Parallel Export of Cosmetics on eBay Allowed – Denying the Manufacturer’s Attempt to Control the Distribution

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Another important achievement for our firm (for the previous decision see this link) is a recent decision in a motion for a temporary injunction, this time on parallel export of Israeli cosmetic products via eBay and copyright law.

The question that was raised in this proceeding was whether an Israeli cosmetic manufacturer can prevent from an eBay store to sell its cosmetics via eBay.

Our firm represented an eBay store named Beauty Shop that has purchased cosmetic products under the brand HOLYLAND from different suppliers in Israel, including from the manufacturer, Pharma Cosmetics (HL), and marked them on eBay.

The manufacturer (HL) has filed a motion for a temporary injunction against Beauty Shop in order to prevent Beauty Shop from selling the cosmetics products on eBay. HL has also claimed for damages of NIS400,000.

HL’s Claims:

HL claimed that the sale of its cosmetics on eBay for very low prices has caused considerable damages to it brand, and also may cause the exclusive distributers of HL worldwide to cancel the distribution agreements with HL, causing irreparable damage to HL.

Furthermore, HL contended that the sale of cosmetics on eBay also constitutes a breach of a contract, based on a restriction clause that was added to some of the invoices between HL and Beauty Shop, concerning some previous direct small purchases from HL.

HL has claimed that those past invoices prohibit Beauty Shop from selling the cosmetics on eBay forever, even if those products have been legally purchased from third parties and not from HL.

In addition, HL has claimed that the use of photos of the cosmetics products and of informative texts about the products that belong to HL constitutes a copyright infringement.

Beauty Shop’s Claims:

Beauty Shop, represented by our firm, has argued that the whole purpose of the motion is to block fair competition in the market and to control prices in the cosmetics industry, ultimately causing harm to the consumers.

With regards to HL’s claim concerning the possible termination of the exclusive distribution agreements around the world, Beauty Shop has argued that these claims were groundless, that they have not been proven at all, and that in any case there is no connection between those agreements and Beauty Shop’s activities.

Beauty Shop also has claimed that no distribution agreement was made between Beauty Shop and HL concerning the limitation of distribution outside of Israel.

Beauty Shop has also claimed that the added restrictive clause on the invoices cannot substitute a distribution agreement which requires the existence of negotiations and other basic contractual terms.

Beauty Shop has also claimed that even if HL can prove any contractual distribution limitations, there is no liability on Beauty Shop’s behalf since Beauty Shop has legally purchased the cosmetics from third party suppliers, which have not been restricted to any distribution limitations, and that the sale of the cosmetics on eBay is allowed according to the Israeli Supreme Court precedent in case no. 371/89 Ilan Labovitch v. Y. Elyahu, in which “The manufacturer chooses his preferred marketing channels that he intends to market his merchandise through. The decision to whom to sell his merchandise is in his hands. Nevertheless, after the manufacturer has sold his merchandise and transferred the property ownership in it to others, he may not continue to control the distribution channels of his merchandise by virtue of his goodwill”.              

With regard to the claim of copyright infringement, Beauty Shop has argued that standard photos of cosmetics packaging or informational texts are not protected by copyright in accordance with the Merger Doctrine, especially when it comes to photos of products used for marketing purposes.

Court’s Decision:

The District Court (the Honorable Judge Magen Altuvia) rejected the Motion for a Temporary Injunction and fully accepted Beauty Shop’s claims.

With regard to the motion to prevent the cosmetics distribution on eBay, the District Court accepted Beauty Shop’s argument that the cosmetics have been purchased from third parties who were not bound by any distribution limitations, and therefore there is nothing that can prevent their distribution overseas based on the Supreme Court precedent in case no. 371/89 Ilan Labovitch v. Y. Elyahu.

