Before: The Hon. Mr Justice Laddie
- This is the judgment in an action for infringement of registered trade marks and passing off. The claimants are Glaxo Group Limited, The Wellcome Foundation Ltd (together referred to as "Glaxo Wellcome"), Boehringer Ingelheim KG, Boehringer Ingelheim Pharma KG (together referred to as "Boehringer Ingelheim"), SmithKline Beecham Plc, Beecham Group Plc, SmithKline and French Laboratories Limited (together referred to as "SmithKline Beecham") and Eli Lilly and Company ("Eli Lilly"). They are all well known pharmaceutical companies. They have discovered and sell many clinically important new drugs. Those drugs have been and are sold in many countries under proprietary names which are registered as trade marks. The defendants are Dowelhurst Limited and Swingward Limited. They also are engaged in the sale of pharmaceuticals although they do not manufacture them themselves. Before me Mr Silverleaf QC and Mr Hacon appear for Boehringer Ingelheim and Glaxo Wellcome, Mr Thorley QC and Mr Brealey appear for SmithKline Beecham and Eli Lilly and Mr Green QC and Mr Carr QC appear for the defendants. The issue of passing off will be considered at the end of this judgment.
Outline of the Dispute
- This case concerns the use of trade marks on goods imported into England from other Member States of the European Community. However it is not one of those cases of trade mark infringement in which the mark has been used by the alleged infringer without permission on goods with which the proprietor of the mark has no connection. Here the imported goods already have on them or have applied to them by the importer the trade mark of the person or group who manufactured the goods (or were responsible for manufacture) and marketed them abroad. The goods are not alien. They are authentic goods of the proprietor. In current terminology, therefore, this case concerns parallel importation within the EC. It raises fundamental questions as to the extent to which the proprietor can object to the way in which the importer uses or applies his, that is the proprietor's, mark. It also concerns the extent to which it is possible for the originator of goods placed on the market within the Community by him or with his consent to control the aftermarket in them. Although the goods here are pharmaceuticals, the issues raised apply much more widely. In particular it is concerned with the extent to which the principles of free movement of goods and exhaustion of rights can be accommodated with the national rights obtained by ownership of trade marks.
- Mr Thorley says that the issues of infringement raised by his and Mr Silverleaf's clients should not be approached in a broad brush way. The only common thread is that all the drugs have been imported from another Member State and they are authentic in the sense that they are the products of the various claimants. Save in those respects he and Mr Silverleaf say that the complaints in this action arise in respect of different drugs packaged in different ways by different defendants. Each allegation of infringement must be considered on its own facts. Although this is true in one sense, the principles of law apply equally to all the cases and it is those principles of law rather than the facts in relation to the particular imported drugs which have given rise to the greatest disputes between the parties.
- The flavour of the disputes can be illustrated by reference to the allegations of infringement raised in relation to one product. Glaxo Wellcome has patent protection for a drug known by the chemical name salmeterol xinafoate. This is its 'generic', i.e. non-proprietary, name. It is a type of drug called a bronchodilator and is used in the treatment of various forms of asthma. It is loaded into inhalers which patients can use for self-administration. Although the drug is called salmeterol xinafoate, Glaxo Wellcome use the trade mark SEREVENT on the inhalers which are sold in many countries. The box used with the inhalers is clearly marked with that trade mark and the name Glaxo Wellcome, which is also a registered trade mark. In many, if not all, countries the box carries on it written information in the local language. Annex A1 to this judgment shows the front of one version of this product as put on the market outside the United Kingdom by Glaxo Wellcome. It appears that this particular drug is marketed by Glaxo Wellcome in a variety of differently designed packs in different countries. All bear the same SEREVENT trade mark. SEREVENT is imported into this country by both defendants. Before they can import they must obtain a Product Licence (Parallel Import) ("PL[PI]") from the Medicines Control Agency ("MCA") as described below. Dowelhurst has placed the product on the market here in a number of ways. First it has taken the foreign product and placed a sticker on it setting out certain critical information, such as the number of its PL[PI]. Two examples of such stickering are shown in Annex A2. Dowelhurst has also taken the foreign product and re-boxed it completely in boxes of its own design but still bearing the SEREVENT trade mark. Two examples of this are shown in Annex A3. Thirdly it has re-boxed the foreign product but the new box does not refer to SEREVENT at all. Instead the box bears prominently on it the name of the generic product, salmeterol. This box also has a livery which is different to those used by Glaxo Wellcome. It is pale blue and has a large "C" on the front. This is a reference to "Concept Generics", a trading name of Dowelhurst, which is not itself used on the box or its contents. Inside the box, as with all the other versions of imported SEREVENT, there is an English language version of the patient information leaflet (as required by the relevant PL[PI]) which bears the words "SEREVENT INHALER/ SALMETEROL INHALER / BETAMICAN INHALER (Salmeterol xinafoate)". The box also contains a SEREVENT inhaler over-stickered with a label which, inter alia, identifies the product as salmeterol xinafoate, states that it is made by Glaxo Wellcome and identifies the PL[PI] holder as Dowelhurst. A picture of the front and one side of this box is Annex A4. Finally, Swingward also imports this drug. It re-boxes the product in boxes bearing the name SEREVENT but in a different livery to Glaxo Wellcome. This is depicted in Annex A5.
- Each of the products depicted in Annexes A2 to A5 is objected to. In each the trade mark SEREVENT is used on the contents inside the box. In fact the contents are the product of Glaxo Wellcome in the packaging used by that company and marked by it with its own trade marks. In A2, 3 and 5 the mark is also used on the outside of the box. The sale and advertisement of these products is said to be an unlicensed use of the mark and therefore an infringement. Similar allegations of infringement are made in respect of all the other registered trade marks in issue here. A schedule of the marks and the broad nature of the use complained of is set out in Annex B to this judgment.
- It is not entirely clear from the pleadings whether the defendants deny that their activities would, were this an entirely domestic dispute, amount to infringement. This is a matter I will deal with later. However both of them say that that is a secondary matter. Their primary defence and the issue which has taken up almost all the argument and the one with greatest ramifications is that by virtue of the provisions of the Treaty of Rome, as interpreted in a number of decisions of the European Court of Justice ('ECJ'), the proprietors cannot exploit any national trade mark rights to impede the defendants' marketing and sale of these products in England or elsewhere in the Community. The ECJ decisions upon which they rely and which will need to be considered below include Hoffman-La Roche v Centrafarm [1978] ECR 1139 ("Hoffman-La Roche"), Centrafarm BV v. American Home Products Corporation [1978] ECR 1823 ("AHPC"), Bristol-Myers Squibb v. Paranova A/S [1996] ECR I-3457 ("Paranova"), Loendersloot v. Ballantine [1997] ECR I-6227 ("Loendersloot"), Sabel v. Puma [1997] ECR I-6191, Parfums Christian Dior [1998] 1 CMLR 737 ("Dior") and Pharmacia and Upjohn v. Paranova - 12 October 1999 ("Pharmacia"). The claimants rely on almost all the same authorities to come to a very different conclusion. In essence, all the claimants say that the jurisprudence of the ECJ is to the effect that a parallel importer can only infringe a proprietor's registered marks to the extent that such infringement is 'necessary'. In particular they say that re-boxing of their products by the defendants is not necessary at all and that all the defendants need to do, if anything, is to place a sticky label on the original boxes to identify the relevant importer as the holder of the relevant PL[PI]. Furthermore, as Annex A2 illustrates, even over-stickering may not be permissible if it is not 'necessary' to enable the imported goods to be put on the market. Mr Silverleaf also runs another argument on behalf of his clients. He says that the ECJ has made it clear that before parallel imported goods can be placed on the market in the country of importation it is mandatory that advance notice be given to the proprietor of the marks so that he can examine the nature and quality of the goods and packaging. His clients say that no such notice was given here and that, since this is a condition precedent to being allowed to market the goods, there is infringement. Mr Thorley takes a somewhat different position. Although his clients could also complain of lack of notice they have chosen not to do so. They accept that the goods are now on the market and adopt the stance that notice is now a thing of the past. Although Mr Thorley agrees with Mr Silverleaf's arguments on this topic and says that they are to be taken into account for the purpose of understanding properly the ECJ jurisprudence, and notwithstanding the fact that his clients continue to seek full relief, including injunctions, they have decided to adopt a more pragmatic approach and rely on the requirement of necessity alone.
- The questions of whether the parallel importer has to prove necessity before he can use the proprietor's mark and, if so, what amounts to necessity and whether being allowed to parallel import is subject to a condition precedent that notice to the proprietor is given and, if so, what amounts to notice, are the crucial issues here. But they are only manifestations of a fundamental difference of view between the parties as to how domestic trade mark law and the principles of free movement of goods and exhaustion of rights under the Treaty are to be reconciled. The nature and function of trade marks and the extent and characteristics of these European principles will be considered below. However it is convenient first to refer to and dispose of three other matters.
The behaviour of the Claimants
- Underlying a lot of the defendants' evidence, both written and oral, and some of the submissions made on their half is the suggestion that the claimants and other major drug companies are engaged in an exercise in overcharging patients and the National Health Service in this country. I have been supplied by the defendants with a copy of a television programme to watch. It conveys the message that the claimants and other similar companies are engaged in a 'rip-off' of the British public. By contrast it is suggested that the defendants and other parallel importers are helping to counter this activity and are thereby acting for the public good. Sub rosa there is the suggestion that this litigation pits David against Goliath. The claimants' reliance on their trade mark rights is depicted as but another attempt to defeat the legitimate interests of the public which are being championed by the defendants and other parallel importers.
- In case these suggestions are raised hereafter in these proceedings, I should make it clear now that it has not been proved to me either that the claimants have behaved improperly in this regard or that the defendants' motivation is the public good. That there is a price differential between the same pharmaceuticals sold in England and elsewhere in the EC is not in dispute. In some cases it is substantial. But this differential, which currently results in the same drugs costing more here than elsewhere (although it was the other way round only a very few years ago), has not been shown or even asserted to be primarily because of a decision by the claimants and other major drug companies to charge different prices in different markets within the EC. The research leading to the discovery of a new drug and the subsequent development programme which is necessary before regulatory approval is obtained can be very time consuming and expensive. The pharmaceutical companies will try to make sufficient profits while a new drug is still protected by patent (which may be only a few years by the time regulatory approval for marketing has been obtained) not only to recoup costs but also to fund further research in the future. It is that research which it is hoped will find the new drugs on which the future profitability of the company will depend. For these reasons they feel they must make hay while the sun shines. However they are not given a free hand. As Mr Retter, Chief Executive of Swingward says, the price differential in medicines between countries of the Community is largely a result of controls imposed by different governments. Some countries impose direct price controls. The United Kingdom regulates through the Pharmaceutical Price Regulation Scheme (PPRS). No doubt the drug companies believe that some prices in some countries are much too low and do not allow them a reasonable return on the investment they have made and for the risks they have taken. But, whether this belief is well founded or not, the result is that price differentials are created. These may then be amplified by currency movements. The differentials make it profitable for arbitrageurs to move in. That is what parallel importers are. Mr Elford, the Commercial Director of Dowelhurst, accepted that his company tries to buy drugs from the country where the government had negotiated the hardest deal with the proprietary drug manufacturer. Parallel importers, like the research-based pharmaceutical companies, are in business to make money. This is not a moral tussle between the good and the bad, the small and the large. It is a fight over profits by competitors. The fact is that price differentials exist within the EC for the same products and this makes inter-State trade attractive. These trade mark actions are a response to that trade. Their resolution does not require an investigation into questions of whether the claimants are unreasonably greedy, or the defendants merely short-term opportunists.
Applications for PL[PI]s
- There is no dispute between the parties as to what a parallel importer needs to do in order to obtain a PL[PI]. Evidence on this subject was given by Ms Cherry Hunt, one of the defendants' witnesses. She explained that a company wishing to import a pharmaceutical product into the UK which has been put on the market in another country in the Community must apply to the MCA for a PL[PI]. The applicant must submit examples of packaging which it intends to use. Once products have been imported, they must either be over-labelled, or re-boxed to accord with the PL[PI], and a patient information leaflet will have to be inserted into the box in accordance with the labelling regulations which require, amongst other things, that labels be either in English alone or English and other languages.
