In its recent decision in the case Coty v Easycosmetic, the District Court The Hague shed some further light on the EU system of trade mark exhaustion and the question who bears the burden of proof.

Trade mark exhaustion in the EU

Under EU law, once a product has been placed on the market within the European Economic Area (“EEA”) with the trade mark owner’s consent, that particular item is in principle freely tradeable within the EU. In other words, the trade mark rights of that individual product have been exhausted.

This allows for free movement of goods, but only within the EEA territory. If a product has been put on the market outside the EEA, the trade mark owner’s consent will be required in order for the product to be allowed onto the EU market. Doing so without the trade mark owner’s consent is also called unlawful parallel trade or grey market trade.

Proving exhaustion

But who bears the burden of proof that products are rightfully marketed in the EU or not? 

Over the years, this question has already led to a series of judgments by the Court of Justice of the European Union (“CJEU”). While the burden of proof is governed by national law, the CJEU has approved a system whereby it is up to the seller (or defendant) to prove trade mark exhaustion, unless this would allow the trade mark owner to partition national markets within the EU and help maintain price differences between Member States. 

Most recently, in HP v Senetic (C-367/21), the CJEU further refined this line of case law by deciding that the burden of proof cannot be born exclusively by the seller if:

1. the goods do not bear any markings indicating the intended market;
2. the goods are distributed through a selective distribution network whose members may only resell to other members or to end users;
3. the seller purchased the goods in the EU or EEA;
4. the seller obtained an assurance from its supplier that the goods could be legally marketed in the EU; and
5. the trade mark owner refuses to verify whether the goods can be legally marketed in the EU at the seller’s request. 

In such a case, the trade mark owner must first prove that the goods were initially put on the market for the first time outside the EEA. Only after this evidence is provided, will the defendant need to show that the items were subsequently imported into the EEA with the trade mark owner’s consent in order to establish exhaustion. 

The scent of proof – Coty v Easycosmetic

The Coty v Easycosmetic case further builds on the CJEU’s decision in HP v Senetic and is just one of several recent disputes between Coty – a globally operating beauty company with licences from many famous brands for marketing cosmetics and fragrances – and Dutch wholesaler and retailer Easycosmetic.

The District Court The Hague was asked to consider the question of trade mark exhaustion in relation to Easycosmetic’s sale of a Hugo Boss perfume called “Bottled Night”. EU regulations mandate that all cosmetics, including fragrances, are provided with a batch number for traceability purposes. Based on this unique serial number, Coty was able to establish through its internal systems that the purchased perfume bottle had originally been shipped to South Africa. Despite arguing that Easycosmetic should bear the full burden of proof, Coty voluntarily provided the tracing data from its internal systems, albeit only after Easycosmetic filed a provisional counterclaim for information with the Court.

Although the District Court ultimately left open the question whether Easycosmetic had sufficiently demonstrated a risk of market partitioning – and thus whether Coty or Easycosmetic should bear the initial burden of proof – it considered that by providing the internal data Coty had in any case satisfied any burden of proof. The Court disregarded Easycosmetic’s complaints that Coty’s internal data could not be verified, and concluded that exhaustion had not been demonstrated, as Easycosmetic did not show that the product had subsequently been brought onto the EU market with Coty’s consent.

Conclusion

Although it remains first and foremost the seller’s responsibility to verify that products are freely tradeable on the EU market, both the HP v Senetic and Coty v Eayscosmetic cases show that increasingly demands are also made on trade mark owners to provide certain information that falls within their domain, for instance due to existing traceability requirements.

It may even be beneficial to provide certain information voluntarily, in order not to run into a formal shift in the burden of proof as seen in HP v Senetic, or any formal information orders as in Coty v Easycosmetic. In the Netherlands, the recently introduced additional possibilities under Dutch law for pre-litigation information requests may also be expected to play a role in these cases in future.