Trade marks: parallel imports

The Court of Appeal has held that a parallel importer had not infringed a claimant's trade mark and that there was no disguised restriction of trade.

Background

Article 34 of the Treaty on the Functioning of the European Union (TFEU) provides for the free movement of goods between EU member states. Article 36 of the TFEU provides for exceptions: prohibitions or restrictions on imports can be justified on grounds of the protection of industrial and commercial property but must not constitute a means of arbitrary discrimination or a disguised restriction on trade between member states. 

Industrial or commercial property includes national trade mark rights. The European Court of Justice (ECJ) has recognised that to give national trade mark rights their full scope and effect would in some cases allow the erection of artificial barriers to trade, that is a "disguised restriction".

In Bristol-Myers Squibb v Paranova AS, the ECJ set out a list of conditions (the BMS conditions) that parallel importers must fulfill in order to avoid a trade mark infringement claim, in cases concerning parallel trade in repackaged or relabelled pharmaceutical products. (Joined cases C-427/93, C-429/93 and C-436/93.) One condition is that enforcement of the trade mark proprietor's rights would contribute to the artificial partitioning of markets between member states, for example, where the proprietor had put an identical pharmaceutical product on the market in several member states in various forms of packaging, so that repackaging by the parallel importer would be necessary in order to market the product in the member state of import.

Facts

F marketed drugs under the brand FLYNN, which was registered as UK and EU trade marks. D held licences to import pharmaceuticals into the UK, and imported and sold drugs under these licences.

The dispute related to an anti-epileptic drug (the drug). If obtained from different sources, the drug could produce different effects, so doctors were advised to ensure that patients were maintained on a specific manufacturer's product.

F acquired from P the UK marketing authorisations for capsules of the drug that were manufactured and sold by P elsewhere in the EU at a lower price under the brand name EPANUTIN. F then obtained a licence variation to allow it to sell the capsules in the UK under the name Phenytoin Sodium Flynn. F sent communications to doctors, patients and pharmacists to let them know that the Phenytoin Sodium Flynn product was in fact the Epanutin product under a new name, so establishing a supply chain for the rebranded drug.

D planned to import Epanutin capsules into the UK from elsewhere in the EU, but knew that pharmacists would not be able to use that product to fulfil prescriptions written for Phenytoin Sodium Flynn, as regulations required them to supply a specific brand if it was named in the prescription. The only source of supply for EPANUTIN-branded capsules in the UK was parallel importers. Doctors would not therefore write prescriptions for phenytoin sodium naming Epanutin, as parallel imports were not a guaranteed and stable source of supply for patients. The Medicines and Healthcare Products Regulatory Agency told D that it could not supply the capsules under the generic name of the drug, as this was contrary to the objective of ensuring that each patient was maintained on the same source of supply. D therefore wanted to label their product Phenytoin Sodium Flynn when they imported it into the UK.

F issued proceedings against D for threatened trade mark infringement. D claimed that the proposed use would not be trade mark use, or, if it was, the BMS conditions were fulfilled, so it was not liable for infringement.

The High Court held that D's proposed use was trade mark use and would infringe F's marks (www.practicallaw.com/6-620-4088). The BMS criteria were not fulfilled. The imported goods were placed on the market in the exporting state by P, not by F: the corporate and contractual relationship between F and P did not establish that the same entity controlled the product of EPANUTIN capsules in the country of export and Phenytoin Sodium Flynn capsules in the UK. D appealed.

Decision

The court dismissed the appeal. It held that a trade mark does not lose significance just because a trade mark owner educates the public as to the properties of the goods it sells under its  trade mark. The use of the mark FLYNN did not signify a characteristic of the goods. 

The first question was whether the goods that the alleged infringer wished to import had been placed on the market by the trade mark owner or with his consent. Secondly, even if the answer to the first question was no, was the party who did place the goods on the market under a trade mark also in effective control of the trade mark which is sought to be enforced? If the answer to the second question was also no, it would be difficult to see how the enforcement of the trade mark could be for any purposes other than to protect the origin function of the mark. 

Here, the questions were therefore whether F had control over the goods it sought to oppose before they were placed on the market in the exporting state, and whether the links between the F and P were such that use of the trade mark FLYNN should be regarded as being under the control of P.

F had no control over the drug sold by P and which D sought to import. F's use of the mark Phenytoin Sodium Flynn was also not under P's control. The specification of the product was determined by F and P was obliged to make the product in compliance with that. Nothing in the agreements between F and P entitled P to stop F changing the product or controlling the trade mark it applied. 

Therefore, F had a legitimate interest in the enforcement of its mark against goods that it had not placed on the market under that mark and over which it had no control. P was also not able to control the use which F made of its trade mark rights. Sales of the imported product affected the guarantee of origin which the FLYNN mark entails as harm caused by a defective batch of the drug sold by D would rebound on F. D would also be taking advantage of the reputation of the FLYNN mark in selling their products. 

The harm to F here was different in character to that which trade mark owners are able to point to in repackaging and rebranding cases and which is limited through the BMS conditions, because in those cases the goods concerned were the trade mark owner's goods. 

Comment

An interesting aspect of this decision is that the imported goods infringed F's trade mark, and were restrained, even though the parallel importer had to apply F's mark in order to compete, having established that the rebranding was necessary to enable them to market the product in the UK. The critical factors were that F had no control over the goods D wished to import, which were under the control of a third party, P, and that P had no control over F's use of its mark. Therefore, F had a legitimate interest in the enforcement of its mark against goods that it had not placed on the market under that mark and over which it had no control.

Case: Flynn Pharma Ltd v Drugsrus Ltd and another [2017] EWCA Civ 226.

First published in the June 2017 issue of PLC Magazine and reproduced with the kind permission of the publishers.  Subscription enquiries 020 7202 1200.