Swissa v Tommy Hilfiger Licensing LLC, CA 7692/12 and 8846/12 (Supreme Court of Israel, November 16, 2014)
In a groundbreaking decision of November 16, 2014, the Supreme Court of Israel ruled on the practice of parallel importation, defining “parallel imports” as authorized goods of a mark owner that have been purchased at lower prices in other countries, then brought to and resold in Israel (a practice also sometimes referred to as “intra-brand competition”). Given the legality per se of parallel imports under Israeli law, the court’s opinion focused on limitations on marketing and advertising efforts supporting such sales.
Background: District Court Decision
Against the backdrop of Israel’s relatively permissive approach to parallel importation, Tommy Hilfiger and its licensed importer (“Hilfiger”) sued parallel importer Elad Menahem Swissa and Importer Warehouse 42 LTD (“Swissa”) in Israeli district court objecting to various marketing and advertising measures adopted by Swissa in selling Tommy Hilfiger-branded goods. Hilfiger claimed that these marketing efforts harmed and diluted its registered marks and constituted passing off and unjust enrichment. In particular, Swissa had registered the domain name www.tommy4less.co.il for use with its website, featured the red, white, and blue colors of the Tommy Hilfiger brand in its store, and adopted the business name “The Importer’s Warehouse – Tommy Hilfiger.”
The district court granted Hilfiger’s claim, in part, holding that although the clothing sold by Swissa could not be readily identified without use of the TOMMY HILFIGER mark, the use of that mark significantly exceeded what was reasonably necessary, incorporating “Tommy Hilfiger” in the importer’s business name and domain name, and using the signature Tommy Hilfiger colors in its store. The district court rejected the passing off claim, since the goods were authentic TOMMY HILFIGER products. The district court awarded Tommy Hilfiger compensatory damages in the amount of IS 457,000, and issued a permanent injunction against Swissa’s marketing activities.
Swissa appealed, on the grounds that its activities did not create identification with Hilfiger, and that parallel importation is lawful and does not violate trademark rights.
Supreme Court Decision
The Supreme Court first affirmed the legitimacy of parallel importation, which in itself did not constitute trademark infringement or unjust enrichment, noting, however, that there had been no comprehensive judicial consideration or ruling on the limits of this practice. In upholding the legality of parallel importation per se, the court relied on the principle of “exhaustion,” namely, that a trademark owner, in effect, enjoys rights in relation to the first sale of the authorized product, but no further.
The court surveyed various legal approaches to parallel imports from other jurisdictions, including the U.S., EU, Canada, and Australia. In so doing, the court sought to demonstrate the great diversity of treatment of this issue, and to recognize the importance of striking a correct balance between the interests of trademark owners and consumers, in the context of Israel and its unique economy. The court noted that Israel is a relatively small country, comparatively isolated economically from its neighbors—and in this sense more akin to Australia, the laws of which take a comparatively lenient view toward parallel importation.
The court noted that a more lenient approach benefits consumers by encouraging lower prices and increased competition in the local, Israeli market. However, the court also reasoned that there must be some restriction on the activities of parallel importers, and these restrictions originate in trademark law, commercial law, and the law of unjust enrichment.
On trademark law, the court cited Article 47 of the Israeli Trademarks Ordinance, which, as interpreted, does not consider the use of a registered trademark in relation to its owner’s goods to be a violation of a mark. However, when the use of a mark is not limited merely to the sale of “real” or authentic product, but extends to the marketing of the product, other considerations are implicated. The court referred to the three-part test identified in Golden Toto Subscribers Club Ltd v The Council for Arrangement of Gambling in Sport (PD 59(1) 873 (2004) CA 3559/02), also discussed by the district court, for regulating the use of a registered trademark by a non-owner. Golden Toto set forth: (1) an identification test (it is not possible to identify the seller’s goods without reference to the owner’s trademark); (2) a necessity-of-use test (the use of the owner’s trademark by the seller is reasonably necessary); and (3) a sponsorship test (the use of the trademark by the seller must not create confusion as to sponsorship by the owner). The court considered the third test the most relevant for parallel imports. Namely, the parallel importer must show that use of a mark would not create a “reasonable probability” that consumers would assume authorization by the mark owner. Whether particular promotional activities violate this test would vary with context, taking into account the types of goods sold and the reasonable expectations of the consumers for such products.
Here, the court found that use of “Tommy Hilfiger” in the importer’s business name created a direct association with Tommy Hilfiger, and was potentially misleading. Use of the Tommy Hilfiger red, white, and blue (absent other similarities such as store design or layout), however, was not deemed sufficient in itself to mislead a reasonable consumer. Furthermore, the court ruled that the parallel importer need not advertise the term “parallel imports” per se in connection with its business, particularly given the context of clothing sales, which are not typically characterized by an ongoing relationship between buyer and seller (as with the servicing of automobiles by a dealer, in contrast). The court found this conclusion further reinforced by the fact that authentic Tommy Hilfiger stores are quite different from those of the importer; they are more luxurious, and are located in more prestigious geographic areas. The court thus held that a reasonable consumer would not assume that the importer is sponsored by Tommy Hilfiger, simply because it does not advertise itself as a “parallel importer.” The court did require, however, that the importer be clear that its business is not conducted under the auspices of Tommy Hilfiger. To this end, the court required the importer to sufficiently convey to consumers its independence from Tommy Hilfiger, including on its website, where statements to this effect must be placed on the “home” and “about” pages. And while it was permitted to use the Tommy Hilfiger colors in its stores, it was required to put up a sign at the store entrance clarifying the lack of a connection with Tommy Hilfiger. The court deemed the www.tommy4less.co.il domain name acceptable, though also subject to the Golden Toto test. Based on that test, the court found the domain name not misleading, as it shows that one can purchase actual “Tommy Hilfiger” products at low prices.
The court held the importer liable for the tort of passing off, however, based on its use of the business name “The Importer’s Warehouse – Tommy Hilfiger,” having considered such use misleading to a reasonable consumer. The court did not find Swissa’s activities to constitute unjust enrichment, as it lacked a requisite “additional element,” namely, Swissa had invested substantial sums to advertise its own business, and was not simply trading off of the business and renown of TOMMY HILFIGER.
Tommy Hilfiger also raised the issue of the use of its marks in key words in internet or search engine advertising. A comparative review of different jurisdictions’ approach to this practice revealed a general tolerance for it, the court held, provided that deception as to identity of the seller is not at issue.
In conclusion, monetary awards were reduced to IS 100,000, and the court more narrowly tailored the district court’s injunction, in line with its opinion.
This decision underscores the limits to mark owners’ practical ability to prevent or otherwise contain the practice of parallel importation, as well as the inconsistency of these limits across different jurisdictions. The court noted that a mark owner unhappy with the practice of parallel importation of its goods may always seek to prevent these imports simply by unifying its prices across jurisdictions. Otherwise, in jurisdictions such as Israel, it is vital that the mark owner stay aware of and police the marketing activities of parallel importers supporting these sales.