Court gives the OK to parallel importers – but use trademarks in moderation

On 31st July 2012 the Tel Aviv District Court ruled in favour of the Tommy Hilfiger Group, one of the world’s leading fashion companies. Tommy Hilfiger and Sakal, Hilfiger’s exclusive Israeli distributor, brought suit against Machsan Hayevuan and its owner, Elad Suissa, for breach of the rights under the TOMMY HILFIGER trademark (Tommy Hilfiger Licensing LLC v Elad Suissa, Civ Act 11296-09-10 (Dis Ct, Tel Aviv)).

Machsan Hayevuan, founded in 2008, is a store located in Bnei Brak, a city close to Tel Aviv, which sells goods from well-known brand names such as Tommy Hilfiger and Ralph Lauren at a fraction of the usual price. Suissa was able to do this by parallel importing original goods from foreign retailers which were looking to get rid of old stock.

The court decided that although there was no issue with Suissa's parallel importation, his conduct violated Tommy Hilfiger's trademark rights. The court agreed with Tommy Hilfiger’s claim that the defendant was guilty of false advertising and unjust enrichment.

According to Israeli common law, parallel importing is considered fair competition and therefore permissible. Accordingly, the defendant’s right to import and sell genuine Tommy Hilfiger goods was not challenged in this case. Rather, the question was whether the defendant exercised reasonable and proper use of Tommy Hilfiger’s trademark rights or whether he went “overboard”. Israeli trademark law forbids a party from using a trademark right without explicit consent by the owner. As an exception to the rule, Section 47 of the Trademark Ordinance provides that the registration of a trademark shall not prevent the use of that trademark by someone else as long as the usage refers to the actual goods for which the trademark is registered. In other words, it is permitted for a party to advertise that its store sells, for example, Tommy Hilfiger products, as long as it is referring to the genuine product and the use of the trademark is done within reason. The idea is to preserve a proper balance between maintaining an owner’s exclusive rights to its mark and the public interest in fair competition. This balance becomes beneficial to the public if boundaries are imposed on a party's use of a mark owned by another, avoiding consumer confusion as to the source of the goods or services provided.

In past rulings the Israeli courts have established three main conditions for determining whether the use of a mark owned by another was considered within the boundary of reason:

• Is the use of the trademark necessary?
• Is the use of the trademark excessive for the purposes of describing the product? 
• Is the use of the trademark likely to deceive customers?

In this case, the court concluded that only the first condition was fulfilled – namely, that the defendant’s use of the trademark was necessary for recognition purposes. However, the court found that the second and third conditions were not satisfied for the following reasons. The court found that the defendant’s extensive, disproportionate and unwarranted use of Tommy Hilfiger’s trademark on its billboards, brochures and website and during interviews exceeded reasonable use. The defendant had initially and until February 2010 used the name “Machsan Hayevuan – Tommy Hilfiger”. Its website used the domain name 'www.tommy4less.co.il', which included the use of “tommy”, implying reduced costs. Suissa even went so far as to paint the roof of the store to resemble the Tommy Hilfiger logo. In much of this use there was no indication that the store dealt with Hilfiger products by way of parallel importation. The court found this widespread use of the TOMMY HILFIGER trademark to go well beyond reasonable use, and deemed that the defendant’s purpose behind this use was personal advertisement and gain by way of free riding on the well-established reputation of the mark. The court found the defendant’s domain name to be misleading to the public, giving the impression to buyers that they were dealing with an official Tommy Hilfiger distributor and not with a parallel importer.

The court issued an injunction against the defendant’s use of the domain name 'www.tommy4less.co.il', as well as against the extent of the use of the TOMMY HILFIGER trademark on its website and advertisements. The court also imposed a fine of IS457,500 to be paid to Tommy Hilfiger.

The ruling is a signal to all parallel importers in Israel to review their current practice carefully and to consider whether they are maintaining the proper balance between fair use of their marketed goods and not infringing IP rights. Businesses must be aware of the conditions set out by the Israeli court for determining whether the use of another party's IP rights is within reason. However, the decision is good news for foreign brand owners which might consider legal action against parallel importers that use their trademarks “without moderation”. 

Suissa has recently filed an appeal to the Supreme Court against the decision.