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5 March 2024 Customising of Luxury Goods from an Intellectual Property Perspective – second part

On 10 January 2022, we published a first blog post on customising under the title Tuning (in Particular Car Tuning) from an Intellectual Property Perspective. Two years later, namely on 19 January 2024, the Swiss Federal Court (the "Court") handed down its very first decision on customising. This decision is reason enough to publish this continuation of our 2022 blog post. 

In our first blog post on this topic, we reached the conclusion that the trademark owner should have the right to prohibit any alterations from the product specific characteristics after the trademark is affixed on their products. We concluded that the design of the product is such a specific characteristic, that any substantial change of the good's aesthetic appearance should fall within the exclusive right of the trademark owner, meaning that customising companies require the trademark owner's prior consent before customising a trademarked product, at least if the customising operation does not constitute a private use, and if the Customiser's intention is to leave the manufacturer's trademark on it.

1.    Decision 4A_171/2023 – The Facts

The relevant facts of the case decided by the Court can be summarised as follows:

A famous Swiss watchmaker (the "Watchmaker") introduced court proceedings against a Genevan company (the "Customiser") that specialises in personalising luxury watches by changing certain pieces, by giving them a new appearance and/or by modifying certain technical characteristics to make them even more exclusive, according to their clients' desires. The Customiser, if he has to remove the Watchmaker's trademark in the course of the customising process, affixes it again at the end of the process together with his own trademark.

Until 2020, the Customiser customised watches he had on stock and sold them after customising. Following an out-of-court intervention by the Watchmaker, the Customiser signed a unilateral undertaking whereby he would no longer hold watches on stock (already customised or to be customised) for sale, that he would only customise watches upon the request of watch owners, and that he would henceforth ask their clients to undertake not to resell the customised watches. In other words, from October 2020 onwards, he would only accept customising works on a mandate basis, i.e. owners of watches asking him to personalise their watches according to their personal wishes and for their own private use.

The Customiser does not have a boutique, only a workshop, and he offers and sells his services via his website. At latest from October 2020, access to that website is granted only after the website visitor acknowledges that the Customiser is an independent workshop that offers customisation services upon the client's request and only for private use, that they do not manufacture or sell watches, that they are not associated with the manufacturers of the watches they customise, and that they are not authorised by the latter to personalise their watches.

Not content by the undertaking mentioned above, the Watchmaker started court proceedings against the Customiser before the Genevan Cour de justice to enjoin him from, in particular, manufacturing and selling customised watches under the Watchmaker's trademarks. 

The Cour de justice of Geneva, in its partial decision of 9 February 2023, enjoined the Customiser:

  • From using the Watchmaker's trademarks, either by affixing or re-affixing them;
  • From using the Watchmaker's trademarks in combination or association with other signs (e.g. its own trademarks);
  • From using the Watchmaker's trademarks to offer customising services.

The Customiser appealed the decision before the Swiss Federal Court.

2.    Decision 4A_171/2023 – The Merits

The Federal Court started its analysis by drawing attention to some basic principles of trademark law which are relevant in the present dispute:

  • Trademarks are signs meant to distinguish the products and services of a company from products and services of other companies.
  • The trademark owner has the exclusive right to use the trademark for that purpose.
  • This exclusive right is limited to use in a commercial context. Private use is not covered by the exclusive right of the trademark holder.
  • Under the rule of exhaustion, the exclusive right to commercialise a trademarked good "exhausts" upon the good being legally put into circulation the first time.

The Federal Court then examined in its decision how these principles are to be applied to this case, whereby two types of business models are to be examined, namely (i) the business model where the Customiser customises watches and resells them, and (ii) the business model where the Customiser personalises watches exclusively upon their owner's request and for the latter's private use.

(i)    The Customiser Customises Watches and Resells Them

The Court acknowledged that the exclusive right to commercialise trademarked goods "exhausts" upon their first being put into the market, but also specifies that the exhaustion does not affect all exclusive rights of the trademark owner. In particular, it does not affect the right to prevent third parties from modifying the trademarked goods, which means that commercializing modified goods after their first being put into circulation is unlawful. The Court's reasoning is that the market identifies the product that bears a certain trademark with the trademark owner which is why the latter must be able to oppose the resale of goods that feature its trademark and which have been modified without their approval. This means that any third party who wishes to resell a customised good that bears the manufacturer's trademark must either obtain the trademark owner's consent or remove the trademark from the customised good.

In light of the factual situation, the Court reached the conclusion that the Customiser ceased to follow this business model in 2020, and the Watchmaker did not succeed in demonstrating the opposite.

(ii)    The Customiser Personalises Watches for their Owner's own Private Use

Contrary to the first business model, the Court stated that the activity that consists of providing clients with customising services on their own watches is in principle lawful, to the extent the Customiser acts upon the watch owner's request and the customised watch is restituted to its owner without the watch being put (again) into circulation. This implies that the private use exception can, according to the Court, be called upon even where the relevant works are performed by a third party that commercially provides such type of services.

The Court's reasoning is based on the principle that the main function of a trademark is to distinguish the goods of one company from those of other companies, to allow the consumer to find on the market a product he appreciates. Therefore, for a trademark use to be commercial in nature, it is necessary, from the Court's perspective, that such use be market-oriented. As long as the trademark use is limited to private purposes, there is no risk of confusion because the item does not appear on the market and the main function of the trademark is not affected.

Besides this, the Court decided that it did not matter whether the Customiser had to remove and re-affix the Watchmaker's trademark(s) (even at another position) during the customisation process and/or to add its own distinctive signs next to the Watchmaker's. As long as this work is carried out within the context of private use as described above, this is not problematic, according to the Court.

Also, whether the Watchmaker's trademark is a famous trademark or not does not matter, as the private use exception applies irrespective of the recognition level of the trademark.

(iii)     The Customiser's Online Presence and Publicity

The Watchmaker had also raised concerns about the Customiser's online presence and publicity, under both trademark and  unfair competition law, alleging in particular that the Customiser's publicity exploited the Watchmaker's reputation, caused a risk of confusion, etc. The Court reached the conclusion that the first instance had omitted to consider several facts that had been regularly alleged by the Customiser. As regards the online presence and the publicity of the Customiser, the Court therefore cancelled the decision of the first instance but, rather than handing down a new decision on this aspect, remanded the matter back to the first instance to properly establish the relevant facts, and then issue a new decision.

3.    Conclusion

The decision of the Federal Court is particularly interesting as it decides on two issues that were previously unsettled under Swiss law, namely whether it was lawful for a business to buy luxury goods, to customise them and to resell them, on the one hand, and whether the customising of a luxury good by its owner was still covered by private use if a third party business did the customising work. 

The decision brings welcome clarifications to a sector that had so far operated in a grey area where the limits of lawfulness were uncertain.

Author: Lorenz Ehrler