1) Can exhaustion of trade mark rights result from any of the following?

a) an act involving the transfer of ownership of goods bearing the trade mark, e.g. the sale of the good, donation or exchange agreement;

b) an act that does not involve a transfer of ownership but transfers the right to dispose of the goods, provided the trade mark holder receives remuneration reflecting the economic value of the goods, e.g. rental or lease;

c) an act such as placing the goods in the possession of a third party, where the third party does not have independent authority to dispose of the goods, e.g. where the goods are sold on consignment, or there is a retention of title clause over the goods until payment is made in full.

In Switzerland, the doctrine of trade mark exhaustion is based on case law and not governed by statutory provisions. Under applicable Swiss jurisprudence, trade mark exhaustion occurs once a product item bearing the trade mark has been placed on the market with the consent of the trade mark owner (FSC​¹ 122 III 469, cons. 5e – Chanel I). A product item is considered as placed on the market when the seller permanently transfers legal control over it to the purchaser (Marbach, SIWR III/1, 2nd edn., 2009, para. 1537; BSK -Isler, 3rd edn., 2016, Art. 13 N 68), thereby realizing the economic value of the trade mark (SHK-MSchG-Thouvenin/Dorigo, 2nd edn., 2017, Art. 13 N 103). The decisive factor is the granting of ownership or at least a proprietary-like legal position, which entails the definitive relinquishment of control over the specific item (BSK-MSchG-Isler, op. cit., Art. 13 N 68). It is also recognized that internal transfers within a corporate group do not result in exhaustion, even if they are formally based on a sales transaction (Marbach, op. cit., para. 1537).

In transactions involving the transfer of ownership of trade marked goods (Scenario 1.a), trade mark rights are exhausted under Swiss law. This applies to sales, donations, and barter agreements, provided that the goods were placed on the market with the trade mark owner’s consent.

In transactions involving economic compensation without a transfer of ownership (Scenario 1.b), trade mark rights are generally not exhausted. Since the transfer of ownership is a prerequisite for exhaustion, rentals or leasing agreements typically do not lead to the exhaustion of trade mark rights. Exceptions apply in special cases where a proprietary-like legal position is granted. For instance, the Cantonal Court of Zug held that a copyright distribution right was exhausted in the case of licensing a computer program for an indefinite period against a one-time license fee (Cantonal Court Zug, sic! 2012, 99, 104 f. – Gebrauchtsoftware).

In transactions where goods are handed over to third parties without transferring an independent right of control (Scenario 1.c), trade mark rights are generally not exhausted, since the transfer of legal control is a prerequisite for exhaustion. However, special circumstances may also justify an exception where a proprietary-like legal position is conferred.

2) Can exhaustion of trade mark rights be caused by any of the following?

a) a contract of sale,

b) a contract of sale with an explicit reservation of ownership,

c) a contract of cross-border sale within a business concern,

d) an exchange agreement,

e) a donation agreement,

f) a distribution agreement,

g) a licence agreement,

h) a rental agreement,

i) a lease agreement,

j) a leasing contract,

k) handing over of goods to a forwarder, carrier, agent,

l) transit of goods,

m) other, please clarify.

In application of the aforementioned principles, the following transactions generally trigger exhaustion:

– a contract of sale,

– an exchange agreement,

– a donation agreement,

– a distribution agreement.

On the other hand, the following transactions generally do not trigger exhaustion, as they usually do not grant ownership rights or at least a proprietary-like legal position, or the transaction merely takes place within the same corporate group:

– a contract of sale with an explicit reservation of ownership,

– a contract of cross-border sale within a business concern,

– a licence agreement,

– a rental agreement,

– a lease agreement,

– a leasing contract,

– handing over of goods to a forwarder, carrier, agent,

– transit of goods.

3) Which of the following conditions must be met for the trade mark right to be exhausted when goods are put into the market?

a) goods are put into the market exclusively by the trade mark holder or with its consent;

b) goods are put into the market by an entity having a business relationship with the trade mark holder even without the trade mark holder’s consent;

c) goods are put into the market by the licensee or sublicensee even without the trade mark holder’s consent.

Pursuant to Swiss jurisprudence, the exhaustion of trade mark rights requires that the product item bearing the trade mark has been put on the market by the trade mark owner or with its consent.

