A specialist corner of repackaging law had an airing recently when the ECJ looked at the practice of re-filling branded gas containers. The decision in Viking Gas A/S v Kosan Gas A/S (Case C-46/10) may have been on specific facts, but the general principles are nonetheless likely to interest brand owners in a range of fields.
Fill ‘Er Up
In Viking, the claimant Kosan was a producer and supplier of gas and was the exclusive Danish licensee in respect of a lightweight gas bottle which was a registered trademark in Denmark and the EU. Kosan sold gas in the bottles, to which it affixed its own registered trademark name and logo. Gas sold in the bottles was more expensive than gas sold on its own, and it was therefore common for customers to return to Kosan for re-fills.
The defendant, Viking, was despite its name a modest operation, with only a single filling station in Denmark. Viking had dealers throughout Denmark, though, from whom Kosan customers and others could exchange an empty gas bottle for a newly-filled one, paying only for the gas. Inevitably some bottles exchanged were those of Kosan, which Viking then re-filled and returned to its dealers for further exchange. Viking neither removed nor covered up the Kosan branding, and simply added its own elsewhere on the bottles.
Kosan sued Viking for trademark infringement both of the bottle shape and of the Kosan branding appearing on the bottles. Kosan won at first instance but Viking appealed, and the Danish appellate court referred questions to the ECJ on how the law of exhaustion of rights should apply.
Free to Re-Fill
Under Article 5 of the Directive, trademark rights in the EU are exhausted once goods bearing the mark are placed on the market in the EEA by or with the consent of the proprietor.
The Kosan bottles had clearly been put on the market by Kosan, the proprietor of the KOSAN name and logo marks, and exclusive licensee of the shape mark rights. The fundamental question was therefore whether the Kosan bottles were indeed goods bearing the registered marks. Kosan argued that they were not goods but were rather merely packaging, to which the principle of exhaustion, it submitted, should not apply.
The ECJ did not agree. In its view, the branded bottles were not merely packaging, but were also goods with an economic value in their own right. Gas sold in the bottles retailed for prices higher than the value of the gas itself, and Kosan recovered that separate economic value when it sold the bottles containing gas to its customers, since gas in bottles was more expensive than gas on its own. It therefore made sense for customers to re-use the bottles to obtain re-fills, and therefore in buying a bottle of Kosan gas consumers were buying not only the gas but also a container suitable for re-filling later with gas from Kosan or another supplier.
While the potential impact on competition was arguably not fundamental to deciding the case, the Court noted that if Kosan's interpretation had been right, then it would have been possible for Kosan to stifle competition in the market in gas re-fills, since it would no longer be possible for other gas suppliers to provide gas to customers coming to them with Kosan containers. This was clearly likely to undermine not only free competition, but also the legitimate expectation of consumers that they would be able to make free use of containers they had bought and paid for.
Consequently, the ECJ ruled that Kosan's rights had indeed been exhausted once it placed its branded containers onto the Danish market, and it was not entitled to stop Viking from re-filling the Kosan containers with its own gas and providing them as re-fills to Kosan customers.
Out of Gas?
In spite of all this, the ECJ did not conclude that Kosan's case was hopeless. If there were legitimate reasons to oppose the further commercialisation of the Kosan bottles, it could still object to Viking's activity under Article 7 (2) of the Directive.
Legitimate reasons would include, for example, circumstances in which the condition of the goods had been changed or impaired after they were placed on the market, or where the further commercialisation seriously damages the reputation of the mark or wrongly suggests a connection in trade between the trademark owner and the third party.
Factors to take into account include the relevant trade practices and whether consumers were used to gas bottles being filled by third parties. These were, however, questions of fact for the national court, to whom the case had now to return.
To many, the only surprise in this case is that the issue of exhaustion of rights could have provoked such heated argument.
After all, Kosan's provision of gas in branded, re-fillable bottles at a higher price than gas sold on its own is not a great deal different from a coffee retailer like Starbucks offering take-away coffee in branded, re-usable plastic mugs at a higher price than charged for coffee in its normal, disposable paper cups. No one would seriously contend that competitor coffee chains should be barred from pouring re-fills into branded STARBUCKS mugs for customers who bring them in. Why should the position be any different where the product is gas?
Ultimately the answer probably comes down, as it normally does in litigation, to money. Kosan stood to gain a great deal if it could, for all practical purposes, ring-fence its customers into returning to Kosan and no one else for re-fills charged at the gas-only price. Both gas and bottles are vastly more expensive commodities than a cup of coffee.
Although Viking affixed its own branding to the re-filled Kosan bottles to indicate where the re-fills had been obtained, it made no attempt to remove or obscure the Kosan branding from the re-filled bottles. Paradoxically, this may have been wise. Had Viking "debranded" the Kosan bottles and offered the re-filled bottles under its own branding, Kosan could have argued that Viking had changed the condition of the goods after they had been placed on the market, which could constitute a legitimate reason for opposing the further sales despite the exhaustion of Kosan's rights. Whether the exchange of re-filled Kosan bottles by Viking amounted to a misrepresentation of a commercial link with Kosan is, however, a question for the national court.
When the issue returns to the national court, interesting questions will arise about the extent to which Viking's activities may in practice suggest a trade connection between Viking and Kosan. Consumers increasingly exposed to the practice of co-branding, in particular, could interpret the presence of both Kosan and Viking branding on the re-filled Kosan bottles as an indication that the parties are co-operating in some way. Whether in fact consumers did this, or were likely so to do because of the way in which the brands were presented or other surrounding facts or circumstances, is no doubt an issue that Kosan's lawyers in particular will be exploring.
Although this case turned on its own special facts, some of the issues it raises have wider application. Most fast-moving consumer goods are not sold in packaging that has value in its own right and is therefore likely to be re-used for other supplier's goods, but where re-usable branded containers are at issue, the principles laid down in this case show that it can be difficult to prevent the re-use where the containers were first marketed in the EU.
Notwithstanding this, use that damages a brand's reputation, misleadingly suggests a trade connection with the brand owner, or entails the removal of original branding can all form legitimate reasons for opposing the use, and the Court's affirmation of this is important. What is most significant about this ruling is therefore not the outcome, but rather the signposting of unobtrusive but important footholds for brand owners who contend with unauthorised use of re-usable branded containers in other fields. Like the Kosan bottles, Viking holds, in that sense, something of great worth.