The market environment in which luxury brands are positioned has a significant influence on how luxury brands are perceived, how desirable they are and how their brand image can be sustainably cultivated.
Courts are constantly grappling with trade mark law and the question of whether and when the sale of luxury brand products outside their selective distribution systems can be prohibited. This was also the case for the Düsseldorf Higher Regional Court (OLG) in its decisions from 2023 (20 U 279/22,20 U 278/20)
Trade mark law
Trademark law is an industrial property right of intellectual property (see §3 (1) of the German Trademark Act, MarkenG). The trade mark owner can take legal action against any infringement of trade mark rights by third parties (§§14 et seq., 4 MarkenG).
In the European Union, trade mark law is largely harmonised with the European Union Trade Mark Regulation (EUTMR), among other things. The economic function of a trade mark, in particular of luxury brands, is to act as a communication channel to convey certain information about the brand image, product quality and prestige on the market (see §14 and 4 MarkenG).
Trade mark law can also be used to create and maintain a unique and unmistakable recognition value, particularly in the case of luxury brands. Accordingly, the market environment in which luxury brands are positioned and how sustainably the image and prestige achieved by luxury brands is maintained and secured on the market is significant.
Clemens Pflanz, former manager of the French luxury goods group LVMH with luxury brands such as Louis Vuitton, Givenchy and Moët et Chandon, comments on the special nature of luxury products and the „effort required to protect one's own product worldwide“: „Outstanding quality is hard work.“
The protection of the good reputation of luxury brands under trade mark law must be considered not only from an economic but also from an idealistic point of view. If luxury brands succeed in placing their products on the market with the help of an elaborate marketing strategy, the luxury brand loses authenticity with every inappropriate placement.
Federica Levato, Partner at the management consultancy Bain & Company, agrees: „Advertising - or marketing and communication in general - has always played a decisive role in the luxury sector.“
This is also in the interests of luxury brand consumers. After all, the enjoyment of luxury brand products is not just limited to the use of the products, but also consists of the purchasing experience, which differs from the purchase of everyday items.
Responsible support and legal expertise are therefore required to sustainably cultivate the image of luxury brands. Specialised industry knowledge is required and, in addition, there should be a sense of which market positioning of a product fits in with the brand image.
Luxury brands should also turn to experts in the luxury market who have specialised market knowledge and appreciate the importance of the respective luxury product and its special nature for consumers. When analysing the market, the distribution of luxury brand products must therefore also be monitored and protected against possible violations of the prestige and luxury image.
Selective distribution of luxury brands
Luxury brands regularly utilise selective distribution systems for this purpose. Selected distributors are obliged to sell luxury brand products only to selected retailers and to present the luxury products in a way that does justice to the image of the luxury brands.
It should be noted that the ban on cartels applicable in the European Union pursuant to Article 101 (1) of the Treaty on the Functioning of the European Union (TFEU) does not fundamentally preclude such a selection system. In its judgement in the Dior/Evora case (ECJ, 04.11.1997 - C-337/95), the European Court of Justice ruled that luxury brands may give preference to certain retailers for the distribution of their luxury products according to their specifications (see Article 103 (3) TFEU).
The principle of exhaustion in trade mark law
However, it is not uncommon for luxury brand products to be distributed outside of selective distribution systems due to a leak. If such a case arises, luxury brands should take action against this by way of trade mark law in order not to jeopardise the carefully crafted brand image and to continue to offer enthusiasts and consumers of luxury products an authentic product.
The principle of exhaustion in §24 MarkenG and in the European regulation with the same content in Article 15 of the EUTMR represents a hurdle in such an approach and a regular starting point for legal disputes in trade mark law.
The principle of exhaustion in trade mark law states that no control of the distribution of luxury brand products is possible after initial distribution with the consent of the original manufacturer. However, the principle of exhaustion in trade mark law provides for an exception in §24 (2) MarkenG and also in Article 15 (2) EUTMR.
Further control by the original manufacturer of luxury brands is possible if it can oppose further distribution for „legitimate reasons" such as changes to or deterioration of the product.
In the absence of a conclusive regulation as to when „legitimate grounds“ exist in trade mark law, the interpretation and assessment thereof is often the subject of court decisions. It is therefore essential for manufacturers behind luxury brands to obtain an overview of the latest case law if they want to fully and carefully cultivate the luxury image and good reputation of their carefully positioned and painstakingly built luxury brands and maintain them for consumers.
Judgement of the OLG Düsseldorf: Calvin Klein and Joop!
The Higher Regional Court of Düsseldorf (judgement of 29 June 2023, case no. I-20 U 278/20) had to decide on the action brought by a company belonging to the perfume and luxury group Coty, which distributes luxury brand perfumes. After initial distribution, the perfumes of the registered Union luxury brands Calvin Klein and Joop! were distributed by the retailer Aldi, which was part of the distribution system.