- Applications for a PL[PI] take about one year to process. During this time the MCA reviews the parallel importer's leaflet and packaging, obtains the product dossier on the formulation as used in the Community, and compares this to the UK product. This is to satisfy itself that the two products are therapeutically equivalent. The MCA liaises with the applicant regarding queries with the labelling of the product and patient information leaflet. It is usual that a number of changes will have to be made to a leaflet to bring it in line with MCA requirements. The MCA notifies the UK product licence holder (i.e. one of the claimants in the case of the drugs in issue in these proceedings) of the grant of a product licence on the same day that the license is granted to the parallel importer. Such letters give all of the names (brand and generic) under which the licensee is licensed to sell the product. The grant of a PL[PI] is also published in the London Gazette, which appears either the same month that the license is granted or the following month.
- One of the effects of the regulatory regime administered by the MCA is that it is most unlikely that any parallel imported product will be allowed onto the market in the United Kingdom if there is any significant risk to its quality.
Course of Proceedings
- There is one other matter which I should put to one side. On 18 November last year, I gave judgment at an interlocutory stage in these proceedings. Before me then was an application by the defendants to amend their pleadings to allege that these proceedings were the product of a concerted practice by the claimants to bombard parallel importers with litigation so as to hinder inter-State trade. The defendants said that if, as they alleged, such a concerted practice exists it offends against Article 81 of the Treaty of Rome and precludes the claimants from obtaining relief in these proceedings. I held that the allegations, though weak, were arguable against some but not all of the claimants and allowed amendment of some of the defences accordingly. None of the issues arising as a result of those amendments are before me now. The parties have agreed that they should be considered, if at all, at a later date assuming that they survive any appeal to the Court of Appeal.
- A convenient starting point for the resolution of the issues in this case is an analysis of both the nature and function of trade marks and the scope and purpose of the provisions on free movement of goods and exhaustion of rights under the Treaty of Rome.
Trade Marks
- It is necessary to distinguish what trade marks are for and their characteristics from the loose language which has grown up around them. Here we are concerned particularly with registered trade marks although much, if not all, of what is set out below should apply equally to unregistered marks. Furthermore, in the discussion below I will concentrate on trade marks used on goods - the type of trade marks in issue here - not on marks used in relation to services although, once again, the same general principles should apply.
- Not infrequently courts, lawyers and clients refer to trade marks as creating monopolies or discuss them in terms which suggest that that is so. But trade mark rights do not create monopolies in the true sense. Although, as discussed below, trade marks give rise to exclusive rights as an indication of the source and quality of goods, it is only when relating to goods that they have life or value. A trade mark is not a type of copyright. A proprietor does not obtain a monopoly in the mark as such. Mere copying of a mark, for example by writing it down on a piece of paper, even in the course of business, does not per se infringe any trade mark rights. The result is that the same or similar marks can be owned by different proprietors in respect of dissimilar goods or businesses. This is an everyday experience. The name "Lloyds" is used as a mark by, amongst others, a pharmacy chain, a bank and an insurance market and the mark "Granada" has been used by unrelated companies in respect of motor cars and a television rental business. A mark is always associated with particular goods. It is for this reason that there is an international classification of goods for trade mark application purposes. It is also the reason why our Trade Marks Act and the Community Trade Mark Regulation (Council Regulation (EC) No 40/94) require trade mark applications to be made in respect of specific goods and why the relationship between a registered mark and specific goods is inherent in the Council Directive 89/104/EEC (the "Directive") which seeks to approximate trade mark laws within the Community. The marks in issue here have all been registered in Class 5 of the international classification in respect of pharmaceutical preparations or in Class 10 in respect of medical and surgical apparatus and instruments.
- Unfortunately there is much mystique surrounding trade marks. Where registered marks are concerned, there have grown up detailed and sometimes obscure statutory provisions relating to registration, infringement and validity. Marks can be created and destroyed, bought, sold and licensed. Sometimes they can be very valuable. However the complex statutory framework and the value of marks can sometimes blind us to their essential features and functions. A trade mark is a badge, in the widest sense, used on or in relation to goods so as to indicate source. That is to say it is meant to indicate that goods are goods of the proprietor. In some cases this will mean that they are the goods of a particular manufacturer, as would be the case with RENAULT for cars, CADBURY for chocolates and AGFA for photographic equipment. Sometimes it will mean that they are goods selected by or distributed through a particular intermediary as would be the case with MARKS & SPENCER for own-brand food, flowers etc, LITTLEWOODS for mail order clothes etc and AMAZON for books bought over the internet. Furthermore, where goods have passed through a number of hands, the marks of more than one proprietor may be found on, or be used in relation to, the goods. Someone who buys a book over the internet will probably receive it in a box and with a delivery note, each of which bears the mark of the retailer while the book itself will bear the mark of the publisher. Similarly someone who purchases a product in a large department store will receive it in a bag bearing the store's trade mark. In some stores goods are priced with sticky labels bearing the name of the store, so that goods bear both the manufacturer's and the retailer's marks. Sometimes marks are anonymous. For example the marks BEEFEATER for gin and JIF, DAZ and OMO for cleaning materials are not the names of the companies which make those products. In some cases the customer will realise from surrounding circumstances that a mark identifies the source as a manufacturer or as a retailer. RENAULT falls into the former category while MARKS & SPENCER falls into the latter. Sometimes it will not be clear in what capacity a mark identifies source. For example the well known department store, Harrods, has many products which bear its trade mark HARRODS. However it also has its own bakery. The mark HARRODS when used on or in relation to many of its breads and cakes is the mark of the manufacturer as well as the retailer. This reflects not only legal theory but the real world. A customer who is supplied with defective goods may complain to the retailer/distributor or the manufacturer, if different, or both. It may well be immaterial to him whether the mark is that of the distributor or the manufacturer, all that matters is that it is from a particular source. This variety of ways in which marks are used by proprietors and understood by customers does not undermine or detract from their value or function.
- This is not the whole of the story. In each case the mark is a sign to the customer both that the goods are the goods of a particular source (whether he knows or cares what that source is) and that the proprietor of the mark holds himself out as responsible for those goods and their quality. This representation of responsibility for quality is inseparable from the mark's function as an indication of source. However it can be particularly important. For example many trade marks for expensive perfumes are said to carry a cachet. The association of the mark with quality is particularly pronounced. But such a trade mark does not differ in kind from any other. It still signifies both source and responsibility for quality, just as a trade mark on, say, a box of matches does. The proprietor of a mark can raise or lower the quality of his goods at will. Nearly everyone must have personal experience of goods sold under a trade mark where the proprietor has allowed quality to deteriorate or has made it improve over time. So the mark does not represent quality as such. Rather it indicates that the goods are of the standard which the proprietor is content to distribute under his banner. Sometimes it is said that a trade mark is associated with high quality or that it is a high quality trade mark and that it is an infringement to damage the mark's reputation. This language is, perhaps, a little loose. As long as one bears in mind that the trade mark represents both source and responsibility for quality no harm is done. The law has not developed yet to the stage where being rude about a trade mark, and thereby damaging its reputation, is an infringement. There is nothing in trade mark law which makes it an infringement for a competitor to say, for example, that KODAK film produces terrible photographs. Any complaint has to be made under the heading of trade libel, not trade mark infringement.
- If either of the trade mark's critical functions - of representation as to source and responsibility for quality - are compromised there is, or should be, infringement. In the case of an unlicensed application of a mark to alien goods, it is being used to indicate falsely not only that the goods are goods sourced from the proprietor of the mark but also that he accepts responsibility for their quality. So, such unlicensed use should be an infringement. It should also be an infringement to take goods which bear a trade mark and have been sourced from the proprietor, to adulterate them significantly and to put them on the market under the same mark. In such a case it could be said either that the adulterated goods are not the same goods to which the proprietor attached his mark originally or that the use of the mark would convey the false message that he is holding himself out as responsible for them in their adulterated condition.
- These functions of a trade mark can be explained in a way which may help to understand and resolve some of the issues in this case. It is possible to look at a trade mark as a sign which is used by the proprietor to mean "these are goods from me and are of a quality which I am prepared to stand by". One of the advantages of a trade mark over this simple statement is that it can be made attractive or "catchy". It is likely to be a sign which the proprietor will be able to promote in such a way that it will stick in the memory of the customer and therefore assist in further sales. He can promote it widely, for example by advertising, so as to support the sales of his merchandise. But carrying, in abbreviated form, the message of source and responsibility for quality is still at the heart of the function of a trade mark. The analysis can be taken further. A trader may decide that he wants to sell his products as being of, say, two different qualities. He may choose one trade mark for one quality and another mark for the other. The first will be used by the proprietor for saying "these are goods from me which are of first quality and which I am prepared to stand by" while the other will be shorthand for the equivalent statement in respect of the second quality goods. Similarly a trader may wish to sell some goods under a trade mark and others without a trade mark. It is only in respect of the former that a sign will be used saying "these goods are from me and are of a quality which I am prepared to stand by".
- A purchaser of goods from supplier A should be able to say, whether in trade or otherwise, "these goods are from A". If they are goods which the supplier A says is his first quality, the purchaser of them should be able to pass on this message to his own customers. In a logical legal system, where A uses a trade mark as shorthand to identify his goods of a particular quality, the purchaser of those goods should be able to use A's own trade mark to make the same accurate statement as to the source and quality of the goods. He should be allowed to make that statement as often as he likes. He is doing no more than repeating the supplier's message. But the statement should be accurate. On the other hand the purchaser of A's second quality goods would not be allowed to say that they are A's first quality goods. In such a legal system, by parity of reasoning, the purchaser should not be able to use A's trade mark for first quality goods in relation to goods which A has only been prepared to market and put his name to as second quality. Such misapplication of the mark should amount to infringement of the trade mark used for first quality goods. Similarly, where a trader sells some goods under a trade mark and others without a trade mark he is effectively saying in relation to the latter "I do not want my name associated with these products". They are to be sold into the market as anonymous generic goods. Once again, a purchaser of the generic goods who uses A's trade mark on them would be making a misleading statement "these goods are from A which A is prepared to stand by". Such activity, which distorts the message of the mark, also should be an infringement.
- The corollary of this is that if national trade mark law treats the trade mark as a quasi-monopoly in its own right and allows the proprietor to prevent a customer from accurately passing on the message of source and responsibility for quality to customers further down the chain of distribution, it is creating rights which, though valid under national law, go beyond the fundamental function of the mark.
Use of a trade mark
- A trade mark can perform its functions of indicating source and responsibility for quality whether it is placed on the goods or not. As long as the relevant public is made aware that the mark is being used to refer to particular goods, it will achieve its objective. Obviously many trade marks are applied as closely to the goods as possible so that where the goods go, the mark goes as well. This case has examples of just such use. For example the Eli Lilly product fluoxetine is sold by them under the well known mark PROZAC. The actual capsules containing the drug are marked with that word in very small letters. A mark can also be used on discardable packaging, advertisements and trade literature. The use of trade marks in advertisements maximises the proprietor's message to the public and can be particularly valuable. All of these are uses of the mark to enable it to perform its dual functions. For that reason, it is also an infringement of the rights given by registration to misuse the mark in any of these ways. Physical separation of the mark from the goods to which it relates does not destroy the message and has little relevance to whether there is infringement. Likewise physical connection or special relationship to the goods has little to do with a trade mark's function. Consistent with this, s. 10(1) of our Act provides:
"A person infringes a registered trade mark if he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services which are identical with those for which it is registered."
The word "use" in that provision is then defined by s. 10(4) as follows:
"For the purposes of this section a person uses a sign if, in particular, he -
(a) affixes it to goods or the packaging thereof;
(b) offers or exposes goods for sale, puts them on the market or stocks them for those purposes under the sign, or offers or supplies services under the sign;
(c) imports or exports goods under the sign or;
(d) uses the sign on business papers or in advertising."
- These provisions are derived, with immaterial changes in language, from Article 5 of the Directive. All of the activities set out in s. 10(4) allow the mark to convey its message. Any such use which damages that message will amount to infringement. A proprietor will be as concerned to prevent his mark from being wrongly applied to packaging and used in advertisements as he will be to prevent it from being wrongly affixed to goods, and for the same reason. The fact that the principles of function and infringement apply to all uses of trade marks equally is a matter which may have particular significance in understanding and applying the issues of Community law which arise in this case.