According to the Swiss Federal Supreme Court, for exhaustion to occur, it is sufficient if the product item has been put on the market by an undertaking affiliated with the trade mark owner or with the consent of such an undertaking if the trade mark proprietor and this undertaking have organized themselves for the purpose of exploiting the trade mark rights internationally (FSC 4C.357/2001 dated 11 April 2002, cons. 6.1/6.2 – KWC). The Swiss Federal Supreme Court left the question open as to whether the putting on the market by a foreign group company can also be attributed to the trade mark owner if the foreign product differs from the product marketed under the Swiss trade mark (FSC 122 III 469, cons. 5h – Chanel I; FSC 4C.357/2001 dated 11 April 2002, cons. 7.1 – KWC). According to opinions in the legal doctrine, the occurrence of exhaustion in this case depends on whether the placing on the market by a foreign group company is attributable to the domestic trade mark owner. This – so the doctrine – applies without further ado if the Swiss and foreign trade marks are uniformly registered in the name of the parent company which licenses them to its subsidiaries, but also if there is already uniform control by the parent company. If, however, there is no effective possibility of control, it is not justified to attribute to the owner of the Swiss trade mark the consent of a foreign company associated with it (see SHK-Thouvenin/Dorigo, op. cit., Art. 13 N 109).

With regard to licensees or sublicensees, the consent requirement is fulfilled for goods that have been lawfully placed on the market under a license from the trade mark owner. The trade mark owner’s consent to placing the licensed object on the market, or to the licensee placing the goods bearing the trade mark on the market, is decisive (SHK-Thouvenin/Dorigo, op. cit, Art. 13 N 106). However, this requires that the licensee does not reproduce the trade mark on the licensed object in a modified form and does not use it in connection with products other than the licensed items.

4) What is required regarding the trade mark holder’s consent to exhaust the trade mark rights?

a) the consent must be expressed in a manner which unequivocally demonstrates the trade mark holder’s intention to place the goods on the market in the territory concerned;

b) the consent may be implied, but this does not allow a presumption of the existence of consent, e.g. it cannot be inferred from silence;

c) the consent must exist at the time of putting the goods into the market;

d) the consent may be expressed a posteriori.

The trade mark owner’s consent can be given expressly or impliedly. However, implied consent can only be assumed if it is clear from the circumstances that the trade mark owner has waived the enforcement of its exclusive right to place the trade mark on the market for the first time (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 105).

Swiss jurisprudence is silent on the matter of a posteriori consent. Expressing consent a posteriori should, however, be possible, at least there are no evident reasons why it should not be possible.

5) Can contractual agreements or practices override the principle of exhaustion of trade mark rights?

a) No, contractual agreements or practices cannot override the principle of exhaustion of trade mark rights.

b) Yes, through explicit contractual provisions (e.g., a clause explicitly stating «no exhaustion applies»).

c) Yes, by indirect mechanisms, such as structuring the transaction as a service agreement rather than a sale.

d) Yes, by including explicit restrictions on the product itself (e.g., labeling it «not for resale»).

e) Other, please clarify.

The principle of exhaustion is of a mandatory nature. Contractual agreements can therefore not override this principle. Contractual restrictions which the trade mark owner imposes on its distribution partners with regard to resale have only contractual effects inter partes, but not effects under trade mark law.

However, with respect to famous trade marks within the meaning of Art. 15 of the Swiss Trade Mark Protection Act (TmPA), defence claims may arise under trade mark law as well as under the Unfair Competition Act (UCA) where the use of such trade marks harms or exploits the reputation of such marks. Such defence claims are not rooted in, and do not change the application of, the principle of exhaustion, but have a different basis.

According to legal doctrine, it is disputed whether the principle of exhaustion applies to goods only, or also to services. The prevailing opinion seems to follow the former opinion. Service agreements are therefore theoretically not subject to exhaustion. However, the sale of goods cannot be disguised as a service simply by having it formally conducted under a service agreement.

6) What types of reasons may be deemed legitimate for prohibiting the use of a trade mark in relation to goods subject to exhaustion of trade mark rights?

If goods are acquired by third parties after being placed on the market by the trade mark owner and the product-specific properties and characteristics are subsequently significantly changed, their placing on the market under the trade mark requires the trade mark owner’s consent again; the principle of exhaustion no longer applies to items that have been significantly changed in their product-specific properties and characteristics (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 117).

a) alteration or impairment of goods

The alteration or impairment of goods is a legitimate reason for prohibiting the use of a trade mark in relation to goods subject to exhaustion of trade mark rights, provided the alteration or impairment is significant and affects the product-specific properties and characteristics of the product items.

b) harm to brand reputation

According to the applicable case law, changes to the reputation or image of the trade mark, i.e. harm to brand reputation, resulting from the distribution of goods that have been put on the market by the trade mark holder or with its consent do not affect product-specific characteristics of the respective goods, and therefore the trade mark holder cannot prevent such changes on the basis of its trade mark rights (FSC 4C.354/1999 dated 12 January 2000, cons. 2d – Chanel IV). However, in the event of harm to brand reputation, the trade mark owner may be entitled to defence claims under the UCA or, in the case of famous trade marks, under Art. 15 TmPA.

