On July 5, 2022, the Israel Supreme Court in CA 7934/20 Jafora Tabori Ltd. v. Ben Shlush Import and Export Ltd. ruled that a parallel importer  of “Schweppes” soft drinks, which were manufactured in Ukraine by the trademark owner of the mark “Schweppes” in Ukraine, infringes the trademark “Schweppes” registered in Israel by the Israeli manufacturer, who is not affiliated or otherwise associated with the Ukrainian trademark owner. This new holding narrows the scope of permitted parallel imports, contrary to previous Supreme Court holdings, including CA 7629/12 Elad Menachem Suissa v. Tommy Hilfiger Licensing LLC (given November 16, 2014) (the “Hilfiger Case”)

The appellant is a manufacturer of soft drinks, some of which are sold under its “Schweppes” trademark. The respondent is a parallel importer of food and drink products into Israel, including soft drinks bearing the “Schweppes” mark. These soft drinks are originally acquired from European Refreshments Limited, a Ukrainian manufacturer of soft drinks, which is a subsidiary of the Coca-Cola Company (hereinafter, “Coca-Cola”), and which owns the trademark “Schweppes” in Ukraine. Both the appellant, in Israel, and Coca-Cola, in Ukraine, acquired their local “Schweppes” trademarks from Cadbury, which sold its worldwide rights in the mark in 2006.

The respondent, which had received a warning letter from the appellant, petitioned the District Court for a declarative judgment stating that the importation of “Schweppes” soda from Ukraine was legal, and that it did not infringe the “Schweppes” mark registered in Israel. The District Court complied with this request and held that the legal doctrine applicable to parallel imports under Israeli law is the doctrine of international exhaustion, whereby the exhaustion of rights occurs upon the legal sale of the goods in the country of manufacture. The appellant appealed this decision.

The Supreme Court upheld the appeal by a majority vote (the Hon. Judge Stein and the Hon. Judge Elron), on the grounds that trademarks registered and acknowledged in countries other than Israel do not grant rights in Israel, and that an Israeli trademark grants its owner exclusivity and a unique right of use in Israel. In this regard the Court stated that “…Cadbury, which supposedly carried out the split, never owned a global trademark called “Schweppes”, but rather a large number of local trademarks… the sale of which in each separate country granted… local protection” only, and that the appellant and Coca-Cola “do not belong to any global venture named “Schweppes”.” The respondent is therefore not permitted to engage in the parallel importation of goods carrying the trademark of another party, as this damages the appellant’s right of exclusivity, the consumers’ ability to distinguish the “Schweppes” products of the appellant from those of another, and the appellant’s incentive to invest in the quality of the “Schweppes” products.

The Court thus held that parallel imports would be allowed only in one of three cases: (a) when there is no registered trademark in Israel “connected with the imported goods”; (b) when the imported goods bear a trademark registered in Israel, if the owner of that mark in the country of origin is the same as its owner in Israel; and (c) if the imported goods were originally purchased from the trademark owner in Israel, i.e. sent to another country from the factory in Israel and purchased in that country. The holding goes beyond the facts of the case at hand, which involved two unaffiliated and unrelated trademark owners-manufacturers.

The Hon. Judge Hendel (erstwhile Deputy President of the Court), in his minority opinion, objected to the categoric prohibition on the importation of “Schweppes” bottles by a small, defined set of importers, to the extent not forbidden by law, on a case by case basis, subject to a disclaimer to be affixed to each bottle whereby the imported product is not the same as the product manufactured by the appellant. Where the parallel importer has used the trademark in good faith and purchased the goods from the owner of the mark in a country other than Israel, in Judge Hendel’s view such parallel importation is protected under the “genuine use” defense. The majority rejected this approach on the grounds that it depends on personal knowledge, and that while the “Schweppes” brand indeed has a consistent image in different countries, this does not amount to protected “international goodwill”, since Cadbury had sold the registered trademark in Israel to the appellant, thus “subtracting [the territory of the State of Israel] from its international goodwill”.

This decision goes against previous holdings of the Supreme Court from as far back as the 1970s, including the Hilfiger Case. The Court distinguishes the Hilfiger Case from the present matter by asserting that the Hilfiger holding applies where the trademarks in Israel and in the country of origin of the imported goods are under the same ownership, resulting in “legitimate and desirable intra-brand competition”, rather than “external, unlawful competition”. The Hon. Judge Stein bases his reasoning on the US doctrine of parallel imports, i.e. the doctrine of national – rather than international – exhaustion, under which parallel imports into the US are only allowed when the first sale is made by the rights holder in the US or by an entity that is affiliated with or licensed by such rights holder.

Although the likelihood of the owners of international brands allowing local manufacturers or importers in Israel to register the local trademarks for those brands in their own names is low, and while we believe that the prohibition would ultimately not be applicable where the owner of the mark in the jurisdiction from which the goods are imported has a corporate or contractual connection with the owner of the Israeli mark, this decision is likely to result in significant difficulties for parallel importers in their dealings with the Customs Authority.

Karen Elburg | Partner
Head of Intellectual Property Department
elburgk@herzoglaw.co.il

Adar Bengom | Partner
Intellectual Property Department
bengoma@herzoglaw.co.il