Free movement of goods and exhaustion of rights
- One of the objectives of the Treaty of Rome is to create a single market comprising the territories of all the Member States through which goods, capital and people can move without hindrance. This is reflected in Articles 2, 3 and 28:
Art. 2: "The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing common policies or activities referred to in Articles 3 and 4, to promote throughout the Community a harmonious, balanced and sustainable development of economic activities, ..."
Art. 3: "For the purposes set out in Article 2, the activities of the Community shall include, as provided in this Treaty and in accordance with the timetable set out therein:
(a) the prohibition, as between Member States, of customs duties and quantitative restrictions on the import and export of goods, and of all other measures having equivalent effect; ...
(c) an internal market characterised by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital; ...
(g) a system ensuring that competition in the internal market is not distorted; ..."
Art. 28; "Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States."
- Thus it should be as easy for goods to move from San Remo to Nice or from Calais to Dover as it is for them to move from Birmingham to London. There should be no greater legal impediment to the movement and trade in one case than in the others. If paperclips are cheaper in Birmingham than London or in France compared to England, there should be nothing preventing a trader from buying in the low price market and exporting to the high price one. Internal competition within the Community is thereby encouraged to the immediate benefit of the consumer and eventually to the benefit of traders. In accordance with this objective, save in very special circumstances, a trader who sells a product to a customer in one Member State cannot impose restraints designed to prevent the customer from re-exporting them to another Member State. This case is concerned with whether such special circumstances exist here.
- The principles of free movement of goods could come into conflict with the existence of discrete and sometimes different intellectual property rights in different Member States. Each such national intellectual property right gives its owner some form of exclusivity within its national territory. If the principle of free movement of goods were unqualified, in many cases it could lead to the destruction of the national intellectual property right. This can be illustrated by reference to patents. These give the proprietor the exclusive right within a country to make, market or import inventive products or to use inventive processes. There was a time when it was not permissible in accordance with Italian law to obtain patents for new pharmaceuticals in that country. So a drug which was patented in other Member States could not be patented in Italy. This resulted in unlicensed copies of such drugs being put on the market in Italy at prices far below those obtaining in the rest of the Community. If a consignment of such drugs were to be exported from Italy, where they were marketed freely but without the consent of the patentee, to England, the patentee in the country of importation would sue for patent infringement. However defendant importers argued that the enforcement of the British patent would result in the interruption of the free movement of the goods from Italy to England. This was undoubtedly so. Defendants argued that the principles of free movement of goods gave them a defence to the British infringement proceedings. Among patent lawyers this became known as the "Sicilian defence". However to prevent patentees from enforcing their rights against unlicensed Italian goods would be to destroy the very value of the patents. Italy would have become a loophole through which unlicensed goods could flow into and throughout the Community. In Parke, Davis v. Probel [1968] ECR 55 ("Parke, Davis") the ECJ noted that:
"The national rules relating to the protection of industrial property have not yet been unified within the Community. In the absence of such unification, the national character of the protection of industrial property and the variations between the different legislative systems on this subject are capable of creating obstacles both to the free movement of the patented products and to competition within the Common Market." (p. 71)
- In that and subsequent Decisions the ECJ said that in some cases the national intellectual property rights survive the free movement of goods principle and can continue to be used against infringers even though, as in Parke, Davis itself, that will result in inter-State trade being hindered.
- However, the national character of intellectual property rights and the rights holders' entitlement to sue for infringement, if unqualified, would present the holder with a ready mechanism for halting the free movement of his own or his licensee's goods. If patented goods were placed on the market in, say, France by the patentee or a licensee and subsequently imported by a third person into, say, England, the patentee could argue that the goods were not made under licence of the English patent, were therefore infringements and could be stopped at the border. In a series of cases, the ECJ has rejected this in relation to all intellectual property rights. That rejection is based on Articles 28 and 30 of the Treaty.
- Article 28 is set out in paragraph 25 above. Article 30, insofar as material, reads as follows:
Art. 30: "The provisions of [Article 28] shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of ... the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States."
- Although in Paranova Advocate General Jacobs said that the two parts of this Article can be read as a whole, it is convenient and, perhaps, less confusing to look at them separately. In accordance with the first sentence, a rights holder will only be able to stop or restrict inter-State trade where that is "justified" so as to protect his intellectual property right. The ECJ has made it clear that such justification only exists if the unrestrained inter-State trade would cause significant and substantial harm to what it calls the "specific subject matter" of the intellectual property right. So, if the alleged infringer's activities damage the specific subject matter of the intellectual property right then his importation (or exportation) can be stopped by infringement proceedings. On the other hand, if the infringer's activities do not harm the specific subject matter of the intellectual property right, nothing stands in the way of the rigorous application of the principle of free movement of goods. In the latter case the owner of the right cannot enforce it against the importer/exporter. His rights are effectively removed. For reasons, the importance of which will become apparent below, the rights owner does not lose his ability to sue the importer because he has licensed him expressly or otherwise. It is simply that the owner's intellectual property rights are not allowed to be deployed in these circumstances. The scope and effect of the first sentence of Article 30 has been put clearly and unequivocally by the ECJ in Paranova:
"The Court's case-law shows that Article [30] allows derogations from the fundamental principle of the free movement of goods within the common market only in so far as such derogations are justified in order to safeguard the rights which constitute the specific subject-matter of the industrial and commercial property in question." (paragraph 42)
- The "only" in this passage is important. The same principle has been expressed by the ECJ in many cases. It may be expressed the other way round: if the specific subject-matter of the industrial property is not being harmed, then the free movement of goods principle applies. In other words, as applied to the area with which this case is concerned, if the importer's activities do not harm the specific subject-matter of the trade marks, those activities cannot be restrained. In particular, importation from one Member State into another cannot be prohibited or restricted.
- However even when the importer's activities do damage the specific subject matter of the intellectual property right, the owner of those rights does not have an unfettered entitlement to prohibit or restrict importation. On the contrary, the second sentence of Article 30 makes it clear that even where a rights owner has a prima facie entitlement to restrain importation, that entitlement is removed if the restraint constitutes "a means of arbitrary discrimination or a disguised restriction on trade between Member States". As the ECJ said in Parke, Davis:
"As regards the provisions relating to the free movement of products, prohibitions and restrictions on imports may be justified under Article [30] on grounds of the protection of industrial property, but subject to the expressly stated reservation that these 'shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States'. (p. 71)
The Core Principles
- On the basis of the foregoing material, it appears to me that the core principles underlying Articles 28 and 30 as applied to intellectual property right cases can be put quite shortly. Free movement of goods is fundamental to the creation, operation and development of the Common Market. Derogations from it are only possible where justified under Community law. One such justification exists where the principle of free movement of goods will give protection to activities which undermine an intellectual property right by harming that right's specific subject matter or function. The derogation extends no further than the justification for it. As a consequence, activities which do not harm the specific subject matter of the rights do not fall outside, but are protected by, the principle of free movement of goods. Even where derogation appears to be justified in accordance with the preceding concepts, if it is shown that the proprietor of the rights, deliberately or otherwise, placed his intellectual property rights in the way of free movement of goods for reasons which are not objectively justifiable or is using them to interfere with free movement of goods in a way which is not objectively justifiable, the derogation will not be allowed to prevail and the principles of free movement of goods continue to apply.
- The application of these principles can be illustrated by way of an example. A French company manufactures golf balls. It sells some of its production without any brand name as generic products. A purchaser can export them to any other Member State. However some of the production is sold under a registered trade mark. The distribution outside France of those products can be restricted if, but only if, the manner of distribution harms the specific subject matter of the trade mark. If the specific subject matter is not harmed, the trade marked balls can move as freely through the market as the non-trade marked ones. They can be bought, sold to any customer, advertised, discounted, given away or subjected to any other form of exploitation which does not harm the specific subject matter. They can even be sold in competition with and at a lower price than the same products sold directly in that State by the French manufacturer.
- It is necessary to address what the ECJ means when it refers to the specific subject matter of an intellectual property right.
The Specific Subject Matter
- The core purpose or function of trade marks, at least under our domestic law, has been described above. This is the same as the specific subject matter of the trade mark under Community law. This has been expressed in a number of ways in the cases. In Hoffman-La Roche the ECJ put it as follows:
"In relation to trade marks, the specific subject-matter of the industrial property is the guarantee that the owner of the trade mark has the exclusive right to use that trade mark, for the purpose of putting products protected by the trade mark into circulation for the first time, and is therefore intended to protect him against competitors wishing to take advantage of the status and reputation of the trade mark by selling products illegally bearing that trade mark. In order to answer the question whether that exclusive right involves the right to prevent the trade-mark being affixed by a third person after the product has been repackaged, regard must be had to the essential function of the trade-mark, which is to guarantee the identity of the origin of the trade-marked product to the consumer or ultimate user, by enabling him without any possibility of confusion to distinguish that product from products which have another origin. This guarantee of origin means that the consumer or ultimate user can be certain that a trade-marked product which is sold to him has not been subject at a previous stage of marketing to interference by a third person, without the authorisation of proprietor of the trade-mark, such as to affect the original condition of the product. The right attributed to the proprietor of preventing any use of the trade-mark which is likely to impair the guarantee of origin so understood is therefore part of the specific subject-matter of the trade-mark right." (p. 1164, paragraph 7, emphasis added)
- This was added to in Dior:
"According to the case law of the Court concerning the repackaging of trade-marked goods, the owner of a trade mark has a legitimate interest, related to the specific subject-matter of the trade mark right, in being able to oppose the commercialisation of those goods if the presentation of the repackaged goods is liable to damage the reputation of the trade mark." (p. 766, paragraph 43)
- Although in the last passage, the Court was concerned particularly with cases of repackaging, there is no reason to believe that its discussion of the specific subject matter of marks was limited to such cases.
- It has not been suggested that the defendants' activities to which objection is taken in these cases have adulterated or in any other way compromised the quality of the claimant's products. As I have noted already, because of the regulatory regime relating to drugs in force in the United Kingdom, it is most unlikely that any such harm to the products would be possible. Even in cases of re-boxing of products, the defendants do not handle the active pharmaceutical ingredients. For example in the case of PROZAC, Eli Lilly supply the active drug inside a capsule, inside hermetically sealed blisters in a blister pack inside a box. Re-boxing of such a product involves taking the blister packs and putting them in new boxes. There is no question of any damage to the integrity of the blister packs, let alone the drug within the capsules within the packs. Furthermore, for the reasons set out later in this judgement I have come to the clear conclusion that the defendants' activities have not harmed or even put at risk, let alone significantly harmed, the specific subject matter of the claimants' marks. The use of the claimant's registered marks has in all cases been accurate, in the sense that they are used to convey without deception or harm the truthful message of source and responsibility for quality. On that basis, and in accordance with the core principles set out above, free movement of goods should apply here. There is nothing to justify any derogation from the latter principle and the claimants cannot object to the way in which the defendants have marketed their products. These trade mark infringement actions should fail accordingly. If they cannot succeed in their trade mark infringement actions they can be no better off by suing in passing off.
- The claimants say that this case and the law is not that simple. Mr Thorley accepts and, save in relation to one point, I think Mr Silverleaf accepts that their respective clients could not complain under trade mark law if the defendants were to import the authentic drugs in their original boxes into the United Kingdom from other Member States. So, for example, the defendants could import SEREVENT in the box, the front of which is depicted in Annex A1. However this is not possible because the patient information leaflet in the box and the information on the box itself is written in a foreign language. In order to comply with the relevant PL[PI]s, the patient information leaflet and certain other information must be in English even if another language is used as well. So some sort of repacking is inevitable if importers are to access the market here at all. What the claimants say is that there is ample authority to the effect that the defendants are not entitled to repackage to any extent which goes beyond that "necessary" in order to market the products in the United Kingdom. All of the packs complained of here, whether they be over-stickered or completely re-boxed are said to go beyond what is necessary and can therefore be objected to by the claimants notwithstanding the principle of free movement of goods. Mr Silverleaf says that the claimants merely wish to ensure that they obtain from their trade marks the proper commercial benefit by having those marks appear on their goods as they were originally applied. They can therefore demand that the original livery be retained and that any repackaging, if necessary at all, should be restricted to unobtrusive over-stickered labels applied in locations where they will not interfere with the livery. In particular they may not be applied in a way which partly or completely obscures the claimant's trade mark even if, as is shown for example in Annex A2, the sticky label itself carries the claimant's mark and the rest of the box, which also carries the mark prominently, is unaffected. However this does not fully encapsulate the degree of restriction which the claimants say they are entitled to impose on importers. The claimants object to an identical livery being used for their products if it has been reapplied by the importer even where, as here, there is no risk or damage to the drugs themselves or specific subject matter of the marks.