c) risk of consumer confusion

In principle, it is assumed that the origin and distinctive function of the trade mark is not impaired by the resale of original goods that have been placed on the market with the consent of the trade mark owner. With regard to resale of original goods, a risk of consumer confusion is therefore in principle ruled out. Case law grants the reseller the right to use the trade mark in advertising to the extent necessary for the distribution of the goods, but only in a way that it creates a sufficient connection to its own offer (FSC 4C.354/1999 dated 12 January 2000, cons. 2d – Chanel IV). General advertising of the trade mark is inadmissible (BGE 128 III 146, cons. 2b/bb – VW/Audi).

d) deceptive marketing practices

Deceptive marketing practices are generally not treated as exceptions to the principle of exhaustion, rather such practices qualify as an offence against the UCA (FSC 4C.354/1999 dated 12 January 2000, cons. 2d – Chanel IV; BGE 128 III 146, cons. 2b/bb, 150 – VW/Audi; SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 115)

e) repackaging without notice

Changes to the packaging are to be assessed under the same criteria as changes to the goods themselves, provided that the packaging is an essential feature of the specific goods (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 121). The removal or obliteration of manufacturing and control numbers is generally not yet considered a significant change of product-specific properties and characteristics (FSC 122 III 469, cons. 10a – Chanel I; FSC 114 II 91, cons. 5a – Dior). Repackaging without notifying the trade mark owner is therefore not prohibited in principle in Switzerland. With regards to the repackaging of pharmaceuticals, the trade mark owner may not oppose repackaging if it is necessary to enable the marketing of the products on the Swiss market. However, with regards to repackaging of pharmaceuticals it is at least partially required by Swiss legal doctrine that the trade mark owner is (amongst other things) informed in advance of the intention to repackage the pharmaceutical products (see SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 122, with reference to ECJ, GRUR 2009, 154 – Zovirx; ECJ, GRUR, 2007, 586 – Boehringer Ingelheim et al.).

f) defects in goods

According to one view in the doctrine, inferior quality or a defect of a good is not a reason for an exception to exhaustion. Defective goods or goods of inferior quality, which have been placed on the market in this condition by the trade mark holder or with its consent, are not deemed a legitimate reason for prohibiting the use of a trade mark in relation to such goods. However, another view in the Swiss legal doctrine demands an exception to the principle of international exhaustion for parallel imports of goods that differ in quality and composition from the goods marketed in Switzerland (Marbach, SIWR III/1, op. cit., para. 1548). The FSC has so far left open the question of whether international exhaustion also applies to differences in quality (FSC 122 III 469, cons. 5 h) – Chanel I; FSC 4C.357/2001 dated 11 April 2002, cons. 7.1 – KWC). The Commercial Court of St. Gallen has affirmed an exception to the principle of exhaustion if the lapse of time has led to a significant deterioration in the quality of perishable goods (see HGer St. Gallen, sic! 2010, 789, 793 – Refoderm; SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 120).

g) economic reasons, such as maintaining higher prices in certain markets

In light of the applicability of the principle of international exhaustion in Switzerland (BGE 122 III 469 – Chanel I), economic reasons, such as maintaining higher prices in certain markets, do not justify an exception to the principle of exhaustion. Some scholars would allow an exception to the principle of international exhaustion in case of foreign interventions in economic freedom, namely in regulated markets (Marbach, SIWR III/1, op. cit., para. 1552). Another view in the doctrine rejects this opinion on the grounds that price differences do not impair the origin and distinctive function of the trade mark (BSK-Isler, op. cit., Art. 13 N 81; SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 130 et seq.).

h) trade mark holder’s subjective preferences about who resells their goods;

The trade mark holder’s subjective preferences about who resells its goods is not a legitimate reason for prohibiting the use of a trade mark in relation to goods subject to exhaustion. From a Swiss legal perspective, contractual agreements cannot override the principle of exhaustion (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 116).

i) other, please clarify.

7) Under what circumstances can a trade mark holder oppose the refurbishment, disassembly, refilling, or subsequent resale of trade marked goods when trade mark rights have been exhausted?

a) alteration or impairment of goods,

b) harm to brand reputation,

c) risk of consumer confusion,

d) deceptive marketing practices,

e) repackaging without notice,

f) defects in goods,

g) economic reasons, such as maintaining higher prices in certain markets,

h) trade mark holder’s subjective preferences about who resells their goods,

i) other, please clarify.

With regard to refurbishment, disassembly, refilling and the subsequent resale of trade marked goods, the same principles apply as previously described under point 6 above (regarding categories a-h), see answers under point 6 above). The principle of exhaustion no longer applies if the specific goods have been significantly altered in their product-specific characteristics as a result of refurbishment, disassembly or refilling. When refilling empty packaging, a significant change of product-specific characteristics will generally be assumed. On the other hand, no essential product-specific characteristics changes to a product occur in principle in the case of normal maintenance and repair works (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 119).

