AN EXTENSIVE EU REFORM IS IMPOSSIBLE

5.1 In Europe the debate on exhaustion is exhausted

77. See Stothers (n 3) 3616.

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5.2 Possible future developments: the US evolves, the EU devolves?

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5.2.1 United States: a potential revolution

95. Kirtsaeng (n 19).

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such a courageous decision is praiseworthy as it radically opens the US market to

5.2.2 The European Union: unsatisfactory new case law

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5.3 An opportunity: the TTIP as a chance for a limited opening

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