Clifford Chance

The Spanish Supreme Court confirms the exhaustion of Schweppes' trademark rights in the proceedings brought by Schweppes, S.A. against Red Paralela and Red Paralela Bcn in Spain

Background to the case

The marketing of tonic water under the Schweppes trademark began in the United Kingdom, with Cadbury Schweppes - later named Orangina Schweppes Group - being the initial owner of all Schweppes trademarks registered in the European Economic Area ("EEA").

In 1999, Cadbury Schweppes sold to Coca-Cola/Atlantic Industries ownership of the Schweppes trademarks in some European Union countries, including the United Kingdom, while retaining ownership of other trademarks in other territories, such as those registered in Spain. This resulted in the fragmentation of the Schweppes trademark in the EEA.

The Spanish company Schweppes, S.A., part of the Orangina Schweppes group, marketed Schweppes tonic water in Spain and was the licensee of Spanish trademarks 171,232 and 2,907,078 containing the word Schweppes (the "Schweppes Trademarks"), held by Schweppes International Limited ("Schweppes International"), also part of the Orangina Schweppes group.

First and second instance judgments

Schweppes S.A., as exclusive licensee of the Schweppes Trademarks, filed a trademark infringement complaint against the entities Red Paralela, S.L. and Red Paralela Bcn, S.L. (the "Defendants"), as a result of their marketing in Spain of Schweppes tonic water imported from the United Kingdom.

Barcelona Commercial Court No. 8, after referring a question to the CJEU for a preliminary ruling, giving rise to its judgment of 20 December 2017 (case C-291/16), dismissed the claim in its judgment of 9 April 2018.

In summary, according to the CJEU's preliminary ruling, the proprietor of a trademark cannot oppose the importation of identical goods bearing the same trademark and originating in another Member State, in which that trademark is currently owned by a third party which has acquired that trademark, when, following that acquisition, (i) the proprietor (alone or with that third party) has continued to actively and deliberately promote the appearance or image of a single global trademark, thereby generating or increasing confusion among the relevant public as to the business origin of the goods covered by the trademark or (ii) there are economic links between the proprietor and that third party, in the sense that they coordinate their commercial policies or reach an agreement in order to exercise joint control over the use of the trademark.

The Barcelona Commercial Court found that, following the fragmentation of the trademark in the EEA countries, there were indications showing how the practices of the trademark holder in Spain (Schweppes International) reinforced the image of a single global trademark, generating confusion on the part of the public concerned. The Court also found that the same indications were sufficient to assert the existence of economic links between the trademark holders, in the sense of coordinating their commercial policies to exercise joint control over the use of the trademark. It therefore concluded that an exhaustion of trademark rights did indeed exist.

The indications that led the Barcelona Commercial Court to reach its conclusion were several: a) access to advertising of British Schweppes products through the website of Schweppes International, owner of the Spanish trademarks; b) that Schweppes International had assumed the UK territory as its own, for the distribution and advertising of the Schweppes trademark on social networks; c) the use of the British products' image in institutional advertising for Schweppes International and Schweppes S.A.; d) the existence of minimal differences in the products' format; e) the retention of references to the British origin and ties to the UK of products marketed by Schweppes, S.A.; f) the existence of a parallel trademark action by Schweppes International; g) the business collaboration between Schweppes International and Coca Cola in the Netherlands and, lastly, h) the marketing of British tonic waters in territories where the trademark is owned by Schweppes International.

The first instance judgment was appealed and the Barcelona Court of Appeal (Section 15), in its judgment of 22 July 2019, upheld the appeal, concluding that there was no exhaustion of the trademark rights, but indeed the existence of an infringement of the Schweppes Trademarks.

The Appeal Court's judgment analysed the facts proven in the first instance and, having considered only two of them to be relevant, concluded that they did not constitute sufficient indicia to find the existence of a trademark exhaustion in the terms indicated in the CJEU's ruling.

The Defendants lodged an appeal in cassation and an extraordinary appeal due to procedural infringement before the Spanish Supreme Court.

Decision on the Supreme Court appeals

In its judgment of 13 September 2023, the Supreme Court dismissed the Defendants' extraordinary appeal for procedural infringement, but upheld the appeal in cassation.

Based on the reasoning contained in the CJEU's ruling of 20 December 2017, the Supreme Court made a legal assessment of the stated facts considered proven in the first instance, departing from the conclusion reached by the Court of Appeal.

Firstly, with regard to the fact that Schweppes International's website gave access to advertising of British Schweppes products, the Supreme Court considered that the fact that said website, when clicking on the United Kingdom, redirected users to the website of the Coca-Cola group (without warning that there, the holder of the trademark was different), was a fact that helped to reinforce the appearance or image of a single global trademark. The Court of Appeal, in the appealed judgment, did not take this fact into account, as it found that the redirecting in itself indicated that they were not products of Schweppes International.

The same conclusion was drawn from the fact that the trademark's holder, on social media, had assumed the UK territory as its own for the distribution and advertising of the Schweppes trademark - a fact that the Court of Appeal had ruled out as being insufficient, since this consisted of only two messages on Twitter - and from the fact that the institutional advertising of Schweppes International and Schweppes S.A. contained an image of a tonic water product more similar to the product marketed in the United Kingdom than that marketed in Spain.

Nor did the Supreme Court's opinion coincide with that of the Appeal Court on the assessment of Schweppes International's parallel trademark action. Contrary to the Court of Appeal's understanding, which it played down, the fact that Schweppes International decided to apply for the same new trademark registrations that Atlantic Industries chose to apply for in the case of the United Kingdom reflected, in the Supreme Court's opinion, Schweppes International's interest in reinforcing the image of a single global trademark.

The Supreme Court also departed from the Court of Appeal's assessment as to the existence of an agreement between Schweppes International and the Coca-Cola group in the Netherlands, whereby the former granted Coca-Cola a licence to manufacture and distribute its branded products in that country. In contrast to the Court of Appeal's finding that this was a one-time agreement which did not justify the existence of an EEA-wide global economic agreement, the Supreme Court concluded that such agreement did also constitute indicia of an action by Schweppes International in an attempt to strengthen its global trademark image.

Lastly, the fact that Schweppes International had not taken legal action against the sale of products originating from the United Kingdom through the websites of countries where it had trademark protection, is considered of little relevance for the decision.

Conclusion

The Supreme Court's overall assessment of the facts led it to conclude that the Court of Appeal had erred in its findings, having considered much of what had been proven in the first instance to be irrelevant. According to the Supreme Court, there was sufficient relevant evidence to conclude that the practices of Schweppes International had effectively reinforced the Schweppes single global trademark image. As a result, it upheld the Defendants' appeal in cassation.

The success of the Defendants' appeal in cassation signified confirmation of the first instance judgment and, therefore, the dismissal of the infringement claim brought by Schweppes, S.A. due to the existence of a trademark exhaustion.

The judgment of the Supreme Court constitutes a good reference for lawyers when it comes to the assessment of the facts in order to sustain the existence of a practice aimed at promoting the image of a single global trademark, in the terms indicated by the CJEU.

On another note, the conclusion reached in the judgment of 13 September 2023 was reiterated the very next day in the subsequent Supreme Court judgment of 14 September 2023, which ended the separate trademark infringement claim brought by Schweppes, S.A. against Pigazos Logística y Distribuciones, S.L. for its marketing in Spain of tonic water from the United Kingdom that had been acquired from Red Paralela Bcn, S.L.