Is a Sole Distributor Really a Sole Distributor?

The High Court’s (Commercial Division) decision in the case of Georgina Achiaa v Don Emilio Company Limited[1] should be of great interest to persons in the retail sector.

The Plaintiff in this case, claimed to be the sole accredited representative in Ghana for the importation, sale and distribution of the alcoholic drink “Jagermeister” (hereinafter referred to as the product). It was the Plaintiff’s case that the manufacturers of the said product had registered the trademark in the product in Ghana. The Plaintiff also stated that she had, by a Power of Attorney, been appointed to represent the manufacturer’s interests in Ghana. She also claimed that substantial amount of money has been expended in promoting and advertising the product in the country. The Plaintiff alleged finally that the Defendant was without her consent, importing, distributing and selling the product, acts which amount to unfair competition contrary to the Protection Against Unfair Competition Act, 2000 (Act 589).  The Plaintiff therefore sued for a declaration to that effect and for a further order restraining the Defendant from the importation, distribution and sale of the product in Ghana without reference to her.

The Defendant’s defence was rather straightforward. It admitted to importing and selling the product in Ghana. However, it denied that its trading activity was against the law and an interference with the Plaintiff’s right as the sole accredited representative of the manufacturer as they sourced their product from a German company and not from the manufacturers of the product with whom the Plaintiff had contracted. In effect, it was argued that the sole agency agreement between the Plaintiff and the manufacturers of the product did not preclude the Defendant from importing and distributing the alcoholic drink in Ghana. The Defendant further pointed out that it had procured the necessary licenses for the importation and sale of the product from the Food and Drugs Authority. It also denied that its actions were an infringement on the Plaintiff’s principal’s right as the holders of the trademark in the product.

After trial, judgment was entered in favour of the Plaintiff. The trial judge held that the Plaintiff had the exclusive right to import, distribute and sell the product in Ghana[2] and that:

“the defendant had merely taken advantage of the Plaintiff’s hard work and investment and had violated her sole agency as importer and distributor of the product by an unlawful invasion of her territory. From the evidence, the defendant’s conduct was detrimental to the sole goodwill the Plaintiff could have enjoyed from promoting the product in Ghana at enormous expense. And in spite of protests and warnings by the Plaintiff, the defendant continued to flood the market with the product over which the Plaintiff has exclusive right of distributorship. [3]

The trial judge stated that the Defendant engaged in such conduct irrespective of the legal limitations arising from the registered trade mark by the Plaintiff’s principals and the authority vested in the Plaintiff as a donee of a Power of Attorney.  Finally, it was held that the Defendant’s conduct not only resulted in pecuniary loss to the Plaintiff but that it also constituted acts of unfair competition which entitled the Plaintiff to the protection of the law.

The above judgment has far reaching implications on retail undertakings in Ghana.

From this judgment, the importation and sale of a product in Ghana for which another person or entity has been granted a sole agency agreement will be contrary to law. And that the consent of the sole agent would be required in order to continue to deal in the product. Furthermore, from the judgment, importation and sale of the item will be an infringement of the intellectual property rights of the holder of the trademark in the product.

This would mean for example that, Silver Star Auto Limited, the sole accredited agent and distributor of Daimler AG, makers of Mercedes Benz cars could prevent other persons from importing and reselling same in Ghana. It would also mean that Guinness Ghana Limited, accredited agents of the John Walker Black and Blue Label brands in Ghana can take legal action against anyone selling those products in Ghana if same is done without their consent.

This position of the law seems to suggest that intellectual property protection such as trademarks are absolute. With celestial respect, this is by no means so. The registered holder of the trademark in a particular product is entitled to the exclusive commercial exploitation of the product with which the mark relates. Such holder has an interest in and right to control the use or disposition of the product.

This right is however limited by the Principle of the First Sale Doctrine which states that the right of the trademark holder in a trademark protected product is deemed to be extinguished or exhausted on the first sale of the trademarked product. That is, once the product protected by trademark has been introduced into the channels of commerce, the right of the trademark holder to the exclusive commercial exploitation over that particular product ceases.

Simply put, the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product.[4] This principle applies, whether the product is marketed on the domestic market or on the international market. At least, this is the Ghanaian position.

This principle has been statutorily provided for in the Trademarks Act, 2000 (Act 664) which provides in Section 9 (6) as follows:

“The rights conferred by registration of a mark shall not extend to acts in respect of articles which have been put on the market in any country by the registered owner or with the consent of the owner.”

By this provision, once a product protected by a trademark has been sold by the rights holder or by others with his consent anywhere in the world, so long as the goods are original or genuine, the trademark rights of exclusive commercial exploitation and control over the given products can no longer be exercised by the rights owner as the rights in those particular products would have been exhausted.

The first sale rule ensures that the trademark holder earns only one fee for the sale of each product.[5] Once the trademark holder has obtained full value for the product, there will be no need to reserve for him, the exclusive right to distribute the product and any such sale and distribution will not constitute an infringement of the rights of the trademark owner.