In this matter the District Court has ruled the following:

“It should be noted that the identity of the respondent’s suppliers is known to the applicants (S. 21 P. 6 of the court record dated 04/20/15) and they have the option not to sell HL’s products to the respondent’s suppliers or to prohibit them from selling these products to the respondent or out of Israel. During the cross-examination, HL’s CEO has avoided answering the question: can he prevent HL’s customers, the respondent’s suppliers, from selling to the respondent, and he replied: “This is an issue” (ibid, ’23 P 6). It should be added that the CEO was then asked whether such limitation applies to the respondent’s suppliers, and he testified as follows: “I do not know. I do not think so “(ibid, S. 29, P 6). It should be added that the applicant did not attach sales invoices to the respondent’s suppliers, therefore HL did not demonstrate any prohibition of those suppliers from selling HL’s products out of Israel or to the respondent. For this reason, I do not accept the applicant’s claim as if the respondent’s suppliers could not sell the respondent the right to sell HL products out of Israel, since such a right was not in their hands (Article 22 of the respondent’s summaries). “

Regarding HL’s claims of copyright infringement, the Court has ruled that it is doubtful that using photos of products or texts that appear on the packages that where legally purchased, constitutes copyright infringement.

The Court has also contended that the chances of HL to win the case are not good and that the balance of interests lies in the favor of Beauty Shop.

Finally the District Court rejected the motion for the temporary injunction and ordered HL to pay costs of NIS39,500 to Beauty Shop.

Beauty Shop was represented by Yossi Sivan & Co.

Disclaimer
Nothing in the above shall be considered as any legal advice or any legal opinion whatsoever. This is just an informative article. We strongly recommend consulting with a professional attorney in such matters.

 

 

Does Parallel Import of Baby Strollers without Serial Numbers Constitute an Infringement of Intellectual Property rights?

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Many international brands are being imported to Israel not only by the official importers, but also by Parallel importers.

As far as the consumer is concerned, as long as these products are authentic and not counterfeit, this parallel import is an acceptable and legitimate phenomenon, since it improves competition and results in lowered prices.

It is well known that brand owners are repeatedly trying to protect the interests of their local official importers by locating the source of the overseas parallel import to Israel for the purpose of stopping the parallel import and controlling the level of prices.

Locating the details of the supplier is possible through reading the bar codes and the serial numbers labels that appear on the imported products.

Does the manufacturer have any legitimate interest to prevent the removing of those serial numbers? This question has recently come up in a very interesting case ruled by the Central District Court in Israel.

Background:

STOKKE is a Norwegian Company and manufacturer of baby strollers that are distributed to many countries around the world.

Baby Love is an Israeli Company that imports STOKKE Strollers among other baby products, by parallel import.

STOKKE has filed a motion for a temporary injunction against Baby Love for importing and selling STOKKE baby strollers by parallel import without labels bearing the serial numbers of the manufacturer.

Stokke’s claims:
STOKKE argued that the original serial numbers have been removed by Baby Love and that the new labels that appear on the Baby Love strollers consist faked serial numbers.

STOKKE claimed that the sale of these parallel imported strollers is actually causing the nullification of any warranty granted by the manufacturer and preventing STOKKE from the  ability to trace the strollers for the purpose of consumer service and warranty.

STOKKE has also claimed that the Baby Love strollers are damaging its goodwill and its contractual relationships with the official importer in Israel, a company named Shem Tov.

In addition, STOKKE has claimed that these actions of Baby Love are harming its ability to perform a recall to handle any problems in the strollers.

Concerning the warranty issues, STOKKE has claimed that Baby Love’s actions are causing the consumers to think that they have purchased a STOKKE stroller with full warranty while in fact those
strollers have no official warranty by STOKKE.

STOKKE has also claimed that the removal of the serial numbers and the relabeling with faked serial numbers endangers the consumers, plain and simple.

Baby Love’s Claims:
Baby Love represented by Yossi Sivan & Co. has argued that the real purpose of the motion for injunction was to unlawfully block the commercial activity of Baby Love as a parallel importer in order to prevent competition in the market and to exaggerate the prices of the strollers with no interference.

