With Order No. 2635/2022 of 28 February 2022, the Court of Milan confirmed, on appeal, the preliminary injunction with which the court had allowed the action brought by Chanel against a company outside its selective distribution network – Trilab s.r.l. – which resold, through e-commerce for hairdressers, perfumes and cosmetics of the well-known French maison.

In particular, the Judge held that there were ‚legitimate reasons‘ to prevent the exhaustion of trade mark rights, both from the point of view of the antitrust law compatibility of Chanel’s selective distribution contracts, and from the point of view of the prestige of the protected goods, which qualify as luxury goods.

It should be clarified that selective distribution is a system based on agreements between the supplier and the distributor, whereby the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected based on specified criteria. The distributors undertake not to sell those goods or services to unauthorised resellers in the territory that the supplier has reserved for the system. This system is generally used for high-tech goods for which the buyer needs specific and qualified assistance or for luxury goods in order to protect the investments made by the owner in terms of brand prestige.

This sales system is in the abstract liable to prevent, restrict or distort the game of competition. According to Italian and Community case law, can be considered legitimate if: (i) it is limited to products of high technicality or luxury and prestige, in order to preserve their quality and ensure their proper use; (ii) the choice of authorised reseller is based on objective criteria; (iii) the limits imposed on free trade do not exceed what is necessary.

In the present case, the Court, after recognising the legitimacy of Chanel’s selective distribution network (since the clauses contained in the agreements were intended only to safeguard the prestige and high reputation of the brand), focused on the possibility of considering selective distribution a legitimate ground for exception to the principle of exhaustion, allowing the owner of the luxury brand to prevent the circulation of the goods marketed by a third party in violation of the clauses agreed with the authorised distributor.

The principle of exhaustion under Art. 5 of the CPI states that the exclusive rights granted to the owner are exhausted with the first marketing of the goods by the owner or with the owner’s consent unless there are ‚legitimate reasons‘ justifying the trademark owner’s opposition to the further marketing of its goods.

In Chanel’s view, Trilab marketed the Chanel-branded products outside the selective distribution network with serious prejudice to it because the way in which they were sold and offered for sale, by the characteristics they presented, were detrimental to the reputation of the maison.

These methods, contrary to Chanel’s quality standards, consisted in offering the products on an e-commerce site for hairdressers, with blurry images and with crowded content next to products of a different merchandise nature and with lower profile brands. The products were thus presented on the e-commerce site for hairdressers in contrast to the message of exclusivity and elitist luxury of haute perfumeries that Chanel intends to communicate.

The manner of sale described was also combined with the alteration of the original products through the removal of the identification codes: the alteration of the products constituted a further and different element capable of excluding the application of the principle of trademark exhaustion.

Chanel argued that the altered packaging not only compromises in the eyes of consumers the image of quality and prestige that distinguishes Chanel’s products, but also prevents them from identifying the genuineness of the products and their origin, thus frustrating the entire tracking system set up by Chanel as part of the controls necessary for the protection of the selective distribution network.

The panel therefore found all of Chanel’s arguments to be valid and therefore ordered an injunction, supported by a penalty, against the further marketing, offer for sale, promotion and advertising of Chanel-branded products on Trilab’s e-commerce website, as well as the publication of the operative part of the order on Trilab’s website.

The order under comment herein highlights that the selective distribution system must be viewed not only from the perspective of protection of the trademark owner, but also of the consumer who can trust the high-quality standards of the products distributed and the professionalism of the distributors.

Anna Colmegna