In the US case of Sebastian International v Long Drug Stores Corp[6], it was held that under the first sale doctrine, there is no trademark infringement where the defendant is reselling a genuine good that bears the trademark. It was held further that the right of a producer or manufacturer to control the distribution of its trademark product does not extend beyond the first sale of the product. Resale by the first purchaser of the original article under the producer’s trademark is neither an infringement nor unfair competition.

Once the rights holder has accrued economic return from the first sale of the goods bearing a trademark by placing them on the market, the right holder has exhausted all rights in relation to those goods.

Subsequent acts of resale and other forms of commercial use by third parties can no longer be controlled or opposed by the registered holder of the trademark with which the goods relate. In the case under consideration, there was no question that the products were not manufactured by the Plaintiff’s principals.

A direct consequence of this First Sale Doctrine or Principle of Exhaustion is the Principle of Parallel Importation, which refers to the importation of goods produced and sold legally and subsequently exported.  Parallel Importation refers to the situations such as this instant case, where a person imports goods into a country where the exclusive right to import those particular goods as well as the trademark vests in another person.

Such parallel importation is permissible if the goods in question were produced by the domestic patent or trademark holder (i.e. the goods were original) and subsequently sold by them without any clear notice of restriction. These principles would therefore not be applicable where the goods bearing the trademark are counterfeit goods or knock-offs. In such instances, the registered owner of the mark may validly prevent and restrain the retailer from importing, distributing and selling the product within the territory.

In another US case of Betts v Willmott[7], it was stated that this parallel importation rule applies regardless of the existence of any intellectual property rights in the exporting country. The defendant in the instant case could therefore import the Jagermeister Drink (from which the Plaintiff’s donors had already gained their economic return) lawfully into the country and subsequently distribute and sell same without reference to the Plaintiff.

One can understand why trademark holders and their authorized agents will oppose the first sale and parallel importation rules. By permitting such parallel importation, a grey market is created, leading to the third party (ie the reseller) becoming a direct competitor of the trademark owner or his accredited agents within the market[8] as happened in this case. This is exacerbated where the trademark owner (or his lawful representatives) has expended money and effort to market and popularize the product within the territory.

There are however limits on the application of the first sale rule. The reseller cannot misrepresent his relationship with the trademark owner to his customers. This is to say, the reseller cannot create the impression that he acts with the authorization of the trademark owner or has any affiliation with the owner of the trademark[9] or that he is the owner of the trademark, particularly where the product is the same unmodified genuine goods as that of the mark owner.[10] This applies also whether or not the reseller markets the product in a modified, repackaged[11] or reconditioned[12] form.  So for example, a car dealership selling second-hand Mercedes Benz cars in Ghana cannot claim to be an accredited agent of Daimler AG unless of course that is in deed true.

A trademark owner can also place a restriction on the parallel importation principle by prohibiting the first purchaser from distributing and selling the product within a defined territory. This non-circumvention clause in a contract will ensure that the first purchaser does not undercut the market of an accredited representative of the trademark owner within that territory by reselling the product within that territory.

Also, and as has been stated previously, the first sale rule and parallel importation rule will not avail an importer or retailer who deals in goods bearing the trademark but are counterfeits.

Trademark law is designed to prevent retailers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing a true mark is sold.[13] The rationale for trademark rights is to ensure that the owners of trademarks are able to obtain a monetary gain for their products. Rather than amount to unfair competition, the first sale doctrine encourages healthy competition, competition which ultimately benefits the customer, by allowing others to resell the product after the manufacturer of the products has obtained a value for them.  The decision in the instant case achieves the exact opposite.

Without these exceptions to the trademark rights, manufacturers and producers will continue to exercise exclusive rights over the products for which they have already commercially exploited, thereby creating a monopoly and creating the avenue for exploitation of consumers.

[1] Suit No. IPR / 16/ 2010 delivered on the 13^th day of October 2014

[2] Paragraph 26 of Judgment

[3] Paragraph 28 of Judgment

[4] Sebastian Intern, Inc  v Longs Drug Store Corp., 53 F. 3d 1073 (9^th Circuit 1995)

[5] Epstein, R. (2010). The Disintergration of Intellectual Property? A Classical Liberal Response to a Premature Obituary. 65 Stan Law Review 455, 505. (2010)

[6] 53 F.3d 1073

[7] [1871] LR 6 Ch. App 239

[8] Barnes, D. (2011). Free – Riders and Trademark Law’s First Sale Rule. Santa Clara High Technology Law Journal, 457.

[9] Champion Spark Plug Co. v Sanders, 156 F.2d 488, 491 (2d Cir. 1946)

[10] Iberia Foods Corp v Romeo, 150 F.3d 298 (3d Cir. 1998)

[11] Prestonettes, Inc v Coty, 264 US 350 (1924)

[12] Champion Spark Plug Co. v Sanders, 156 F.2d 488, 491 (2d Cir. 1946)

[13] NEC Electronics Inc. v CAL Circuit Abco, Inc., 810 F.2d 1506, 1509 (9^th Cir., 1987)