The FSC (FSC 150 III 188, Rolex v Artisans de Genève) recently ruled that the personalization of branded watches and the affixing of one’s own trade marks to these modified watches (co-branding) without the consent of the trade mark owner constitutes an infringement of trade mark rights if these watches are subsequently sold. On the other hand, the FSC found the customization of watches on behalf of a private owner to be permissible; however, it did not base this decision on the principle of exhaustion, but rather on the consideration that the use of the trade mark in this second scenario (customization of watches on behalf of a private owner) does not qualify as a commercial use of the trade mark by the customizing company, but only a private (and hence lawful) use of the trade mark and the branded product by the private owner. Whether this decision is dogmatically correct is controversial, especially as it narrows the scope of trade mark rights very significantly. The decision is also controversial in light of the fact that the trade mark affected in this case qualifies as famous trade mark (Rolex) that is entitled to extended protection against reputation exploitation and dilution under Swiss law (cf. Art. 15 TmPA).

8) Under what circumstances can a trade mark holder oppose the debranding, rebranding, cobranding, or subsequent resale of trade marked goods when trade mark rights have been exhausted?

In principle, alteration of essential characteristics of branded goods can only be prevented by the trade mark holder if the altered goods are resold under the original trade mark (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 124). Swiss doctrine and – according to a recent decision in the ‹Rolex v Artisans de Genève› case – also the FSC hold that the trade mark holder has no right to demand that the goods continue to be marketed under its trade mark after they have been placed on the market for the first time. Rather, the trade mark owner must accept the removal of its trade mark (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 124; BSK-Isler, op. cit., Art. 13 N 63; Marbach SIWR III/1, op. cit., para. 1551; in the negative: CR-PI-Gilliéron, Art. 13 N 3 et seq.; FSC 150 III 188, cons. 5.7.4 – Rolex v Artisans de Genève). It is assumed that after removal of the trade mark, the goods are no longer associated with the trade mark owner and may therefore also be marketed in a modified form.

On the other hand, the incomplete removal of or damage to a trade mark constitutes trade mark infringement as this always alters an essential characteristic of the goods (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 124; BSK-Isler, op. cit., Art. 13 N 63).

In the case of co-branding, the original trade mark is not removed; as a consequence, co-branding as such may change the product in its product-specific characteristics, and hence, the trade mark owner in principle does not have to accept the use of its trade mark on the modified product.

Debranding, rebranding and cobranding will often be problematic under the UCA (Art. 2, Art. 3 para. 1 lit. b, lit. d and lit. e UCA, i.e. by misleading customers, creating a risk of confusion and exploiting reputation).

Regarding categories a-h, see answers under point 6 above.

9) Can considerations related to the green and sustainable economy influence the assessment of legitimate reasons for altering the condition of goods? If so, in what circumstances?

The extent to which considerations relating to the green and sustainable economy can influence the assessment of legitimate reasons for changing the condition of goods is neither regulated by law nor has it been decided by case law in Switzerland. The current approach in Switzerland is that the principle of exhaustion no longer applies if the product-specific characteristics of a good have been significantly modified, resulting in the creation of a new good. The motive behind the modification of such goods is, in principle, irrelevant, i.e. it does not matter whether the modifications are based on sustainability considerations or other reasons.

However, the possibility of including such reasons in a decision on whether a specific modification of a trade marked product is permissible without the consent of the trade mark proprietor seems not to be excluded from the outset. The purpose of the principle of exhaustion is, amongst other things, to strike a balance between the interests of the trade mark holder in the continued control of the goods marketed under its trade mark and the purchaser’s right of ownership of the specific copy of the goods as well as the interest in the free trade of goods protected by economic freedom (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 101). It is possible that other aspects, such as (a public interest in) sustainability, may also be taken into account in future when weighing up different interests.

The question of whether an exception to the principle of exhaustion applies, i.e. whether product-specific properties and characteristics have been changed, is based on the perspective of the relevant public (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 117). It is conceivable that the perception of the public with regard to the recycling, upcycling, etc. of goods will change in the future, i.e. that altering the condition of goods is not necessarily assumed to impair the origin and distinctive function of the trade mark concerned, as customers are aware of the fact that recycling, upcycling, etc. is a necessary measure to mitigate the harmful effects of overproduction, etc. on the environment.

In Swiss doctrine, however, it is currently the view that, in particular, recycling involves the creation of new goods, the marketing of which requires the consent of the trade mark holder; no consent is required if parts of damaged goods are used to restore an original product (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 118 et seq.) The reuse of goods should, in any case, find its limit where the reputation of a famous trade mark is exploited and environmental and sustainability considerations are only a specious explanation; if (famous) trade marks are used in a manner that exploits their reputation and goodwill, the trade mark owner is entitled to defense claims under Art. 15 TmPA or the UCA.

a) In a situation where customers request customization of their own goods, the rights to which have been exhausted in accordance with the law, i.e. the customer has bought the goods and then approached a third party for customization.

