Mastercigars Direct Ltd v Hunters & Frankau Ltd & Ors

For goods first marketed outside the EEA, exhaustion under Trade Marks Directive 89/104 requires the trade mark proprietor’s consent to marketing within the EEA. Implied consent requires proven conduct which unequivocally demonstrates renunciation of the exclusive right. It does not require proof beyond reasonable doubt.

Consent may be inferred from the combined practical realities of the proprietor’s conduct. A proprietor who facilitates commercial sales to foreign purchasers, supplies export documentation, retains practical control over outlets and accepts the commercial consequences may be taken to have consented to resale in the purchasers’ home markets. Mere knowledge of, or failure to police, parallel trade is insufficient.

HSA owned trade marks used on Cuban cigars. Mastercigars Direct Ltd imported cigars into the United Kingdom in competition with HSA’s exclusive UK distributor, Hunters & Frankau Ltd. HSA alleged that the consignments were counterfeit and, alternatively, unlawful parallel imports.

At first instance, HHJ Fysh QC dismissed the counterfeiting allegation but upheld the trade mark infringement claim based on parallel importation: [2006] EWHC 410 (Ch). Mastercigars appealed. The counterfeiting ruling was not challenged and the parties did not pursue the separate issue whether the seized consignment had already been imported.

The central issue was whether HSA had consented, expressly or by unequivocal implication, to the goods being put on the market within the EEA.

Appeal allowed unanimously. Lord Justice Jacob, with whom Lord Justice Lloyd and Lord Justice Chadwick agreed, held that none of the ten consignments infringed HSA’s trade marks.

1. Under Articles 5 and 7 of Trade Marks Directive 89/104, goods first placed on the market outside the EEA do not exhaust the proprietor’s EEA rights unless the proprietor consents to their EEA marketing. Following Zino Davidoff v A & G Import [2001] ECR I-8691, consent must be positively expressed, whether expressly or by facts and circumstances that unequivocally show renunciation of the right. The importer bears the burden of proving consent.

2. The requirement that the conduct unequivocally demonstrate consent concerns the meaning and effect of the proven acts. It does not impose a criminal standard of proof. An act that is equally consistent with consent and its absence is insufficient, but the court must assess the evidence cumulatively.

3. HSA’s central position in the Cuban cigar market and the State’s general role in Cuba did not automatically make every domestic outlet’s act HSA’s act. The relevant inquiry was HSA’s actual knowledge, practical control and right of control. The court rejected a purely theoretical argument based on legal or economic links.

4. On the totality of the evidence, HSA had unequivocally consented to small but commercial purchases by foreigners for export and resale. It set a $25,000 purchase limit at outlets serving foreign purchasers; supplied invoices recording nationality and passport details and designed to enable export through Customs; retained practical control over outlets and their sales practices; took a royalty on outlet sales; and considered domestic pricing against foreign markets. The invoices’ use of German and the absence of any distinction between European and other purchasers reinforced that conclusion. Orders sent by Mastercigars from the United Kingdom to an outlet were further confirmation.

5. This was more than merely turning a blind eye to parallel trade. HSA had facilitated it and had not used its invoice system to prevent it. The trial judge erred in finding that the importers knew of a relevant objection and in failing to evaluate the combined effect of the invoices and the commercial purchase limit. The judge’s conclusion was therefore wrong for the purposes of CPR 52.11(3).

The court added that future purchases would depend on their detailed circumstances, including any later objection or changed documentation.

• Court of Appeal (Civil Division): Allowed Mastercigars’ appeal and held that HSA had consented to the relevant EEA marketing: [2007] EWCA Civ 176.
• High Court, Chancery Division (Intellectual Property): HHJ Fysh QC dismissed HSA’s counterfeiting case but upheld its infringement claim concerning parallel imports: [2006] EWHC 410 (Ch); [2006] RPC 805.