UK: Court of Appeal refers questions on parallel imports to CJEU

20 May 2013

Tim Harris

The English Court of Appeal has considered the special derogation from the normal free movement of goods rules that formed part of the accession arrangements for Poland and a number of the other countries that joined the EU in 2004, and stated that it will refer a number of questions to the CJEU.

The claimants/respondents were members of the Merck group. They included the registered proprietor and exclusive licensee of the patent and SPC to montelukast sodium, the active ingredient of a product sold by Merck under the Singulair brand for the treatment of asthma.

The defendant/appellant, Sigma, was a parallel importer of pharmaceuticals. Between June and December 2010 Sigma had imported and sold in the UK quantities of Singulair which had been put onto the market in Poland by the Merck group. Under the normal EU rules governing the free movement of goods, Merck would have exhausted its rights but it was common ground that the usual rules did not apply.

A number of the Member States that acceded to the EU in 2004 did not historically permit the patenting of pharmaceutical products (although they had permitted the patenting of processes for making such products). Although by 2004 all these accession States did permit the patenting of pharmaceutical products, there remained a number of cases where patents or SPCs had been granted for pharmaceutical products in other Member States when no such protection had been available in the accession States. It was considered that this placed innovator pharmaceutical companies at a disadvantage because they were obliged to put their products on the market in the accession States with limited patent protection and typically lower prices than in other Member States.

Therefore, a special derogation from the normal free movement of goods was agreed. This "Specific Mechanism" was set out in Annex IV, Chapter 2 to the Act of Accession and essentially provided that:

(a) The owner of a patent or SPC to a pharmaceutical product was allowed to prevent the parallel importation of that product from an accession State if, at the time of filing, it was not possible to obtain such protection in that accession State; and

(b) A person intending to import the product had to demonstrate to the relevant national authority that he had given the holder or beneficiary of the relevant patent or SPC one month's prior notification of his intention to import.

On 22 June 2009, Pharma XL, the company in the Sigma group responsible for parallel import authorisations, notified MSD, a company in the Merck group, that it intended to import Singulair from Poland. This mentioned the Specific Mechanism and asked whether Merck had any reason to object to the importation. MSD received the notification but did not reply to it.

On 14 September 2009, Pharma XL proceeded to apply to the UK's MHRA for parallel importation licences for Singulair. Pharma XL indicated that the required one month's notification under the Specific Mechanism had been given. Accordingly, the MHRA granted a parallel importation licence.

Pharma XL then wrote to MSD in order to meet the Bristol-Myers Squibb trade mark conditions for parallel imports. MSD received these letters but again did not respond to them. Merck subsequently confirmed that it had no objections to the repackaged products from a trade mark perspective.

In June 2010, Sigma began importing Singulair from Poland and selling it in the UK. It was not until December 2010 that Merck wrote to Sigma objecting to this importation and asserting infringement of its patent rights. Sigma immediately ceased further sales.

In June 2011 Merck commenced infringement proceedings. Sigma admitted that the patent and SPC were valid and the imported Singulair fell within their scope. Sigma also accepted that the Specific Mechanism was capable of applying to the situation. Sigma's primary defence was that in order for the Specific Mechanism to apply, the patent holder must demonstrate its intention to apply it and this intention had not been demonstrated by Merck until it sent its letter of December 2010.

At first instance Birss J rejected both of Sigma's defences, finding that the Specific Mechanism did not require the patent holder to demonstrate its intention to oppose importation before that activity is rendered an infringement.

In considering whether Merck had to expressly demonstrate its intention to apply the Specific Mechanism, Kitchen LJ emphasised the importance of the free movement of goods within the European single market. He noted that the earlier accession arrangements for Spain and Portugal contained a derogation similar to the Specific Mechanism, which had been considered in ECJ case of Generics and Harris v Smith Kline and French [1992] ECR I-5335 in which it was said that those derogating provisions were inapplicable unless the patent owner demonstrated its intention to exercise its option to prevent relevant parallel imports. The Court of Appeal therefore favoured Sigma's position but recognised that the position was not acte clair and so decided to make a reference to the CJEU.

Merck also asserted that Sigma, as the actual parallel importer, (rather than Pharma XL) should have given Merck the relevant notification of intention to import. Kitchen LJ considered this was unnecessary as the more important issue was whether Merck received notice. Further, as Pharma XL was to make the application for the parallel import licence it was entirely appropriate that it should have given the notification. Another relevant point was that, if and when Merck objected, this objection would have been (and was) valid against all companies that utilized Pharma XL's parallel importation licence. The Court of Appeal again preferred Sigma's position but considered that the answer was not clear and that a reference to the CJEU should also be made on this point.

Finally, Merck said that the notification had to be given to the patent holder or beneficiary – i.e. someone who had the right to sue for infringement. Pharma XL had notified MSD which, at the time, had no such right. Sigma's position was that Merck operated as a single organisation and that on the facts (including that over 90% of the notifications provided to Merck under the Specific Mechanism were sent to MSD), the notice that had been given was effective notification to the patent holder. The Court of Appeal considered that the question of how strictly to interpret this requirement should also be referred to the CJEU.

The Court of Appeal therefore decided to make three references to the CJEU: (i) whether the Specific Mechanism confers upon a patent holder the option of preventing imports falling with its scope but is inapplicable unless and until the patent holder demonstrates his intention to exercise that option, (ii) the identity of the person who much give notice under the second part of the Specific Mechanism and (iii) the identity of the person to whom such notice must be given. The precise wording of the references will be made after hearing further submissions from the parties.