The trade mark holder’s claims under trade mark law are limited to the commercial use and the use of the trade mark as a distinctive sign. In principle, therefore, a private individual may adapt a branded product as he or she wishes for private use; however, if the private owner has significantly changed product-specific properties and characteristics of the product, this may be problematic if the private individual subsequently resells the product, in which case the trade mark is used on the market and the trade mark owner may enforce its trade mark rights toward the private seller. The same applies if such a modified product is imported to, exported from or carried in transit through Switzerland, as these actions are explicitly excluded from permitted private use by law (Art. 13 Sec. 2^bis TmPA).

In a recent landmark decision (FSC 150 III 188 – Rolex v Artisans de Genève), the FSC has ruled that private individuals may also engage third parties acting commercially in the exercise of their private use, and it concluded from this that these third parties may consequently also provide such services commercially. Whether this decision is legally convincing is questionable, as the decision results in a very broad interpretation of permitted private use, which severely restricts trade mark owners’ rights. It is yet to be seen whether this case law will be confirmed in further judgements.

b) In a situation where the commercialization of the customized goods, the rights to which have been exhausted in accordance with the law, occurs after modifications are made to the goods, and the modifications were not made due to a customer’s request, but as a business model, i.e. a business buys several of the goods, modifies them, and then sells the modified goods to the public.

In the leading case Rolex v Artisans de Genève, the FSC found the «customization» of branded goods and the subsequent sale to be inadmissible; the Court took an undifferentiated approach here too and found such a business model to be unlawful in general. However, a case-by-case assessment is required in every case, i.e. the question of whether an offer is permissible in light of the principle of exhaustion must be examined on an individual basis. One of the questions that has to be considered is whether the product-specific characteristics of the goods concerned have been significantly changed. If this is the case, further marketing of these products under the trade mark is not permitted without the consent of the trade mark holder, regardless of whether the altered goods are sold as such or whether the trade mark is commercially used to provide services to amend branded goods at the customer’s request. The relevant question is whether a trade mark is used commercially as a trade mark in connection with the modified goods or the modification of the goods

c) Other, please clarify.

10) Which party bears the burden of proof to demonstrate that the trade mark rights were exhausted, solely the party invoking exhaustion of trade mark rights, or generally the party relying on the trade mark rights?

As a general rule of Swiss law, the burden of proving the existence of an alleged fact lies with the party who derives rights from that fact (Art. 8 of the Swiss Civil Code). Consequently, the burden of proof to demonstrate that the trade mark rights were exhausted generally lies with the party invoking exhaustion of trade mark rights. Normally, this is the party that is accused of infringing trade mark rights, e.g. a trader or distributor of trade marked goods (see BSK-Isler, op. cit. Art. 13 N 82).

11) Can the burden of proof shift to the other party, and if so, under what circumstances?

Swiss case law on the allocation of the burden of proof is rather slim. However, Swiss doctrine and jurisprudence tend to assume that a shift in the burden of proof may be justified in some cases, especially if it is difficult for the alleged infringer to prove that the goods in questions were put on the market by the trade mark owner or with its consent (see SHK-Thouvenin/Dorigo, op. cit. Art. 13 N 141; Commercial Court of the Canton of Berne, in sic! 10/2014, p. 634 et seq.). Furthermore, according to Swiss doctrine and jurisprudence, it may generally be assumed that the goods circulating on the market were put there with the trade mark owner’s consent. Therefore, it may initially be up to the trade mark owner to demonstrate the factual circumstances that make the origin of the goods appear doubtful before the infringing party has to prove exhaustion of the trade mark rights (see BSK-Isler, op. cit., Art. 13 N 84). In this sense, the FSC, for example, held that as a result of the general admissibility of parallel imports from a selective distribution system it was up to the trade mark owner to demonstrate facts that indicate that the goods in question were infringing his trade mark rights (FSC 4C.357/2001 dated 11 April 2002, cons. 6.3 – KWC).

17) Should exhaustion of trade mark rights result from any of the following?

a) an act involving the transfer of ownership of goods bearing the trade mark, e.g. the sale of the good, donation or exchange agreement;

YES.

b) an act that does not involve a transfer of ownership but transfers the right to dispose of the goods, provided the trade mark holder receives remuneration reflecting the economic value of the goods, e.g. rental or lease;

NO. Trade mark exhaustion should occur when the trade mark owner relinquishes its legal power of disposal – either for a consideration or free of charge.

c) an act such as placing the goods in the possession of a third party, where the third party does not have independent authority to dispose of the goods, e.g. where the goods are sold on consignment, or there is a retention of title clause over the goods until payment is made in full.

NO. (See reasoning 17 b] above]. The doctrine of trade mark exhaustion is mandatory under Swiss law and cannot be prevented by contractual arrangements or retention of title.