Baby Love has argued that it doesn’t remove the labels, but purchases the strollers AS IS from the supplier outside Israel, that the parallel imported strollers are identical to the strollers imported by the official importer of STOKKE and that they are sold at lower prices compared to the strollers imported by Shem Tov.

Baby Love has also argued that the removal of the serial numbers is a consequence of the fact that STOKKE is trying to trace the origin of the strollers in order to prevent the parallel import to Israel, forcing the supplier to remove the labels.

Baby Love has also claimed that STOKKE is trying to trace the origin of the strollers in order to prevent the parallel import, to control the prices of the strollers and to dictate exaggerated prices, extremely harming the competition.

In addition, Baby Love has argued that the manufacturer has no legitimate right to control the distribution of the strollers and in fact, STOKKE has exhausted its rights after it sold the strollers to some supplier around the world according to the rules of exhaustion of intellectual property rights.

Baby Love has claimed that the interest lying in the parallel import by preventing STOKKE from tracing the details of the supplier overrides the interest of STOKKE to control the market and to exaggerate prices by blocking the market.

In addition, Baby Love has claimed that the strollers are not required to any recall according to the regulations of the Standards Institution of Israel and that the strollers are not products that require a safety standards such as safety chairs for cars.

Baby Love has also clarified that there is no misleading of the consumer since the name of the parallel importer appears all over the purchasing documentation and that the consumer knows that it is a product of parallel import.

Court’s Decision:
The Central District Court has denied the motion for the temporary injunction and ruled that allegedly there is no misleading of the consumer and that the consumer is aware that he is purchasing a parallel imported stroller and that the warranty is given by the parallel importer not by the official importer.

The court also ruled that Baby Love doesn’t remove the original labels and doesn’t fake the original labels but sticks on different labels that include its own serial numbers according to the regulations of the Standards Institute of Israel.

The court has also mentioned the active involvement of the official importer of STOKKE which implies that most of the claimed damage arising from the parallel import activity is the commercial damage of the official importer, not STOKKE.

The court also has clarified that parallel import is a positive phenomenon in its essence in light of the Supreme Court’s decision in case No. 7629/12 TOMMY HILFIGER V. Swisa and that the recognition of the legitimacy of parallel import is based on the doctrine of the exhaustion of intellectual property rights which is well based and obvious.

The District Court has also mentioned the proposed bill of the Restrictive Trade Practices Law (Antitrust Law) (removal of import barriers 2015) applying limitations that would prevent official importers from the exploitation of their status and abuse of their rights by opposing parallel importers.

The court also rejected the comparison between the number on a motor vehicle chassis to the serial number sticker on a stroller and determined that this comparison indicates the weakness in STOKKEs arguments.

The court has also rejected the claim that the removal of the labels (bar codes) “endangers the public” and ruled that this claim is very farfetched and lacks evidential basis.

Ultimately the Court dismissed the Motion of Temporary Injunction and ordered STOKKE to pay Baby Love expenses worth 15,000NIS and to deposit a guaranty of 75,000NIS within 20 days otherwise the lawsuit will be dismissed.

Although this decision is a temporary decision, it still constitutes a great victory for free competition and the legitimacy of parallel import in Israel.

Baby Love was represented by Yossi Sivan & Co. Law Offices

Disclaimer
Nothing in the above shall be considered as any legal advice or any legal opinion whatsoever. This is just an informative article. We strongly recommend consulting with a professional attorney in such matters.

Attorney Sivan Appointed by Court to Handle a High-Profile Trade Secrets Case

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March 2010: Adv. Sivan was appointed by the Israeli Court to handle a unique high-profile case concerning millitary trade secrets.

Adv. Sivan was authorized by court to perform a complex search in several computer facilities of commercial companies in order to locate computer files and evidence. The case envolved complex legal issues concerning IP and trade secrets.

Representing successfully a Fashion Company in a Passing Off Case

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August 2009: Adv. Sivan has successfully represented an Israeli fashion company in a case of passing off against local importers. The District Court of Tel Aviv issued a temporary injunction against the importers and the case was settled in favor of the plaintiff, with a permanent injunction being granted along with compensation of approximatley 150,000 NIS. The importer was also ordered to collect all the merchandise from all of their stores around the country.