- Mr Thorley says that the jurisprudence of the ECJ is to the effect that the only modifications to packaging which are permissible are those which allow the product to be marketed and which cause as little alteration to the original packaging as possible. He puts to the forefront of his argument two passages from two ECJ decisions as follows:
"The owner may, on the other hand, oppose the repackaging of the product in new external packaging where the importer is able to achieve packaging which may be marketed in the Member State of importation by, for example, affixing to the original external or inner packaging new labels in the language of the Member State of importation, or by adding new user instructions or information in the language of the Member State of importation......
The power of the owner of trade mark rights protected in a Member State to oppose the marketing of repackaged products under the trade mark should be limited only insofar as the repackaging undertaken by the importer is necessary in order to market the product in the Member State of importation." (Paranova paras 55, 56 p. 3535 - emphasis added)
"The person carrying out the re-labelling must, however, use the means which make parallel trade feasible while causing as little prejudice as possible to the specific subject matter of the trade mark right. Thus, if the statements on the original labels comply with the rules on labelling in force in the Member State of destination, but those rules require additional information to be given, it is not necessary to remove and reaffix or replace the original labels, since the mere application to the bottles in question of a sticker with the additional information may suffice." (Loendersloot para 46 p. 6260).
Mr Thorley also relies on the Pharmacia case.
- It is an essential part of the claimants' argument that any form of repackaging which is not necessary, whatever that word means, can be prohibited. This is so even if the modified form of packaging inflicts no harm on the specific subject-matter of the trade mark. Both Mr Thorley and Mr Silverleaf say that that is the effect and intention of the ECJ in the Paranova and Loendersloot cases. Mr Thorley says, for example, that completely new packaging is not necessary if over-stickering will suffice. He put it this way in his skeleton argument:
"Consequently although the repackaging does not adversely affect the original condition of the product or damage the reputation of the trade mark and its owner, the repackaging may still be unnecessary in order to market the product in the Member State of importation"
- If this is the correct interpretation of the jurisprudence of the ECJ, it appears to me that strange results would follow. First, it is easy to think of cases where no harm would be caused to the specific subject matter and yet, according to the claimants, the defendants could be restrained from importing the goods or dealing with them. For example, the claimants put before the court a small number of over-stickered boxes which they say they find acceptable. I asked whether it would be open to the defendants to make new boxes which looked identical to the over-stickered boxes except that no separate sticker was used - i.e. the information on and the appearance of the sticker was printed directly on the box. The answer was "no". Making a new box was not necessary. I also put the following possibility: a parallel importer has to insert a new patient information leaflet in each box to comply with his PL[PI]. This involves opening the sealed box as sold by the relevant claimant, taking out the contents, discarding the old patient information leaflet and inserting the new leaflet together with the rest of the original contents back into the box. To avoid the very rare possibility that in doing so the original boxes will be soiled, he decides to have new and identical boxes made so that the new leaflets and the contents of the claimants' boxes could be loaded automatically and cleanly on a cartoning machine such as that used by Swingward. There would be no visible difference to the appearance of the product and, as in all cases, no harm is done to the quality of the products. Once again I was told that this was not necessary and therefore products distributed in this packaging could be enjoined.
- Furthermore, it must be remembered that Articles 28 and 30 and the case-law under them apply generally, not just to pharmaceuticals. I put to Mr Silverleaf an example based on one used by Advocate General Jacobs in Paranova. A soft drink manufacturer supplies large plastic bottles of carbonated drinks in packs of 12. The retailer imports some and decides to split each 12-pack into two 6-packs so that he can sell them in smaller quantities. Therefore he opens the original 12-pack boxes and packs each six bottles into a half height tray. No harm is done to the products. In the trays the manufacturer's trade mark is clearly visible on the side of each of the bottles and on the bottle cap. Is the retailer allowed to write the trade mark on the side of the tray? Once again the claimants say that this is not necessary. If he does so, he can be sued for infringement and the full range of relief by way of injunctions, damages and delivery up of stock could be ordered.
- It is difficult to see what justification consistent with the objectives of the Treaty of Rome there could be for such an outcome. When the trade mark is put on the side of the tray it is conveying accurately exactly the same message of source and responsibility for quality as the mark does on the bottles themselves. It says no more nor less. This repackaging does no harm to the specific subject matter of the mark. Similar repackaging could be postulated in the golf ball example described in paragraph 35 above.
- If this is the law, it would be of great benefit to the proprietor of the mark since it would enable him to object to virtually all ways in which an importer would wish to market the goods. Indeed, that is one of the features of this case. The claimants' objections to the packaging adopted by the defendants have been wide ranging and all-encompassing. Virtually any packaging is objected to. The objections appear at times to have been contradictory. The following example from the oral evidence of Mr Hall of Eli Lilly represents the stance which has been adopted by all the claimants:
"Q. If we discuss the Concept Generics range first, you complain about the fact that Dowelhurst have re-boxed parallel imports and have not reaffixed the trade mark PROZAC to the re-box. Correct?
A. Our primary complaint is that we do not see any necessity for there to be a re-box in the first place.
Q. Whether or not they reaffix the trade mark PROZAC you would still complain.
A. That is secondary issue, yes.
Q. If they re-boxed.
A. If this court should decide that re-boxing is allowable, then we would like to see our trade mark affixed on the outer packaging."
and a little later:
"Q. If the trade mark PROZAC was placed on the outside of the product, [in] large letters so it said PROZAC, it would not make any difference, you would still sue?
A. Our primary concern is that re-boxing is not necessary.
Q. The answer to my question is yes.
A. That is correct.
Q. Indeed, as you mention I think in paragraph 24 of your statement, you say the defendants' representative John Barker responded by letter to your complaint in which the defendant offered to add the mark PROZAC to the outer packaging of its Concept Generics box. That was an offer you rejected?
A. That is correct.
Q. Did it occur to you to say, yes, we would like to you do that?
A. No. We do not believe that re-boxing of product is necessary.
Q. It would not have made the slightest bit of difference to you whether they added the mark PROZAC or not?
A. Until we have clarity from this court as to whether re-boxing is necessary, no it would not have made any difference.
Q. Are you concerned that the absence of the mark PROZAC from the outside of the packaging is causing public confusion?
A. We are concerned that our trade mark has been infringed."
- There are other implications as well. As has been pointed out above, a trade mark can be used in many ways. Use of a mark on advertisements is likely to reach more potential customers than use on the products themselves. Misuse on an advertisement is just as much an infringement as misuse on the product. If it is the law that the proprietor of a mark can object to any use of his mark on his products which is not necessary, does the same apply also to use of the mark on advertising (or any of the other uses identified in Article 5(3) of the Directive)? In paragraph 36 of his Opinion in Dior, Advocate General Jacobs appeared to be of the view that the same legal principles must apply to use of marks in advertisements as apply to their use on the products themselves. As he pointed out in the same paragraph, a display of the products may itself be a form of advertisement.
- If the claimants are right in their arguments on this part of the case, a proprietor ought to be able to object to any type of use of his trade marks, including in advertisements, on or in relation to his own imported goods which is not demonstrated to be necessary. The claimants assert that this is the law. Indeed it seems to me that if they are right on this, then even if the imported goods are not altered, all advertisements for them placed by the importer or his customers can be prohibited unless shown to be necessary. Once again, in the advertisements the marks are accurately disseminating the same message as on the products themselves. These consequences appear to flow inevitably from a de-coupling of the proprietor's right to object to use of his own trade mark on or in relation to imports of his own products from the necessity to prove harm to the specific subject matter of the rights.
- This point was developed, in particular, by Mr Silverleaf. It would be easy to adopt a somewhat mechanical approach to the decisions of the ECJ, to note that the most relevant ones appear to be cases of repackaging and to conclude that the requirement of necessity, if it exists, only applies to the use of marks on new packaging. But as all the parties appear to accept, the legal principles underlying the ECJ decisions must be understood not only for the purpose of understanding the decisions themselves but also to facilitate the application of them to new cases. So Mr Silverleaf followed his submissions based on Paranova and Loendersloot to their logical limit. The requirement of necessity applies to all uses of trade marks, whether on the goods or in relation to them, and whether or not harm was caused to their specific subject matter.
- Mr Thorley concentrated on a more limited application of the principles without in any way attempting to undermine or restrict Mr Silverleaf's arguments. He says that his clients are only concerned with cases of repackaging so that the wider ramifications of Community case law are of academic interest to them. Mr Silverleaf's clients adopt and rely on the broader application of the principle of necessity. They complain not just about re-boxing of their products but also about the use of their marks on products which have not been re-boxed but have had stickers applied to them. These also are said not to be necessary. One example of this is shown in Annex C1. It is the Dowelhurst over-stickered ATROVENT.
- If, on the other hand, a distinction is to be drawn between use of marks on the packaging for products on the one hand and all other types of use on the other, with the requirement of necessity only applying to the former, why is it to be drawn? The immediate answer is to suggest that interference with the packaging can alter the quality of the goods whereas advertising and other uses do not. However that is unconvincing. First, we are concentrating on cases where repackaging has not affected the quality and reputation of the goods, so the distinction is an illusion. Second, even if we ignore that, harming the message of the trade mark and therefore its specific subject matter can be achieved just as easily, if not more so, by harmful advertising. Therefore safeguarding the proprietor's interests in relation to advertising is just as important. Third, if a distinction is to be drawn between the law as it applies to packaging and to advertisements, precisely where does one end and the other begin? Is putting products in an additional outer cover a form of repackaging and, if so, does this mean that putting the imported products in a plastic bag with the trade mark on can be restrained unless the use of the mark is necessary? This is not a reductio ad absurdum. Take the case of PROZAC. This active drug is made by Eli Lilly. It is placed inside a capsule on which the mark is printed. The capsules are placed inside blisters on a blister pack on which the mark is printed. The blister packs are packed inside a cardboard box for dispensing to patients. It also carries the mark PROZAC. Inside the box is a patient information leaflet wrapped round the blister pack. It bears the mark PROZAC. I assume that large numbers of boxes are themselves packed inside cartons, also marked with the word PROZAC. Are all these layers to be treated as packaging so that changing any of them is prohibited unless necessary, even if no harm to the specific subject matter of the mark is caused by such changes? If not, which are not to be treated as packaging and why?
- As pointed out above, if the claimants are right on this issue it would have the consequence that even where the specific subject matter of the trade mark is not adversely affected, the proprietor of the mark can interfere with the free movement of his own goods. Presumably national courts would also be obliged to grant injunctions to restrain importation of goods from other Member States even when such injunctions are not justified by the need to protect the specific subject matter of the trade mark. It appears to me that this turns the core principles set out in paragraphs 34 above on their head. Indeed it suggests they are wrong. It seems to me that it is necessary to analyse the ECJ cases on this topic with some care to determine whether the case-law does really support the claimants' arguments on necessity.
The Paranova case
- A suitable starting point is the Opinion of Advocate General Jacobs in the Paranova case. This is a long and learned exegesis on the law. There is much in it which is difficult to reconcile with the claimant's arguments. For example at paragraph 61 (page 3488) the Advocate General says:
"In accordance with the single-market philosophy of the Treaty the Court has consistently applied a Community-wide doctrine of exhaustion: any sale within the territory of the Community, made with the consent of the owner of an intellectual property right, exhausts the right. The justification for that approach is that if the proprietor of the right could preclude the importation and sale of products marketed in another Member State by him or with his consent, he would be able to partition the national markets and thus restrict trade between Member States, even though such a restriction is not necessary to protect the substance of the right." (emphasis added)
- In other words, it is only where a restriction on importation is necessary to protect the substance (or specific subject matter) of the trade mark that it will be permitted. In all other cases no restriction is permissible. So, a repackaged product which does not harm the specific subject matter cannot be restrained. Logically that conclusion should apply no matter how necessary or otherwise the repackaging is.
- Similarly, at paragraph 68 (page 3490), after discussing an example concerning the notional repackaging of Coca Cola, the Advocate General said:
"This suggests that the crucial factor in determining whether the trade mark proprietor is justified in opposing parallel imports of repackaged goods is, not whether the parallel importer affixes the trade mark to the goods or merely allows the original mark to remain visible, but whether he interferes with the goods in such a way that it is no longer possible to be certain that their original condition has not been affected."