18) Should exhaustion of the trade mark rights be caused by any of the following?

a) a contract of sale,

b) a contract of sale with an explicit reservation of ownership,

c) a contract of cross-border sale within a business concern,

d) an exchange agreement,

e) a donation agreement,

f) a distribution agreement,

g) a licence agreement,

h) a rental agreement,

i) a lease agreement,

j) a leasing contract,

k) handing over of goods to a forwarder, carrier, agent,

l) transit of goods,

m) other, please clarify.

The exhaustion of trade mark rights should be subject to a wilful/intended abandonment of the legal power of disposal. Under applicable Swiss jurisprudence, such disposal of legal power can only be established with (a) a contract of sales, (d) an exchange agreement, (e) a donation agreement, or (f) a distribution agreement.

19) Which of the following conditions must be met for the trade mark right to be exhausted when goods are put into the market?

a) goods should be put into the market exclusively by the trade mark holder or with its consent

Yes. The principle of exhaustion of trade mark rights only applies if the branded goods are put on the market for the first time by the trade mark holder or by a third party with the trade mark holder’s consent (SHK-Thouvenin/Dorigo, op. cit. Art. 13 N 105);

b) goods should be put into the market by an entity having a business relationship with the trade mark holder even without the trade mark holder’s consent;

Yes. Placing the goods on the market by a company affiliated with the trade mark holder is deemed equivalent to placing the goods on the market by or with the trade mark holder’s consent, if the trade mark holder or the affiliated company have organized themselves on an international level for the purpose of exploiting the trade mark rights (FSC 122 III 469, cons. 5e – Chanel I);

c) goods should be put into the market by the licensee or sublicensee even without the trade mark holder’s consent.

For goods legally put on the market under a license from the trade mark holder, the consent requirement is fulfilled (Marbach, SIWR III/1, op. cit., para. 1538). If the licensee puts the branded goods on the market in breach of a provision of the license agreement, for example concerning the quality of the branded goods, the consent of the trade mark holder is lacking only from a contractual point of view. Since the contractual concept of consent does not coincide with the concept of consent decisive for the exhaustion, such a breach does not prevent the exhaustion effect (Dorigo, sic! 2009, 731). These legal principles also apply to the sublicensees.

20) What should be required regarding the trade mark holder’s consent to exhaust the trade mark right?

a) The consent must be expressed in a manner which unequivocally demonstrates the trade mark holder’s intention to place the goods on the market in the territory concerned;

Yes. Without the trade mark holder’s consent to the initial marketing of the branded goods, no exhaustion can come into effect. In view of the significance of its effect, namely the extinction of the exclusive right of the trade mark holder, the consent must be expressed in such a way as to indicate with certainty an intention to waive this right.

b) The consent may be implied, but this does not allow a presumption of the existence of consent, e.g. it cannot be inferred from silence;

Yes. Consent may be implied, but can only be assumed if it is clear from the indications and circumstances that the trade mark holder has waived the enforcement of its exclusive right (SHK- Thouvenin/Dorigo, op. cit., Art. 13 N 105 with reference to ECJ C-414/99 to C-416/99 N 65, 68 – Zino Davidoff and Levi Strauss).

c) The consent must exist at the time of putting the goods into the market;

Express or implied consent must exist at the time the goods are put on the market. However, the existence of implied consent can also be inferred from indications and circumstances that become apparent after the time at which the branded goods were put on the market (SHK-Thouvenin/Dorigo, op. cit., Art. 13 N 105 with reference to ECJ C-414/99 to C-416/99 N 65, 68 – Zino Davidoff and Levi Strauss).

d) The consent may be expressed a posteriori.

Applicable Swiss jurisprudence is silent on the subject matter of «a postiori consent». The Study Group, however, considers a posteriori consent as possible in light of the applicable law.

21) Should contractual agreements or practices override the principle of exhaustion of trade mark rights? If yes, which of the following:

a) No. Contractual agreements or practices should not override the principle of exhaustion of trade mark rights.

The mandatory principle of trade mark exhaustion cannot and should not be overridden by contractual arrangement or practices.

b) Through explicit contractual provisions (e.g., a clause explicitly stating «no exhaustion applies»).

Explicit contractual provisions, by stating «no exhaustion applies», are void and cannot override the principle of exhaustion of trade mark rights.

c) By indirect mechanisms, such as structuring the transaction as a service agreement rather than a sale.

The sale of goods cannot be disguised as a service simply by having the sale formally conducted under a service agreement.

d) By including explicit restrictions on the product itself (e.g., labeling it «not for resale»).

