The growing spread of the free rider phenomenon – namely unauthorized resellers who exploit the reputation and investments made by brands and their authorized distributors – requires brand owners to seek effective protection to safeguard their selective distribution networks.
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The free rider phenomenon occurs when economic operators outside a selective distribution network manage to obtain and subsequently resell on the market genuine products of a luxury or prestige brand, thereby benefiting from the investments made by the producer and authorized distributors – in advertising, training and sales experience – without bearing the related costs.
This represents a form of parasitic competition, which risks damaging the reputation of the trademark and undermining the balance of the distribution system.
At European level, the principle of trademark exhaustion (Article 15 of Regulation (EU) 2017/1001) prevents the trademark owner from opposing the resale of products that have already been lawfully placed on the market, except – by way of exception – for “legitimate reasons”.
In this context, such legitimate reasons include damage to the reputation of the trademark or the unfair advantage derived by the free rider from the brand’s reputation and distinctiveness.
In recent years, Italian case law, aligning with the decisions of the Court of Justice of the European Union, has consolidated an approach favorable to brand protection, in line with the landmark Dior/Evora and Copad/Dior rulings.
Courts have recognized that the sale of luxury or prestige products outside a selective distribution network, namely by free riders, may amount to unlawful conduct and cause damage where it compromises the brand’s image.
The Italian Supreme Courtand several Italian courts (including Milan, Turin and Rome) have reaffirmed that the exception to the exhaustion principle applies where:
• a valid selective distribution network exists, lawfully prohibiting out-of-network sales;
• the trademark owner monitors and protects the network;
• the free rider is aware of the network’s existence; and
• the unauthorized resale damages the reputation of the trademark.
Damage to reputation lies at the core of judicial assessment. Courts examine whether – in the specific circumstances – the presentation and sale of the product by the free rider, for instance alongside lower-quality items or on poorly curated online platforms, are inconsistent with the standards imposed within the selective network.
A recent case before the Milan Court is emblematic: the unauthorized sale of luxury perfumes by a well-known brand through an Italian retail chain specializing in household and personal care products was held to be detrimental to the brand’s prestige and to the aura of luxury associated with it, owing to the way the products were displayed and marketed. The court therefore ordered an immediate injunction against further sales.
Beyond trademark infringement, a free rider’s conduct may also constitute unfair competition, as it unlawfully exploits the economic results of the authorized network.
In practical terms, brands have several possible avenues of action, though interim measures are often sought to obtain an immediate injunction and, where appropriate, the seizure of the infringing goods.
In conclusion, effective protection against free riders requires a selective distribution system based on objective, proportionate and non-discriminatory criteria (Regulation (EU) 2022/720).
Only a properly structured and legitimate network allows brand owners to oppose unauthorized sales and safeguard the integrity and value of the trademark.