- This passage is consistent with the core principles set out above. Once again, if the 'crucial factor' is absent, the trade mark proprietor loses the right to restrain importation. The goods are treated like all other goods put on the market within the Community, such as the non trade-marked golf balls referred to above. There is no apparent logic in saying that he regains the right to impede inter-State trade simply because the non-damaging repackaging which has been adopted by the importer (which, of course, still conveys accurately the message of source and responsibility for quality originally intended by the trade mark owner) is not 'necessary'.
- The same principles are applied when the Advocate General considered the issue of arbitrary discrimination and disguised restriction on trade in the second sentence of Article 30. Only two passages need to be referred to for this purpose:
"If a trade mark owner uses the trade mark in order to exclude parallel imports of his own goods when the sale of those goods does not threaten the interests protected by the specific subject-matter of the trade mark and does not compromise the essential functions of the trade mark by preventing it from acting as a guarantee of origin, then the presumption inevitably arises that the trade mark is being used for some other purpose, for example to cause or reinforce a partitioning of the common market and to allow the trade mark owner to maintain price differences in the various Member States. ... If a trade mark owner takes advantage of a situation that has arisen as a result of circumstances outside his control and relies on his trade mark in order to exclude parallel imports even though the exclusion of such imports is not necessary on grounds of trade mark protection, his conduct must amount to an abusive exercise of the trade mark and a disguised restriction on trade." (paragraph 82, emphasis added)
and
"The Court [in Hoffman-La Roche] said that a disguised restriction exists if it is established that 'the use of the trade mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between Member States.' Although that wording is not without ambiguity, it seems to imply an essentially objective test. In so far as a subjective element is required, the mere fact of relying on a trade mark to prevent parallel imports which do not threaten the specific subject-matter or essential function of the trade mark is sufficient." (paragraph 83, emphasis added)
Paragraphs to similar effect to those set out above are to be found throughout the Opinion.
- As I have already made clear, here the importation and sale of the repackaged goods (whether completely re-boxed or merely stickered) does not, to use the Advocate General's words, "threaten the interests protected by the specific subject-matter of the trade mark", "compromise the essential functions of the trade mark" or "harm the subject matter of the trade marks". It follows that the exclusion of such imports is not necessary in accordance with paragraph 82 of the Opinion and the claimants' attempts at exclusion "must amount to an abusive exercise of the trade mark and a disguised restriction on trade." Similarly, in accordance with paragraph 83 of the Opinion, seeking to prevent such parallel imports must contribute to an artificial partitioning of the markets. Whichever way one looks at it, the claimants should lose their right to sue.
- That conclusion accords with what the Advocate General called "the fundamental concern" of Article 28, namely to ensure that goods can circulate freely within the Community and that trade between Member States is not hindered any more than necessary (Opinion, paragraph 77). In my view, allowing the proprietor of a mark to object to the importation of goods or the sale of imported goods on the basis that they have been re-boxed or over-stickered in a way which does no harm either to the goods, his reputation or the essential functions of his trade marks but simply because re-boxing or over-stickering is not necessary, would be to hinder inter-state trade more than is necessary. Indeed it would be to hinder inter-state trade for no relevant reason at all. Needless to say, the same applies to 'unnecessary' advertising.
- There is nothing in Advocate General Jacobs' Opinion which suggests or is consistent with a restriction on the importer to the effect that he may only repackage where that is necessary. For that, one must look to the decision of the ECJ. There, once again, the ECJ reiterates what is now the firm jurisprudence in relation to the meaning of Articles 28 and 30, namely:
"The Court's case-law shows that Article [30] allows derogations from the fundamental principle of the free movement of goods within the common market only in so far as such derogations are justified in order to safeguard the rights which constitute the specific subject-matter of the industrial and commercial property in question." (paragraph 42, emphasis added).
and
"... the owner of a trade mark may always rely on his rights as owner to oppose the marketing of repackaged products when such action is justified by the need to safeguard the essential function of the trade mark, in which case the resulting partitioning [of the market] could not be regarded as artificial." (paragraph 57, emphasis added)
- There is nothing to suggest that the ECJ intended to overturn that principle which can be found in numerous of its decisions over three decades. But, for the reasons set out above, logically this must mean that where the specific subject matter is safeguarded, the proprietor cannot interfere with free movement of goods even if those goods have been repackaged in a non-harmful but 'unnecessary' way.
- It is in the context of these statements that the passages in the Decision cited at paragraph 42 above should be understood. It will be recalled that the crucial paragraph in Paranova reads as follows:
"The power of the owner of trade mark rights protected in a Member State to oppose the marketing of repackaged products under the trade mark should be limited only in so far as the repackaging undertaken by the importers is necessary in order to market the product in the Member State of importation." (paragraph 56).
- This contains a subtle but vital assumption, namely that, absent necessary repackaging, the proprietor has a power to oppose marketing of his own goods. In other words the court was only considering to what extent the proprietor's existing right to oppose free movement of his own goods was curtailed or limited by the importer's wish to repackage. Hardly surprisingly, the Court held that where the proprietor has a right to oppose importation, the importer's ability to override it is restricted to such repackaging as is shown to be necessary. If this is so, two sequential questions must be asked namely; Question 1; does the proprietor have a right to oppose imports of his own goods between Member States? if he does, Question 2; to what extent is the importer allowed to override that right? What the Court was not purporting to do was to create a general restriction on the free movement of goods where one did not previously exist. So, if the answer to Question 1 is in the negative, Question 2 becomes otiose.
- How then does this fit together with the principles of free movement of goods? If the analysis set out above is correct, in cases where the commercial activities of the importer do not harm the specific subject-matter of the trade mark rights, the proprietor cannot oppose them and this is so whether or not the mark is being used on pharmaceuticals, golf balls, carbonated soft drinks or anything else. In such a case Question 1 is answered in the negative and Question 2 becomes irrelevant. The proprietor has no enforceable rights from which the importer requires an escape route. On the other hand, if the importer's activities do harm the specific subject matter of the trade mark rights, Question 1 would be answered in the affirmative. In such cases Question 2 comes into play. This makes sense. Where an importer is going to obtain a right under Community law to harm the specific subject matter of an intellectual property right it is only fair that such indulgence only extends as far as is necessary and no further.
- On this analysis, the passages in Paranova on which Mr Silverleaf and Mr Thorley rely do not help their client's case since the actions of the defendants do not harm the specific subject matter of the claimants' trade marks. They are consistent with the core principles set out at paragraph 34 above.
The Loendersloot case
- The Loendersloot case was decided after Paranova. It is concerned with the repackaging of trade marked alcoholic drinks. Four questions were referred to the Court by the Hoge Raad but only the first is of relevance for the present purposes:
"Is the specific subject-matter of the rights attaching to a trade mark to be regarded as including the possibility afforded to the proprietor of a trade mark under national law to oppose, with regard to alcoholic drinks manufactured by him, the removal by a third party of labels affixed by the proprietor on bottles and on the packaging containing them, and bearing his mark, after the drinks have been placed by him on the Community market in that packaging, and the subsequent reapplication of those labels by that third party or their replacement by similar labels, without thereby in any way damaging the original condition of the product?" (emphasis added)
This appears to ask the question whether re-labelling can be prohibited when it does not involve any damage to the condition of the product.
- In his Opinion, Advocate General Jacobs again sets out the basic rule that the proprietor's ability to interfere with the free movement of his own goods is restricted strictly to restraining those activities which harm the specific subject matter of the rights (see paragraphs 14 to 17). Having referred to Hoffman-La Roche and Paranova, he says:
"The essential principle which results from those judgments seems to be the following: a trade-mark owner cannot rely on his trade-mark rights to prevent a parallel importer from repackaging goods bearing the trade mark and from re-applying the trade mark to the repackaged goods where it is established that the use of the trade-mark right by the owner will contribute to the artificial partitioning of the markets between Member States; provided that in the course of such repackaging:
(i) the guarantee of origin is not impaired;
(ii) the original condition of the product is not adversely affected; and
(iii) the reputation of the trade mark is not damaged." (paragraph 28)
- Once again it seems to me that the meaning of this is clear and consistent with the core principles set out above. If the guarantee of origin is not impaired, the condition of the product is not adversely affected and the reputation of the mark is not damaged - all of which apply in the present case - the proprietor has no power to complain about repackaging of goods so as to interfere with free movement of goods. Logically that absence of power prevails whatever non-harmful activities the importer engages in, including marking of the new packaging, over-stickering and advertising which are not 'necessary'. True enough, later the Advocate General refers to Paranova again and says that re-labelling is permissible
"only to the limited extent necessary to facilitate parallel imports."
But, in the same paragraph, he immediately goes on to say;
"If the issue were to arise, it seems to me that the national court would have to be satisfied, before prohibiting re-labelling, that there was a significant impairment of the presentation of the product which could affect the reputation of the trade mark." (paragraph 34, emphasis added)
- In other words if there is no significant impairment of the reputation of the trade mark (i.e. its specific subject matter) re-labelling cannot be prohibited, no matter what the form of that re-labelling nor how 'necessary' or otherwise it is.
- The passage upon which the claimants place particular reliance, paragraph 46 of the Decision, has already been cited above. For convenience I set it out again:
"The person carrying out the re-labelling must, however, use the means which make parallel trade feasible while causing as little prejudice as possible to the specific subject matter of the trade mark right. Thus, if the statements on the original labels comply with the rules on labelling in force in the Member State of destination, but those rules require additional information to be given, it is not necessary to remove and reaffix or replace the original labels, since the mere application to the bottles in question of a sticker with the additional information may suffice."
- At first sight it appears to support the claimants' submissions. However closer analysis suggests that this is not the case. It appears to be no more supportive of the claimants' arguments than Paranova and for very similar reasons. First, the Loendersloot Decision contains a number of paragraphs, such as 21, 23 and 25, which repeat the fundamental rule that proprietors can only use their trade marks against imported goods when the use by the importer damages the specific subject matter of the rights. This is consistent with the core principles set out above. It is against that background that paragraph 46 of Decision has to be construed. Does it, as the claimants argue, create a stand alone objection which the proprietors are entitled to rely on and which is not fettered by a need to show damage to the specific subject matter of the rights? In my view, clearly not. The Court said that the importer could re-label as long as he caused "as little prejudice as possible to the specific subject-matter of the trade mark rights". Two points arise from this. First the Court was only considering cases where prejudice to the specific subject matter was being caused. This is a pity, since the Hoge Raad's question was directed at cases where re-labelling or repackaging caused no prejudice to the specific subject matter (see paragraph 67 above). Second, the Court was only saying, in cases where the re-labelling was causing prejudice to the specific subject matter of the trade mark, that the importer was to minimise that prejudice as much as possible. It did not say that there was any restriction on the importer's right to use the trade mark where such use caused no prejudice to the rights. In other words, just as in Paranova, the ECJ was not purporting to create a general restriction on the free movement of goods where one did not previously exist. It was concerning itself only with cases where harm was being caused to the specific subject matter. This is consistent with the Court's answer to the Hoge Raad's question:
"Article 36 of the Treaty is to be interpreted as meaning that the owner of trade mark rights may, even if that constitutes a barrier to intra-Community trade, rely on those rights to prevent a third party from removing and then reaffixing or replacing labels bearing the mark which the owner has himself affixed to products he has put on the Community market, unless:
* it is established that the use of the trade mark rights by the owner to oppose the marketing of the re-labelled products under that trade mark would contribute to artificial partitioning of the markets between Member States;
* it is shown that the re-labelling cannot affect the original condition of the product;
* the presentation of the re-labelled product is not such as to be liable to damage the reputation of the trade mark and its owner; and
* the person who re-labels the products informs the trade mark owner of the re-labelling before the re-labelled products are put on sale."
- Just like the Advocate General in his Opinion, what this says is that the proprietor has no power to stop repacking if the importer fulfils three requirements (i) no damage to the products, (ii) no damage to the reputation of the mark and its owner and (iii) prior notice of his intention to re-label. There is here no requirement that it be shown that the re-labelling was necessary. The issue of notice will be dealt with separately below.
The Pharmacia case
- This was a case in which the drugs company, Upjohn, marketed the same antibiotic under different trade marks in different Member States of the Community. The defendant purchased in France and Greece, repackaged, thereby removing the French and Greek marks, and applied to the new packaging the Upjohn Danish mark so that the goods could be sold in Denmark. The Danish Maritime and Commercial Court wanted to know whether Upjohn could object to this.