Including explicit restrictions on the product itself, for example, labeling it «not for resale», cannot override the principle of exhaustion of trade mark rights. In particular, labelling products that are put on the market by the trade mark holder or by a third party with the trade mark holder’s consent does not significantly change the product-specific properties and characteristics of these goods, which is why they are still the same original goods that were put on the market. Consequently, the functions protected under trade mark law, i.e. the functions of origin and distinguishment, are fulfilled and the principle of exhaustion of trade mark rights comes into force (Schlosser, sic! 1999, 401).

e) other, please clarify.

f) Other practices worth mentioning include the re-packaging of pharmaceuticals. The packaging of pharmaceuticals is an essential property of the product. It fulfils an important function in pharmaceuticals by informing the public about the risks, effects, and side-effects, providing instructions for use, and ensuring safe and sterile storage of the drug, whereby any alteration of this property generally constitutes a trade mark infringement (SHK-Thouvenin/Dorigo, Art. 13 N 122). However, not every re-packaging constitutes trade mark infringement. In particular, when imported from abroad, i.e. through parallel imports, such pharmaceuticals often have to be re-packaged and re-labeled. In particular, the package inserts must be included in different languages, the safety feature must be affixed to the packaging, and a «Pharmaceutical Registration Number» (Pharmazentralnummer or PZN) identifying the «pharmaceutical business» must be affixed. Consequently, the trade mark holder cannot oppose re-packaging of pharmaceuticals based on its trade mark right, and the principle of exhaustion comes into effect if this is necessary to enable the marketing of parallel imported medicinal products.

22) What types of reasons should be deemed legitimate for prohibiting the use of a trade mark in relation to goods subject to exhaustion of trade mark rights?

a) alteration or impairment of goods,

It depends on the individual case. The FSC’s recent jurisprudence (see para. 26 of the introduction) suggests that it depends on the concrete circumstances: If altered product is offered for sale under the brand, prohibition is legitimate. On the other hand, trade mark rights are considered exhausted when the owner of a product requests customization from a third party. This nuanced approach seems reasonable. For impairment, the concrete circumstances matter even more. An unchecked right to prohibit might hinder socially adequate use, such as second-hand sales, which would be an unacceptable side-effect, let alone goal. Generally, as will be seen in the following answers, many constellations that might be problematic can be handled via unfair competition law and do not require a solution via exceptions to exhaustion rules.

b) harm to brand reputation,

It depends on the individual case. The relevant criterion should be whether the acting party creates circumstances that cause harm to brand reputation – if they do not, the trade mark holder should bear the risk of such harm. The concept of an unconditional and absolute right to a perfect brand reputation would stretch the boundaries of trade mark protection too far thus putting the legitimacy of the concept of exhaustion in question.

c) risk of consumer confusion,

Yes. If a specific use of a trade mark by a third party – even though exhausted – causes a risk of consumer confusion, the trade mark holder has a justified interest to intervene. Whether causing a risk of consumer confusion merits an intervention cannot be examined solely under the premise of exhaustion either, as legal norms independent from the concept of exhaustion might prohibit causing such a risk (such as unfair competition law). On the flipside, as mentioned, the problem need not be solved by granting the trade mark holder an exception that allows it to intervene based on trade mark law, as other remedies are available.

d) deceptive marketing practices,

Yes. By definition, the use or non-use of deceptive (as compared to confusing) marketing practices is fully under the acting party’s control, which justifies holding them responsible. As in 22)c), exhaustion does not allow for deceptive use of a trade mark, as deception is also typically prohibited by other legal norms.

e) repackaging without notice,

It depends on the individual case. The trade mark holder controls packaging at first sale as a measure of brand development. Allowing repackaging under any circumstance (such as immediate repackaging in view of systematic sales) would negate this. At the same time, repackaging might be necessary under certain circumstances (e.g. if the initial packaging is missing or damaged in second-hand sales).

f) defects in goods,

It depends on the individual case. Intervention should not be possible to prevent the second-hand sale of slightly defective, but still usable goods if those defects are made transparent, as this would defeat the purpose of selling/buying at a lower price on the second-hand market, for instance. However, intervention should be possible if defects are caused systematically (be it by negligence or intention) and/or not made transparent by the seller.

g) economic reasons, such as maintaining higher prices in certain markets,

No. First sale at the desired price is a sufficient measure for brand control. Controlling pricing in the secondary market might be in conflict with the goals of antitrust law. Swiss law provides for sufficient options in specific cases (such as the «weaponizing» of dumping prices being considered unfair competition).

h) trade mark holder’s subjective preferences about who resells their goods,

No. This issue can be addressed via solid distribution systems, within the limits of antitrust law.

i) other, please clarify.