Representing Ceremonie Tea Company against Wissotzky Tea Company in a Trademark Case

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December 2007: Adv. Sivan represented the Israeli tea company CEREMONIE in a trademark case against Wissotzky tea company.

Adv. Sivan filed a motion for an Injunction to prevent Wissotzky the use of the mark HARMONY on their tea products, based on the claim that the mark HARMONY is phonetically similar to the registered trademark CEREMONIE, causing likelihood of confusion with the tea consumers.

The District Court has issued an agreed injunction in which the defendant was ordered to change their brand (adv. Sivan was at that time an associate at Furth Wilenski Mizrhachi Knaani Law Office).

The Israeli Registrar of Patents is Complimenting the Special IP Magazine of Attorney Sivan

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The Israeli Registrar of Patents and Trademarks is complimenting the professional Intellectual Property Magazine published in Israel called: “Notes in the Paths of the Intellectual Property”, edited by Adv. Sivan and Adv. Friedman:

“…furthermore, also in the subjects concerning the professional area, the editors have succeeded in combining in the magazine a very broad scale of subjects in the Intellectual Property filed, some in the most actual subjects, as the very important article of Dr. Yoval Karniel and Adv, Yossi Sivan in the subject of the protection of patent law on business methods in the internet, a subject that has received a momentum recently in light of the case of AMAZON. An additional example is the subject of the intellectual property of fictional characters, a very important subject, which hasn’t received the proper reference, and it’s good that it was brought over to the “surgery table”…

Article of Attorney Sivan is Cited by the Israeli Supreme Court

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January 2011: The Israeli Supreme Court has cited the article of Adv. Yossi Sivan and Adv. Amir Fridman regarding assessments of damages in patent cases.

The supreme Court ruled that it may consider the situation of both the plaintiff and the defendant in assessment of damages of patent infringement.

See Gidon Rottenberg and Developed Researches for Irrigation Products Inc. v. Elgo Irrigation Ltd. Case Appeal no. 2634/09 the Supreme Court.

Article of Attorney Sivan on Business Method Patents is Cited by the Israeli Patent Registrar

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September 2009: The Article: “The Protection of Business Methods Patents in the Internet”(2004) by Adv Sivan and Adv. Karniel was quoted by the Israeli Patent Registrar in a precedent decision denying the patentability of a business methods patent in Israel.

The Patent Register has ruled that a business method invention in Israel is not considered to be an invention in a “technology field” as required by law, but only as an economic or commercial field, therefore out of the scope of Article 3 of the Patent Act. Therfore, business methods per se can not be ptented in israel.

Representing Successfully Beverly Hills Polo Club Internatioanl Fashion Brand in a Trademark Case

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Adv. Sivan has represented successfully the famous American brand BEVERLY HILLS POLO CLUB in a case of alleged trademark infringement and passing of against two different local importers concerning two different confusingly similar marks.

The District Court of Tel aviv has issued a Temporary injunction against the importers and eventually the case was settled in favor of BEVERLY HILLS POLO CLUB, in which a permanent injunction was granted, with no need of managing separate opposition procedures.

Successfully Represented the Famous Baby Bag Company GITTABAGS against Philips – Avent in a Passing Off case

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Adv. Sivan represented the well known Baby bag designer GITTA BAGS in a case of alleged registered design infringement and passing off against local companies together with Philips Electronics – Avent.

The District Court accepted the motion to serve the statment of claims to Philips Electronics – Avent filed by Adv. Sivan and ruled in a precedent decision that a trademark owner may be liable, if he doesn’t prevent the ongoing use of his trademark on a product which allegedly infringes the rights of others, even if the use of his trademark is without his permission (adv. Sivan was at that time an associate at Furth Wilenski Mizrhachi Knaani Law Office).

Eventually the case was settled.