- If one considers the purpose of a trade mark as discussed at paragraphs 15 et seq above, the question referred by the Danish court should be simple to answer. The Upjohn French trade mark was designed to convey the message to francophone consumers "these goods are from Upjohn and are of a quality which Upjohn is prepared to stand by". In respect of the same goods, the Upjohn Greek and Danish marks were designed to convey exactly the same message. If, instead of using a trade mark, Upjohn had used that statement written in Greek for the Greek market and in French for the French market, it could not possibly have objected to a parallel importer translating it into the Danish language for use on the Danish market. The importer would be making sure that the same accurate message was conveyed to consumers in a language they could understand. Any attempt to hinder the way in which the importer carried on his business by refusing him permission to translate into the language used by the consumer would have been an illegitimate restriction on the free movement of goods within the Community. Indeed, a refusal to allow him to translate the message of source and responsibility for the Danish market would have created or increased the possibility of confusing the public there. For the same reasons there could not be any objection to the importer 'translating' the Upjohn French or Greek marks into the Danish equivalent. Were it otherwise it would amount to a restriction on the free movement of Upjohn's own goods for a purpose other than that of safeguarding the specific subject matter of the trade mark rights. In substance, this is what the ECJ said in Pharmacia. However the way it expressed itself is relied on by the claimants here to support their argument that repackaging can be resisted unless it is shown to be necessary, even if such repackaging does not damage the specific subject matter of the proprietor's trade marks.
- In Pharmacia the ECJ reiterated the basic rule that free movement of goods is supreme and that the exception to it where trade marks are involved extends only so far as is necessary to prevent harm to the specific subject matter of those rights. Thus it said:
"In its case-law on those situations in which parallel importers purchase products placed on the market in a Member State by the trade-mark proprietor, repackage them and reaffix the original trade mark in order to market them in the Member State of import, the Court has held that article [30] of the Treaty allows derogations from the fundamental principle of the free movement of goods in the common market only to the extent to which such derogations are justified in order to safeguard the rights which constitute the specific subject-matter of that property ..." (paragraph 14)
and
"However, the Court has also held that the exercise by the proprietor of his trade-mark right may constitute a disguised restriction under Article [30] of the Treaty if it is established that reliance on the trade-mark right by the proprietor, having regard to the marketing system which he has adopted, would contribute to the artificial partitioning of the markets between Member States, and that, in the event of repackaging, the protection of certain legitimate interests of the trade-mark proprietor is assured, in particular that the repackaging cannot adversely affect the original condition of the product and that the presentation of the repackaged product is not such as to be liable to damage the reputation of the trade mark ..." (paragraph 17).
- Neither of these statements support the stance taken by the claimants here. Interference with inter-state trade for the purpose of suppressing non-harmful and, indeed, truthful, use of a proprietor's trade mark is not within the only permitted exception to the principle of free movement of goods, namely to safeguard the specific subject matter of the rights.
- However, notwithstanding this, the Court went on to hold that in a case of repackaging or replacement of a foreign mark;
"... [the] replacement of the trade mark must be objectively necessary within the meaning of [Paranova] if the proprietor is to be precluded from opposing it." (paragraph 42)
- Unless the cross-reference to Paranova is given particular emphasis and the latter Decision is interpreted in the way set out at paragraphs 54 to 66 above, this passage suggests that the ability to object to repackaging has been disconnected from the need to show a pre-existing enforceable right to oppose importation. If this is so, a proprietor can object to unnecessary repackaging even when it causes no harm to the specific subject matter of the right. This accords with the submissions made on behalf of the claimants. I have difficulty in understanding how this is to be reconciled with the Court's reiteration of the principles of free movement of goods set out at paragraph 76 above. Furthermore the Decision is not expressed in terms which suggest that the ECJ was intending a radical departure from the established principles of free movement of goods. On the contrary, the Decision reads as a simple, but uncontroversial, extension of Paranova. If that is so, this case does not support the claimants' case either.
The Dior case
- As mentioned above, if a parallel importer has to overcome a hurdle of necessity before he will be allowed to use a mark on a repackaged product, logically the same hurdle must exist when all he does is put a sticker on existing packaging. That was confirmed by the ECJ in Pharmacia at paragraph 37 of its Decision. So if unnecessary repackaging which does not harm the specific subject matter of the trade marks can be restrained, so too must unnecessary stickering which does not harm the specific subject matter. Logically the same must apply to all other uses by the importer of the proprietor's mark, including use in advertising. As Mr Thorley said, the jurisprudence of the ECJ leads to this conclusion. It is for this reason that it is useful to consider Dior.
- In Dior, the claimant was the manufacturer of the well known and high quality range of cosmetics sold under the DIOR trade mark. The defendant, Evora, ran a chain of chemist shops. It had parallel imported the claimant's products under the DIOR mark into the Netherlands where it sold them at lower prices than were charged through the claimant's authorised distributors. Evora advertised the fact that it was selling DIOR products. Although the claimant did not raise any legal objection to the importation and sale of the parallel imports as such, it did object to the manner of advertising. Before the Dutch courts it was held that the form of advertising engaged in by Evora was of a kind which was customary in the sector of the market in which Evora operated. The questions referred to the ECJ by the Hoge Raad (see [1998] CMLR 737, 744) were designed to elucidate the extent to which, if at all, a proprietor could interfere with the advertising of parallel imports notwithstanding the principles of free movement. Once again it is useful to start with the Opinion of Advocate General Jacobs.
- There are a number of points discussed in the Opinion which reflect on the issue of necessity raised by the claimants in this action. First, the Advocate General seems to have treated the principles of community law which apply to advertising imported goods as indistinguishable from those which apply to marking the products themselves. He stated at paragraph 31 that if a reseller is free to sell products placed on the market by the trade mark owner or with his consent, it must follow that he is free, in principle, to advertise the goods also. Similarly in paragraph 36 he commented that if a trade mark owner is entitled to oppose shoddy repackaging "which damages his reputation" he could not see why he should not be entitled in certain circumstances to oppose shoddy advertising which damages his reputation. Paragraph 30 also shows that in expressing these views, the Advocate General was impressed by the fact that the definition of "use" in the Trade Mark Directive covered not only use of the mark on the product but in advertisements - the same point as is made in paragraphs 23 and 24 above. It seems to me that the converse of the Advocate General's approach should also be true. If the reseller is free to use marks in advertisements for the goods in any way which does not harm the function or effect of the trademark, he must be free, in principle, to use the marks on the goods themselves in a way which does no such harm. That approach would be consistent with what has been referred to above as the core principles.
- The Advocate General made two other points which are relevant to the issues being considered here. In paragraph 31 he noted that advertising includes point of sale material and arguably even displays of the product. This, of course, is right. It is very difficult to tell where advertising ends and marking the product begins, even were that a useful distinction to draw. But in my view it is not a useful distinction. Whether a mark is used on the product directly, on a closely associated package or in general advertising, its function is unchanged. Those uses are only different means of communication which the proprietor can deploy in order to project his message of source and responsibility for quality. This is reinforced by what the Advocate General said in paragraph 36:
"Repackaging is, in one sense, a more direct interference with the trade mark owner's rights since it is in physical relation to the goods in question. On the other hand, however, shoddy repackaging (if not depicted in advertising) is likely to be seen only by those viewing or purchasing the batch of goods in question, whereas advertising by a reseller, albeit in relation to his particular batch of goods, might be seen by a wider public and thus have a greater effect on the reputation of the brand generally."
- Again, those comments are unimpeachable. It is a commonplace that the major way to promote goods quickly and widely is through advertising. Just as a mark used on advertising can be brought to the attention of a greater number of potential customers more quickly than when it is used on packaging, so damage to a mark caused by harmful advertising is likely to reach more customers faster than that caused by harmful packaging. Consequently it is not surprising that there is nothing to suggest that in Dior either the Advocate General or the Court thought that the proprietor's hands were more tied as far as being able to complain about use of his mark in advertising than on the products themselves.
- The Advocate General commenced his analysis of the issues in Dior by reiterating the requirement for the proprietor to show that the interference with free movement of goods was justified by the need to prevent harm to the specific subject matter of the rights. He did this by reference to the Paranova decision on repackaged goods (paragraph 35). He then considered two topics. First he identified the specific subject matter which was to be protected. Second he considered the extent to which the specific subject matter needed to be harmed before the principle of free movement of goods could be overridden.
- As far as the first of these was concerned, he noted that under current jurisprudence, the specific subject matter of trade marks related both to its function as an indication of source and as an indication of quality - i.e. the functions identified at paragraph 37 et seq. above. In relation to this he relied on both Paranova and HAG II (Opinion, paragraphs 39 and 41). As far as the second is concerned, he turned his face against the suggestion that any damage to the specific subject matter was sufficient to override the principles of free movement of goods. On the contrary, he said:
"In my view, therefore, trade mark rights may be invoked to object to advertising by parallel traders only if there is a risk of significant damage to the trade mark and that risk is properly substantiated." (Opinion, paragraph 46, see also paragraph 58)
- He went on to say that the issue of whether or not there was significant damage was a question of fact for determination by the national court (Opinion, paragraph 50). He also gave an indication of what he meant by 'significant' and the sort of factors which a national court might take into consideration in deciding in any particular case whether significant damage had been inflicted (Opinion, paragraphs 50 to 52).
- The ECJ followed the Advocate General's Opinion. Like him, the Court appears to have been of the view that restrictions on the right to use a mark on imported goods is mirrored by the restrictions on the right to use the mark in advertising for such goods (Decision, paragraph 36). The conclusion it came to was:
"When trade-marked goods have been put on the Community market by the proprietor of the trade mark or with his consent, a reseller, besides being free to resell those goods, is also free to make use of the trade mark in order to bring to the public's attention the further commercialisation of those goods." (Decision, paragraph 38)
- Like the Advocate General, the Court relied on Paranova to support the proposition that the proprietor could only override the free movement of goods principles if the specific subject matter of the right was damaged and, in particular, if there was damage to reputation. Furthermore it also agreed that the damage had to be substantial, stating that the proprietor could not restrain use of the trade mark in advertisements;
"unless it is established that, given the specific circumstances of the case, the use of the trade mark in the reseller's advertising seriously damages the reputation of the trade mark." (Decision, paragraph 46. See also paragraphs 48 and 59)
- It appears to me that, far from undermining the core principles set out above, Dior hardens them by requiring damage to the specific subject matter of the right to be substantial before any derogation from the rule of free movement of goods is permitted. This latter point is also consistent with a passage in the Paranova Decision:
"It is not possible for each hypothetical risk of isolated error to suffice to confer on the trade mark owner the right to oppose any repackaging of pharmaceutical products in new external packaging." (paragraph 63)
- Dior is difficult to reconcile with the claimants' arguments. If, as they accept, Article 30 of the Treaty applies in the same way to a trade mark used on packaging for imported goods as it does to use of the same mark in advertisements for those goods, then advertisements which are not proved to be necessary can be prohibited, but that is the opposite of what was decided in Dior. Alternatively if the rules relating to the use of trade marks on goods and advertisements are different, no good reason has been put to me as to why that should be so, nor has any means been suggested for drawing a sensible boundary where advertising ends and use on packaging begins. In addition to this the consequence of these cases appears to be that a trader can deploy the proprietor's trade mark in widespread advertising of imported goods even if that use causes some damage to the reputation of the mark, so long as the damage is not substantial. On the other hand he cannot use the same mark on new packaging for the same goods, even if it causes no harm at all, if that new packaging is not necessary. It appears to me that any such result would not flatter Community jurisprudence.
- In summary, I have serious doubts that Paranova and Loendersloot, when properly construed, support the claimants' case. Dior appears to contradict it. It is not clear that even Pharmacia supports it. I have come to the conclusion that, absent clear guidance from the ECJ to the contrary, the law is that a proprietor cannot deploy national trade mark law to interfere with the use of the proprietor's mark by an importer on or in relation to the proprietor's goods unless such use inflicts substantial damage on the specific subject matter of the mark. If it does not inflict such damage, it cannot be objected to, no matter what form the use takes and even if it is 'unnecessary'. This freedom to make such non-harmful use of the proprietor's mark in relation to the proprietor's own goods in pursuit of the objective of free movement of goods is not only consistent with the core principles set out above but it is also inherent in paragraph 38 of the ECJ's decision in Dior which I have set out above.
