What happens to products after the severing of relations between a manufacturer and its distributor

France

The Court of Cassation has just confirmed various established solutions pertaining to the ability to sell an unpackaged product after the breach of a distribution contract (Court of Cassation, 29 September 2015, no. 14-17.130). Judges have already ruled on several occasions on the topic through decisions on trademark law. For example, the Court of Justice of the European Union (CJEU) ruled that selling repackaged products is possible if four cumulative criteria are met:

  • the use of the trademark by its owner would have the sole purpose of artificially partitioning the markets of the member states;
  • the repackaging does not affect the condition of the product contained in the packaging;
  • the names of the product manufacturer and of the entity that repackaged it are clearly indicated on the packaging; an
  • the presentation of the repackaged product does not harm the reputation of the brand or its owner.

The trademark owner must be notified of the sale of the repackaged product and of its presentation in new packaging. If one of the above requirements is not met, the trademark owner has a right to contest the sale of an unpackaged product (CJEU, 26 April 2007, C-348/04; confirmation: CJEU, 12 July 2011, C-324/09).

These two decisions by the CJEU were handed down in scenarios where a third party unpackaged a product to sell it. The Court of Cassation had to rule in a situation in which the distributor wished to proceed with unpackaging in order to return the stock to the manufacturer, who had retained ownership of it, on the basis of the negotiated distribution contract. In that case, the supplier was able to repackage and sell the returned products. However, the manufacturing company had requested reparations from its distributor for the destruction of the product packaging.

In keeping with the reasoning of the CJEU founded on trademark law, the Court of Cassation underlined that the distributor can absolutely contest the fact that, after a breach of contract, its supplier markets products packaged under its own trademark. Moreover, the supplier did not meet the conditions for using the CE marking, an authorisation which the distributor did indeed have. Thus it could not have, under any circumstances, sold the products in their original packaging. Therefore, the distributor did not commit any offence in unpackaging them.

The Court specified that the concealment of this information – distributor trademark and CE marking – on the original packaging before sale could have been possible only with the consent of the distributor, which declined in the case at hand. In so doing, it regularly exercised the right of objection established by the CJEU. In practice, it is not very likely that any entity will agree to sell products in obscured packaging, given the image problems that could ensue for the product and for the company manufacturing it.

For these two reasons, the manufacturing company could only request reparations from its distributor for the destruction of the packaging. The argument claiming that the destruction of the packaging had made the products – medical devices – unfit for sale was not accepted for lack of convincing evidence. On that matter, the Court of Cassation noted that the manufacturer did not seek to reclaim the medical devices, which had remained under protective plastic packaging, although the distributor had made them available to it for a long time. Not having retrieved them, it could not request reparations for their deterioration.

It is also worth noting that the Court of Cassation confirmed two solutions that are customary in case law and result in the overruling of the Court of Appeals:

  • First, in the absence of an explicit agreement between former business partners, the distributor is never authorised to continue selling the products after termination of the contract (see, for example, Trade Court of Appeals, 17 January 1995, no. 92-20.706), with no regard to the facts that the quantities sold were limited and that they met the one-time needs of resellers who had already included the product in question in their catalogue. Unfair competition is not, in fact, constituted by the repetition of wrongful actions; a single isolated action can suffice.
  • Second, the charge of disparagement can be deemed founded with regard to the notification the supplier sent to its customers informing them of the existence of a legal action in progress against a distributor (Trade Court of Appeals, 12 May 2004, no. 02-16.623 and no. 02-19.199), even if the notification letter was written in 'measured terms'. Therefore, a letter, even if purely factual, still constitutes disparagement when it mentions a legal action that has not yet been resolved.