Discounters remain liable when selling luxury products outside a selective distribution network

In an interesting judgment last year, which will be published in the next issue of the Belgian intellectual property journal IRDI, the Enterprise Court of Mons held Kruidvat liable for trademark infringement in a dispute about the resale of Dior perfumes.

Kruidvat is a discounter offering a variety of health and beauty products, both online and offline, in about 1,300 stores in Belgium and the Netherlands.

Dior is the well-known producer of luxury products and the holder of several DIOR trademarks for, amongst others, perfumes. To protect the exclusivity and reputation of its brand, Dior uses a selective distribution network in the Benelux region. This network requires distributors to adhere to strict quality criteria and prohibits sales to non-authorized distributors. Despite these restrictions, Kruidvat offered Dior perfumes on its website, using its own sales techniques, which differ from those imposed by Dior on its authorized distributors.

Dior argued that Kruidvat must have acquired these products from an authorized distributor, thereby breaching the resale prohibition in the distribution agreement. Dior filed two claims against Kruidvat: one for unfair trade practices due to third-party complicity in the contract breach, and another for trademark infringement, asserting that Kruidvat’s sales methods harmed the luxury image of Dior products.

The court found that Kruidvat’s sales methods, which included combining luxury products with non-luxury items, using flashy marketing, and making typographical errors in the brand name, severely harmed Dior’s reputation. It held Kruidvat liable for trademark infringement and enjoined Kruidvat from further selling Dior’s perfumes online. This decision complies with the principles set out by the Court of Justice of the EU in Dior v. Evora (then the owner of Kruidvat) in the landmark case of 1997 (C-337/95). 

Because of the clear trademark infringement, the court did not further examine the defence arguments put forward by Kruidvat in relation to the trademark exhaustion doctrine, which states that once the trademarked goods are placed on the market within the European Economic Area (EEA) by the trademark holder or with their consent, the holder cannot oppose further resale. 

What makes this case extraordinary is the refusal of the court to examine the question of the third-party complicity of Kruidvat in the contract breach by one or more of Dior’s authorized distributors. Third-party complicity is normally considered to be an unfair commercial practice, which can be examined by the court independently of the trademark infringement claim.  

In this case, however, the court referred to an earlier court decision of the Belgian Court of Cassation, where the highest court ruled that if a reseller is not liable for trademark infringement (because it is not causing harm to the reputation of the luxury products that it resells as a non-authorized distributor), it is precluded from using the argument of third-party complicity in the contract breach by one or more authorized distributors (Cass. 3 December 2021, C.20.0433.F en C.20.0462.F.). 

This finding of the Belgian Court of Cassation and its application by the lower court in Dior v. Kruidvat raises some questions about the rights of trademark owners. As a general principle of Benelux and European trademark law, a claim based on trademark law does not prevent actions relating to civil liability and unfair competition (cf. article 17 of the EU Trademark Regulation 2017/1001). In a trademark dispute, the owner of a trademark should be free to also formulate a claim based on unfair competition law. Belgian case law that states otherwise may sooner or later be criticized (or not) by the Court of Justice of the EU. Resellers who buy luxury goods from authorized distributors in a selective distribution scheme may currently escape liability in Belgium for third-party complicity in the contract breach of the latter, but it is not certain whether that will last. 

The decision by the Mons Enterprise Court is being challenged before the Court of Appeal.