- However, it is apparent that there is a widespread perception amongst practitioners and others that repackaging of parallel imported goods is impermissible save when proved to be 'necessary' irrespective of whether harm is caused to the specific subject matter of the trade mark. This appears to have been the approach adopted by courts in some other Member States. It is unacceptable that there should be such divergent views on such a fundamental issue.
- This topic deserves further consideration and resolution by the ECJ. The facts of this case illustrates well what is at stake. Based on their view of the case law the claimants here have all objected repeatedly about the packaging used by the parallel importers. As I understand it, in some cases parallel importers have had to change their packaging for a particular product time and time again, each one being criticised as not 'necessary'. I have found it impossible to discern any consistent theme in the objections which have been raised other than a strong inclination to refuse to consent to anything and make life for importers as difficult as possible. No parallel importer could guess in advance what the proprietor would accept, assuming he would accept anything. The transcript of the evidence of Mr Romhild, head of Boehringer Ingelheim's trade mark and unfair competition department, illustrates what happens in practice. Boehringer Ingelheim object when parallel imported goods are over-stickered because the label is too large, or too small or because it is placed on the front of the box or it has the wrong get-up. They object if the label 'does not look very correct' or if it is untidy and they object if the importer makes the product look tidy by re-boxing. They complain when the goods are re-boxed in boxes without their trade mark on and they complain when the goods are re-boxed in boxes with their trade mark on. They complain if the re-boxed products have a different get-up to their own products even though there are various different get-ups used by different licensees of theirs. They object if the re-boxed products use a get-up which imitates theirs. Some flavour of his evidence is given by the following extract of Mr Romhild's cross-examination by Mr Carr:
"Q. I see. Boehringer complain that in the Concept Generics range the product is re-boxed and your mark, your UK trade mark, is not reaffixed to the box; it has the generic name instead?
A. Yes.
Q. You also complain where products are re-boxed and the mark is reaffixed, for example in Swingward's case?
A. Yes.
Q. You complain about re-boxing whether or not your UK trade mark is reaffixed?
A. Yes.
Q. ... We have just established that you complain about re-boxing whether your UK trade mark is reaffixed or not.
A. Yes.
Q. You complain, one of your complaints about the Concept Generics range for certain Dowelhurst ranges is that the get-up looks different to your UK get-up.
A. Yes.
Q. Assume that a parallel importer decides to re-box and he copies your UK get-up, you would complain about that, would you not?
A. Yes, of course.
Q. You complain whether or not the get-up looks the same.
A. No. That is not the point. First, we complain about any sort of re-boxing when there is no necessity. Second, we wish to maintain our pack design as far as possible. Third, we wish to restrict any interference, I have mentioned it before, as far as possible. These are different interests which come with each other along.
Q. I am so sorry, I appreciate you may have competing interests, but we have established that you complain because the get-up is different in the re-box and you have also pointed out that you would obviously complain if the get-up was copied and therefore the same.
A. Yes, of course, because this is the sort of interference which is not necessary.
Q. As I understand it, since, as you point out in your statement, parallel importers sell your products with stickers on, it never is necessary to re-box?
A. At least in the cases or the products which are in issue here in this proceeding there is no necessity.
Q. Would you please give an example, that you see [on] the UK market at the moment, when it would be necessary to re-box any one of your products.
A. Frankly, I do not know a case, not only in the UK but in other member states of the EU as well, where it is necessary to do re-boxing. No parallel importer in all these countries has shown me an example so far."
- The minefield which this creates for parallel importers can be illustrated by reference to Boehringer Ingelheim's ATROVENT product. I have already referred to the fact that Boehringer Ingelheim not only object when this product is re-boxed by the defendants in entirely different get-ups to their own, but they also object to the over-stickering employed by Dowelhurst. It will be recalled that Annex C1 to this judgment shows the over-stickered product of which complaint is made. This is not the whole story. Annex C2 shows parallel imported products from six other parallel importers which Boehringer Ingelheim say are acceptable. They come from exhibit JRR 7 to Mr Romhild's witness statement. The stickers are placed in a variety of locations including, in the case of Stephar U.K. Ltd, on the front of the box. They are said to illustrate that other forms of stickering are possible so that Dowelhurst's form is not necessary. Of course it could be said that none of these forms of stickering are necessary because other forms are possible. Even more confusing is exhibit JRR 6. This contains illustrations of a variety of other over-stickered ATROVENT boxes. It is deployed by Mr Romhild to prove that alternative forms of over-stickering are possible. However, in respect of these products Mr Romhild said:
"I have no comment as to the acceptability of the form of re-labelling used."
In other words, he was not prepared to say whether these over-stickered products were acceptable or not. This is made all the more confusing because some of the acceptable forms of over-stickering in exhibit JRR 7 appear to be identical to those in respect of which Mr Romhild would not come off the fence in exhibit JRR 6.
- I have no reason to believe that Boehringer Ingelheim have acted any differently to any of the other claimants here. On the contrary very similar evidence to the oral evidence of Mr Romhild was given by Mr Cox of SmithKline Beecham and by Ms Edwards of Glaxo Wellcome. One can hardly be surprised that they adopt this attitude to parallel importers. If they are provided by European jurisprudence with a means of disrupting the non-harmful activities of their competitors, one cannot be surprised it they use those means to their advantage. After all the parallel importers suppress their profits. It appears to me that the sooner the ECJ reconsiders this area of law the better. If the law is as the claimants say, the restriction on the principle of free movement of goods will be substantial. It must be borne in mind that, although the Paranova and Pharmacia cases were concerned with the parallel importation of pharmaceuticals, that was not the case in Loendersloot. The claimants' arguments will apply to all types of goods bearing trade marks.
What does 'necessary' mean?
- Assuming that the claimants' view of the law is correct and that an importer who repackages goods has to demonstrate that his use of the mark is necessary, what does that mean? Both Mr Thorley and Mr Silverleaf put the matter starkly. Necessary means necessary. Mr Thorley says that since the defendants could over-sticker each of his clients' products there is no necessity to re-box and that is an end of the matter. He says that necessity equates to essential, not to desirable, and it does not mean that the possibility of 100% market access should be enabled. Although Mr Silverleaf agrees with this, he goes further. He says that if the goods can be put on the market in the State of importation without use of the mark at all, then it is not necessary to use it. Since in this country there is heavy pressure on doctors to prescribe and pharmacists to dispense under generic names, it is clear that all of the products in suit in this action could have been imported and then put on the market by the defendants under their respective generic names without use of the registered marks. True that would have put the imported products at a substantial disadvantage to the same products sold by the proprietor under the marks but, nevertheless, access to the market is possible. It is also true that the Mr Silverleaf's clients would then, no doubt, have sued for passing off as they have done when Dowelhurst failed to use their registered trade marks on the outside of its boxes. If Mr Silverleaf is right, by one means or another the imported products will be excluded from the United Kingdom market completely.
- I can deal with Mr Silverleaf's more extreme submission quite simply. The market which is being considered in all the cases on parallel importation referred to above is the market in goods bearing or sold under the trade mark. In every one of them the court considered the extent to which the proprietor could restrain a parallel importer from marketing his goods which had been put on the market under his mark. In none was it suggested that the importer was not allowed to use the mark at all on goods if they were unharmed. The market for goods bearing the mark is different from that for goods without the mark. If Mr Silverleaf were right, all proprietors would be able to stop parallel importers from using their marks on the basis that it is always possible to sell products without trade marks if the price is dropped low enough and any such unbranded sales could not harm the specific subject matter of the mark. Nevertheless I see the logic in Mr Silverleaf's submission. That merely reinforces my view that the claimants' initial premise concerning necessity is wrong.
- For the less extreme argument particular reliance is placed on the passages in Paranova set out at paragraph 42 above. The claimants say out that the ECJ gave them the right to restrain importers who repackage in cases where they are "able to achieve packaging which may be marketed in the Member State of importation". It specifically said that this might be possible to achieve by way of re-labelling. Furthermore in that case the Court said that the proprietor's rights to sue were limited only to the extent that it could not "prevent" or "prohibit" the imported product being put on the market. Similarly in the same Decision it was said that the proprietor was only guilty of artificially partitioning the market if he took steps to ensure that imported product "may not ... be imported and put on the market in another Member State" (paragraph 52) or "cannot" be marketed there (paragraph 53). There is nothing wrong in hindering marketing; it is only placing a complete bar on marketing which offends against the Treaty or, as Mr Thorley puts it, what the ECJ has in mind is a denial of access to the relevant market rather than denial of the most commercially favourable access to the market. Furthermore the claimants place particular emphasis on the following passage in the Decision of the ECJ in Pharmacia:
"In contrast, the condition of necessity will not be satisfied if replacement of the trade mark is explicable solely by the parallel importer's attempt to secure a commercial advantage." (paragraph 54)
- In addition particular emphasis is placed on the passage in paragraph 46 of the Decision in Loendersloot which is set out at paragraph 42 above, in particular the words:
"The person carrying out the re-labelling must, however, use the means which make parallel trade feasible while causing as little prejudice as possible to the specific subject matter of the trade mark right."
- Mr Thorley says that making a trade 'feasible' does not mean that the parallel importer should be put in as competitive a position as the proprietor. What the importer is restricted to is the barest minimum use of the proprietor's trade mark as will allow the importer to put the goods on the market. He disputes Mr Green's suggestion that there should be a level playing field. A demand for a level playing field is only for the commercial advantage of the importer and, consistent with the passage from Pharmacia set out above, that is not what is meant by necessity. I must admit that I have some difficulty in understanding how to give effect to that passage in Pharmacia. Both the claimants and the defendants are in business for the purpose of making a profit. Most parallel importers only carry on that business because it is commercially attractive. If this passage is read as an immutable definition of what is and what is not necessity it would make all repackaging illegal. Even if national legislation forces re-boxing of imported goods, for example for safety reasons, the only reason a parallel importer would wish to import and comply with that legislation is to make a profit. According to the claimants, re-boxing in those circumstances is not necessary because it is explicable solely by the parallel importer's attempt to secure a commercial advantage. I do not believe that this was the intention of the Court and this illustrates the errors inherent in taking sentences out of a judgment and deploying them out of context. It seems to me that concentrating on the words in paragraph 54 of the Pharmacia Decision so as to exclude any actions of the importer which can be shown to "secure a commercial advantage" to him is to be diverted from the essential functions of Articles 28 and 30 of the Treaty. Just this type of diversion was soundly rejected by Advocate General Jacobs at paragraph 54 of his Opinion in Dior. There he said that the decisive test is whether in a given case prohibiting the importer from rebranding would constitute an obstacle to effective access by him to the markets of the importing State.
- This point aside, the central plank of Mr Thorley's argument, based on the passages from Paranova, Loendersloot and Pharmacia set out above, is that the importer is only allowed to do the absolute minimum necessary to enable him to access the market. That can be broken down into two parts. It must be determined what is meant by "access to the market" and it has to be determined what is the absolute minimum that the importer needs to do to achieve that level of access. What is a relevant "minimum" activity on behalf of the importer? This case is concerned with importing packaged products and Mr Thorley says that the minimum which is allowed to the importer is to put sticky labels on the boxes. As noted already, Mr Silverleaf's clients go further. They say that re-labelling is not necessary either. But does minimum mean minimum effort, cost, change, size or visibility? If it is shown, for example, that it in a highly mechanised factory it is simpler, cheaper, quicker and more reliable, to re-box the goods than to use manual labour to put labels on them, is that the minimum which the importer is allowed to do? I understand the claimants' position to be that the importer is restricted to effecting the least possible visual and physical change to the packaging. So, not only must the original packaging be left as intact as possible but the original livery must be as unspoiled as possible. As far as access to the market is concerned, and ignoring Mr Silverleaf's extreme submission set out at paragraphs 97 and 98 above, the claimants say that freedom to put the goods on the market under the mark is all that is required. The fact that the importer is in a poor position to compete because he is restricted to a form of packaging which some customers will find unappealing is irrelevant. Mr Silverleaf put this part of his case as follows:
"Provided that goods can be placed on the market in a legally or regulatory acceptable form, free movement is achieved. That this provides only limited competitive ability to the parallel trader is not relevant. What matters is whether he is free to market his goods, not whether he is able to compete effectively."