Since there was undisputed exhaustion pursuant to Article 15 (1) EUTMR, the Higher Regional Court had to examine whether there were „legitimate grounds“ pursuant to Article 15 (2) EUTMR for prohibiting further distribution. The OLG Düsseldorf affirmed this and ordered the discounter, among other things, to refrain from distributing the perfumes of the luxury brands (Art. 9 (2) a, 15 (2) EUTMR).
The OLG was guided by the case law of the ECJ in trade mark law, according to which „legitimate reasons“ exist if the image of the luxury brands suffers reputational damage as a result of the resale. The possible damage to reputation must be demonstrated on the basis of concrete evidence in each individual case.
In particular, in the case of products with a prestige and luxury character, the retailer must endeavour not to damage the reputation of the luxury brands and to take account of the special aura of the luxury products through the specific presentation. This is particularly essential if the luxury brands are offered in a sales environment that does not do justice to the image of the luxury brands (see Dior/Evora).
In the present case, the OLG saw concrete evidence of damage to reputation in the presentation of the luxury perfumes by the retailer Aldi. The court thus examined the specific presentation of the luxury brand perfumes at the retailer and the sales environment.
The presentation of the goods did not do justice to the prestigious character of the luxury brands, as there was no recognisable separate perfume department and no spatial separation from the „general merchandise“, such as a „chute“ of spirits. The exclusivity of the luxury brands was therefore not sufficiently taken into account.
Furthermore, the actual presentation of the luxury brand perfumes would not do justice to their image. This is because the products were packaged in glass cases solely to protect against theft and were offered alongside computer accessories and comparable products that did not appear equally luxurious.
The court therefore considered the potential damage to the prestige and luxury image of the luxury brands to be a „legitimate reason“. The judgement shows that it is worth taking action in trade mark law against the inappropriate presentation of luxury brand products, especially if they lack any exclusivity. After all, a carefully cultivated and maintained luxury image requires that individual luxury products are not deprived of their appeal.
Judgement of the OLG Düsseldorf: Shiseido and ISSEY MIYAKE
Another decision by the Higher Regional Court of Düsseldorf (judgement of 7 December 2023 - 20 U 279/22) was similar, whereby the Higher Regional Court ordered the online retailer real.de to refrain from selling perfumes of the registered Union luxury brands Shiseido and ISSEY MIYAKE (Article 9 (2a), Article 15 (2) EUTMR). The online retailer was not included in the selected distribution system for luxury brands.
In this case, the court also had to decide on the contentious issue in trade mark law as to whether „legitimate reasons“ pursuant to Article 15 (2) EUTMR speak against the application of the principle of exhaustion. The OLG confirmed that „legitimate reasons“ in trade mark law can be assumed if the specific marketing and distribution of the perfumes of luxury brands could cause damage to reputation.
The OLG confirmed that the retailer must be aware of the prestige and luxury character of the products and make this clear to its customers. The appreciation of the luxury brands must not be impaired by an inappropriate presentation of the products, especially in an environment without any luxurious aura.
This principle must be observed in particular when the products of luxury brands have an „aura of luxury“ and a high-quality design language that offers the opposite of the everyday and ordinary. The background to this is, among other things, that these luxury products promise consumers a special product quality and therefore also require elaborate marketing measures and prominent product placement, which the retailer must take into account.
On the basis of these criteria in trade mark law, the court analysed and determined that there was possible damage to reputation pursuant to Article 15 (2) EUTMR. In particular, the court referred to the specific sales environment created by the online retailer, which did not do justice to the prestige and luxury character of the luxury brands, as there was no „visual separation“ from the other product range.
The overall impression would be that the luxury perfumes of the luxury brands, which were to be found in the „body care and health“ category, were equated with other products as „mass-produced goods available everywhere“. The court emphasised that online retailers can also create a special shopping experience for consumers and that offering products from luxury brands in particular requires an aesthetically pleasing and luxurious design.
The Higher Regional Court thus concretised the case law with regard to the fact that online retailers must ensure an appropriate presentation of the luxury products on offer and must not deprive consumers of a purchasing experience with a „luxury aura". Otherwise, there is the possibility of reputational damage, as the carefully cultivated brand image could be devalued.
Résumé
Luxury brands that use selective distribution systems on the market and want to maintain their exclusive image and appeal should use trade mark law to defend themselves against inappropriate and reputation-damaging presentations. The judgements of the Higher Regional Court set out specific principles as to when action can be taken against an inappropriate presentation that damages the carefully curated image and reputation of a luxury brand.
dtb-lawyer and expert in art law and trade mark law Leon van Lee comments: „The essence of trade mark law is to protect the uniqueness and distinctiveness of a luxury brand as well as its appeal. Product placement on the market and the distribution of products must take the brand image into account. Ultimately, a brand must remain authentic and it is therefore also important to defend against inappropriate presentation on the market.“
Status 04.04.2025