23) Under what circumstances should a trade mark holder have the right to oppose the refurbishment, disassembly, refilling, or subsequent resale of trade marked goods when trade mark rights have been exhausted?

a) alteration or impairment of goods,

See 22)a). It depends on the concrete circumstances.

b) harm to brand reputation,

See 22)b). It depends on the concrete circumstances.

c) risk of consumer confusion,

See 22)c). If the concrete use causing the risk of confusion exceeds the mere representation of the exhausted trade mark, an intervention seems justified. But this intervention need not necessarily be based on trade mark law.

d) deceptive marketing practices,

See 22)d). Deceptive marketing practices imply that a trade mark is used beyond the scope in which it is exhausted. As such, an intervention seems justified under any of the mentioned circumstances if these are considered deceptive. Again, this need not be based on trade mark law, which attenuates the necessity of solving the problem via an exception to the exhaustion principle.

e) repackaging without notice,

See 22)e). It depends on the concrete circumstances.

f) defects in goods,

See 22)f). It depends on the concrete circumstances.

g) economic reasons, such as maintaining higher prices in certain markets,

See 22)g). Maintaining higher prices should not be considered a legitimate argument for an exception to exhaustion rules.

h) trade mark holder’s subjective preferences about who resells their goods,

See 22)h). An interest in controlling who resells goods should not be considered a legitimate argument for an exception to exhaustion rules.

i) other, please clarify.

24) Under what circumstances should a trade mark holder have the right to oppose the debranding, rebranding, cobranding, or subsequent resale of trade marked goods when trade mark rights have been exhausted?

a) alteration or impairment of goods,

See 22)a). It depends on the concrete circumstances.

b) harm to brand reputation,

See 22)b). It depends on the concrete circumstances.

c) risk of consumer confusion,

See 22)c). If the concrete use causing the risk of confusion exceeds the mere representation of the exhausted trade mark, an intervention seems justified. But this intervention need not necessarily be based on trade mark law.

d) deceptive marketing practices,

See 22)d). Deceptive marketing practices imply that a trade mark is used beyond the scope in which it is exhausted. As such, an intervention seems justified under any of the mentioned circumstances if these are considered deceptive. Again, this need not be based on trade mark law, which attenuates the necessity of solving the problem via an exception to the exhaustion principle.

e) repackaging without notice,

See 22)e). It depends on the concrete circumstances.

f) defects in goods,

See 22)f). It depends on the concrete circumstances.

g) economic reasons, such as maintaining higher prices in certain markets,

See 22)g). Maintaining higher prices should not be considered a legitimate argument for an exception to exhaustion rules.

h) trade mark holder’s subjective preferences about who resells their goods,

See 22)h). An interest in controlling who resells goods should not be considered a legitimate argument for an exception to exhaustion rules.

i) other, please clarify.

25) Should considerations related to the green and sustainable economy influence the assessment of legitimate reasons for altering the condition of goods? If so, in what circumstances?

a) In a situation where customization was requested by customers on their own goods the rights to which have been exhausted in accordance with the law, i.e. the customer has bought the goods and then approached a third party for customization;

This constellation should be, and probably is, considered lawful, regardless of «green» or «sustainable» considerations, as the trade mark rights in question would clearly be considered exhausted according to the jurisprudence of the FSC discussed in para. 26 of the introduction.

b) In a situation where the commercialization of the customized goods the rights to which have been exhausted in accordance with the law, occurs after modifications are made to the goods, and the modifications were not made due to a customer request, but as a business model, i.e. a business buys several of the goods, modifies them, and then sells the modified goods to the public.

According to the jurisprudence of the FSC, the trade mark rights cannot be considered exhausted under these circumstances. The «green» or «sustainable» component does and should not change anything about this. Facilitating «green» business models via restrictions on trade mark holders when it comes to defending their trade mark against third-party use seems inappropriate.

c) Other, please clarify.

26) Which party should bear the burden of proof to demonstrate that the trade mark rights were exhausted, solely the party invoking trade mark exhaustion, or generally the party relying on the trade mark rights?

Ultimately, the allocation of the burden of proof should correspond to the result of a reasonable balance of interests between the trade mark owner, on the one hand, and the alleged infringer and the public, on the other hand. The litmus test for such balance of interests may be whether the trade mark owner should be allowed to obtain a court injunction against the distribution of original goods – namely, against the distribution outside a selective distribution system – when the distributor is in default. Accordingly, and assuming that parallel imports are to be permitted, the presumption should apply that goods on the market have been put into circulation with the consent of the trade mark owner. The trade mark owner should then bear the burden of proof for the facts that speak against exhaustion, e.g. that the goods in question are counterfeits or that they originate from an unauthorized contract manufacturer.

27) Could the burden of proof shift to the other party, and if so, under what circumstances?

If the trade mark owner succeeds in undermining the basis for the aforementioned presumption, the alleged infringer should bear the burden of proof that the goods were nevertheless placed on the market with the consent of the trade mark owner.

28) Please comment on any additional issues concerning any aspect that you consider relevant to this Study Question.

29) Please indicate which industry sector views provided by in-house counsel are included in your Group’s answers.

Food and beverage.