Rolex – time for another look at the exhaustion principle

There’s been an interesting court judgment in the USA on the principle of trade mark exhaustion.

In a nutshell, once a trade mark owner puts goods bearing its trade mark into the marketplace, it cannot use its trade mark to prevent third parties who acquire those goods from selling or otherwise dealing in them. The reason? The trade mark owner’s rights are said to be “exhausted” by the initial sale.

Trade mark exhaustion is an issue that has enjoyed quite a bit of attention in South Africa. Let’s start off by looking at the recent US case.

THE US CASE – ROLEX V BECKERTIME

The facts

Rolex sued a company called BeckerTime, a company with whom it has no commercial connection. Rolex’s complaint was that BeckerTime was selling “refurbished” Rolex watches. More particularly, BeckerTime was selling Rolex watches that it had modified, for example by adding non-genuine bezels, bands or straps.

In the wording of the legal action, BeckerTime was selling “watches and watch parts that are not authorised or sponsored by Rolex,” watches that “contain both Rolex and non-Rolex parts.” Whilst describing itself as a “Rolex certified watchmaker.” Rolex argued that what BeckerTime was doing was likely to confuse consumers as to the nature of, and Rolex’s affiliation with, the watches. Rolex sued for trade mark infringement.

The finding

The judge agreed that the unauthorised use by BeckerTime of the Rolex trade mark on goods covered by the trade mark registration amounted to trade mark infringement. The judge said that there was some “level of actual confusion,” with consumers wondering whether the goods were “fully genuine Rolex.” The judge went on to hold that the use of the term “Rolex certified watchmaker” is “confusing and suggests an affiliation or sponsorship.” The judge made the point that the modified watches were “materially different than the original Rolex watches.” In fact not simply different, but ”inferior in quality.”

Attempted disclaimers

The judge went on to make the point that BeckerTime had seemingly attempted to avoid liability by using certain disclaimers on its website. Disclaimers like this:

The replacement parts are not genuine Rolex parts.
BeckerTime is not affiliated with Rolex.
Alterations will void the Rolex warranty.

But, said the judge, these disclaimers were not enough to avoid confusion, particularly as the following words were used far more prominently on the website:

“Genuine Rolex.”

SOUTH AFRICAN CASES

The issue of trade mark exhaustion has also come up in South Africa.

The Sony case

This was a big case, one where a South African company imported into South Africa Sony cassette recorders that had been manufactured for use in the UK (but not South Africa). The importer got around this inconvenience by modifying the devices so that they would work in South Africa. Sony sued for trade mark infringement and the court concluded that, as a result of the modification, the goods were no longer genuine. This had the effect that there had been no exhaustion of rights, and that the sale of the goods in South Africa did amount to trade mark infringement.

The Sodastream case

This was another biggie. What happened here was that a third (unauthorised) party filled Sodastream cylinders with their own gas. The issue that the court had to decide was whether this amounted to trade mark infringement. The court held that there was infringement in the case of cylinders that featured the words “Guaranteed filled by authorised Sodastream distributor.”

Wrapping up

With the growing popularity of upcycling, issues around the exhaustion of rights, parallel importation and genuine goods will likely increase in prevalence. Brand owners will need to consider pro-active approaches to protecting their valuable IP assets.

Reviewed by Ilse du Plessis, an Executive in ENSafrica’s IP department.

Vianca McCall

IP | Associate

vmccall@ENSafrica.com