- If this is what is meant by necessity, there is little doubt that the claimants have proved that there is no necessity here in relation to any of the packs in suit. First it appears that where alternative forms of packaging are possible, as is the case here, not one of them can be called necessary. But, more than that, in every case it is probable that the defendants could have done less than they have physically and visually. They could have over-stickered the boxes rather than make new ones, they could have used smaller stickers than they have and, with some effort, in some cases they could probably have put the stickers in less obtrusive places than they have been put. Furthermore in such a stickered form the defendants' products could have been freely offered for sale to pharmacists and hospitals throughout the country. Sales would have been achieved, even if those needed to be at lower prices and even if, as is proved here, such sales were likely to be significantly smaller.
- Mr Green says that necessity cannot have the meaning ascribed to it by the claimants. He says that the term 'necessary' has to be measured against the commercial objectives of the Treaty. One of those is that goods sold in one Member State by the proprietor should flow freely and without hindrance throughout the common market. In this context the word 'hindrance' is important. Once goods are entitled to benefit from the principle of free movement it is not permissible for the proprietor to place hurdles in their path to hinder their saleability. He says that it is now well established that any hindrance, actual or potential, offends against the principles of free movement and that is so even if the hindrance can be regarded as de minimis. I accept that submission. I do not read any of the cases relied upon by the claimants as defining what is meant by necessity nor do I read them as restricting the meaning of the word "hinder" in this area. In any event it is useful to remember that Article 28 prohibits "restrictions on imports and all measures having equivalent effect". It is not limited to prohibitions on imports. I have already noted that if the claimants are correct in their submission that a proprietor of a mark can object to unnecessary repackaging, re-labelling and, probably, advertising, the restriction on the principles of free movement of goods will be substantial. If, however, parallel importers are not just restrained from making unnecessary use of a trade mark but what is necessary is given the narrow meaning advanced by the claimants then, to adopt the terminology of Advocate General Jacobs in Dior, it will drive a coach and horses through those principles. Free movement of goods and its mirror, exhaustion of rights, are concerned with what happens in the real commercial world. In my view, to force an importer to use packaging in a form which makes his product uncompetitive is to restrict his ability to import. In my view, and subject to clarification by the ECJ, if there is a requirement to show that use of a trade mark is necessary, that is met when it is shown that the use is reasonably required to overcome actual or potential hindrance to further commercialisation of the products. That would be so even if the means adopted is only one of a number of alternative, equally effective, means of achieving that goal. Here, because of the statutory requirements attached to securing PL[PI]s, the importer has to add further information in the English language both to the outside packaging of imported drugs and to the patient information leaflet. This means that he has to either re-label or re-box. As discussed towards the end of this judgment, the evidence shows that there is significant market resistance to the former. Re-boxing is necessary to overcome that resistance and, in my view, is therefore necessary to secure free movement of goods. This would be my view even if the market was simply less enthusiastic about purchasing re-labelled as compared with re-boxed product. But the problems facing the importers here are more formidable than that. On the evidence there is no doubt that some pharmacists will not purchase re-labelled products because of a perception, frequently based on experience, that some of their customers will not accept them. This means that there is a part of the market from which re-labelled product is excluded completely. It follows that, absent guidance from the ECJ to the contrary, in this case it is necessary for the defendants to engage in the various acts of repackaging which are complained of here.
- Finally on this point reference can be made to paragraph 55 of the Opinion of Advocate General Jacobs in Dior where he said:
"In general - at least where the importer is doing no more than using in the importing State the mark used by the proprietor there for identical products - the necessity test will be satisfied in the case of rebranding, since in most circumstances rebranding is consistent with the essential function of the mark because it serves to avoid confusion."
It seems to me that what the Advocate General was saying there was that, whatever was meant by the so-called 'necessity' test, it could not be used to obstruct parallel importation where such importation is consistent with and does no harm to the specific subject matter of the proprietor's mark. That is in accordance with the core principles set out above and reinforces my view that the necessity test does not override them.
Arbitrary Discrimination and Disguised Restrictions on Trade
- In paragraphs 58 et seq above in relation to the issue of arbitrary discrimination and disguised restrictions on trade, I cited passages from Advocate General Jacobs' Opinion in Paranova. For reasons set out there, I came to the conclusion that the claimants' attempt for enforce what they consider to be the Paranova guidelines for the purpose of interfering with activities of the defendants which do not threaten the interests protected by the specific subject-matter of the claimants' trade marks should mean that they are guilty of creating a disguised restriction on trade contrary to the second sentence of Article 30. That would produce the rather odd result that, if the claimants are correct in their submissions on Paranova, Loendersloot and Pharmacia, their reliance on what the ECJ says in those cases is permissible puts them in the position of offending against the second sentence of Article 30.
- This again lends support to my view that the claimants' arguments are flawed. It appears to me that the oddity only arises if one accepts the initial premise, namely that the claimants are 'justified', in accordance with the first sentence of Article 30, in interfering with the free movement of goods where the reason for the interference is not to protect the specific subject matter of their trade marks.
- These arguments emphasise the close inter-relationship between the two sentences of Article 30 and, just as I have come to the conclusion that it is necessary to ask the ECJ to clarify the law in this area in relation to the first sentence of that Article, I have also come to the conclusion that it should be asked to clarify the second sentence as well.
Notice
- This brings me to the issue of notice. As indicated already, this is only relied on by Mr Silverleaf's clients although Mr Thorley supports the arguments advanced on their behalf. The central propositions advanced on behalf of those claimants are as follows. The ECJ has decided that, at least in cases where a parallel importer repackages the goods, he is obliged to give notice of that repackaging to the proprietor in advance of placing them on the market in the country of importation. Mr Silverleaf says that this is a condition precedent to being allowed to market the goods. If the condition is not met, the marketing is not permitted. Mr Silverleaf says that since the ECJ has demanded that prior notice is to be given by the importer there must be a sanction for breach and the only possible sanction is to hold that activities committed without notice are actionable infringements. Since, according to the claimants, no notice was given by the defendants in respect of any of the repackaged products at issue in these proceedings, they infringe and the claimants can obtain relief.
- In fact Mr Silverleaf's submissions go further than this. First he says that the ECJ has not only required the importer to give notice of his intending packaging but also to supply samples to the proprietor. The latter point was not developed during submissions and seems to have been accepted by everyone to survive or fall with the arguments on notice. I think they are right to do so. The arguments for and against the requirement of notice apply equally to the requirement to give samples. It is therefore not necessary to consider this point further. More importantly, Mr Silverleaf says that the logic of the approach adopted by the ECJ means that similar notice must be given in cases where goods are only over-stickered. This is consistent with the amended statement of claim in the Boehringer Ingelheim against Swingward action which includes the following:
"15. The goods in relation to which the Defendant has used the signs OXIVENT and BOEHRINGER INGELHEIM and the panel device sign were put on the market in the EEA under those trade marks by or with the consent of the First and/or Second Plaintiff. However, there exist legitimate reasons for the Plaintiffs to oppose further dealings in the said goods.
Particulars
Hereunder the Plaintiffs rely upon the following matters:
(a) The Defendant has placed a sticker on the outer packaging of the product. ...
(c) The Defendant neither gave the Plaintiffs (or either of them) advance notice of the stickered product being put on sale, nor provided the Plaintiffs (or either of them) with a sample of the said product before putting it on sale."
- Consistent with this, relief sought by Boehringer Ingelheim includes an injunction restraining Swingward from:
"... putting on the market repackaged or stickered pharmaceutical products bearing any trade mark of the First and/or Second Plaintiffs registered in respect of such goods, without giving the First or Second Plaintiffs (as appropriate) at least 28 days notice and providing the First or Second Plaintiffs (as appropriate) with a sample thereof at the time of giving such notice."
- During the course of his opening, Mr Silverleaf modified his clients' case somewhat. His position now is as follows. His clients' objections to the lack of notice are maintained. However each act of importation, advertisement and sale is a separate infringement. Once the defendants' products were placed on the market they would have come to the attention of the relevant claimants and, as a practical matter, this means that those claimants have received notice of the defendants' activities. They say that the initial sales of each of the products in the offending packaging is are actionable infringements and they should be entitled to relief in respect of them. That relief sounds in money. As far as the future is concerned, they now adopt a pragmatic approach and accept that marketing of the goods has, in substance, given them notice in respect of the particular types of packaging currently being used. They therefore do not pursue injunctive relief in respect of any of the pleaded packaging. However they say that they are still entitled to injunctive relief in respect of any future packaging, whether for the drugs in issue here or not, where notice has not been given. Furthermore they say that the notice must be given at least 28 days before marketing begins and that in respect of the packaging already on the market they are entitled to damages for the first 28 days of sales. Whether they go further and seek damages in respect of the first 28 days of offers for sales is not clear.
- This raises the following issues; is there a requirement that advance notice be given, what amounts to adequate notice, what is the consequence if notice is not given and, on the facts, has notice been given here?
- The starting point of Mr Silverleaf's argument is Hoffman-La Roche, a case in which the defendant, Centrafarm, had purchased a drug, Valium, in bulk in the United Kingdom, re-boxed it into smaller packages to which the Valium trade mark was attached and then imported those packages into Germany. In its judgment the ECJ said:
"(a) The proprietor of a trade-mark right which is protected in two Member States at the same time is justified pursuant to the first sentence of Article [30] of the EEC Treaty in preventing a product to which the trade-mark has lawfully been applied in one of those States from being marketed in the other Member State after it has been repacked in new packaging to which the trade-mark has been affixed by a third party.
(b) However, such prevention of marketing constitutes a disguised restriction on trade between Member States within the meaning of the second sentence of Article [30] where:
- It is established that the use of the trade-mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between Member States;
- It is shown that the repackaging cannot adversely affect the original condition of the product;
- The proprietor of the mark receives prior notice of the marketing of the repackaged product; and
- It is stated on the new packaging by whom the product has been repackaged." [1978] ECR 1139, 1166.
- Mr Silverleaf also relies on Paranova in which the ECJ said:
"... a trade mark owner may legitimately oppose the further marketing of a pharmaceutical product where the importer has repackaged it and reaffixed the trade mark, unless the four conditions set out in the Hoffman-La Roche judgment, cited above, have been met." (paragraph 50)
- Nothing could be clearer. Absent compliance with the four conditions the trade mark owner can oppose further marketing of the imported product. I understand that this view has been adopted by a number of courts in other Member States.
- However, as soon as one considers what will happen if notice is not given, it becomes apparent that these passages give rise to real difficulties. Needless to say, if the importer's activities damage the specific subject matter of the trade mark then, subject to the provisions relating to disguised restrictions in the second sentence of Article 30, they can be restrained. Whether he has given notice or not, the proprietor of the mark is entitled to enforce his trade mark rights in accordance with the core principles set out in paragraph 34 above. Notice is not a shield which the importer can use to legitimise activity which damages the specific subject matter of the rights. Therefore in such a case notice must be irrelevant. However it is when the importer engages in activities which do not damage the specific subject-matter of the right that real problems arise. This may be illustrated as follows. An importer of pharmaceuticals re-boxes the product, for example because some of them have become superficially soiled. The re-boxed product is indistinguishable from the originals as distributed by the proprietor. There is no question of the re-boxed product undermining in any way the specific subject matter of the trade mark. The importer fails to give notice of the re-boxing. According to Mr Silverleaf, the proprietor can sue successfully for trade mark infringement. Mr Silverleaf's position is that whether or not the re-boxed product undermines the specific subject matter of the trade mark, if no notice is given the proprietor can sue successfully for infringement. The courts must order the products off the market, thereby preventing importation. Furthermore he accepts, as he must, that these principles must apply to any case of parallel importation of trade marked products, not just to the importation of pharmaceuticals. Indeed he asserts, as he must, that the same principles apply not only in cases where the products are actually re-boxed but also where they are over-stickered. He says that any of the imported products which have sticky labels applied to them and which his clients find acceptable because they cannot arguably be said to damage any legitimate trade mark interest of theirs, would be turned into infringements if adequate notice is not given before marketing. It is only fair to say that Mr Silverleaf did not appear terribly comfortable with this part of his case but his position is that the law has been laid down definitively by the ECJ and national courts must apply it. So the law according to his clients comes down to this, importation which does not damage the specific subject matter of a trade mark must be stopped if no advance notice is given to the proprietor even though, had notice been given, the proprietor would have no legitimate basis on which to object to the importation.
- The problems, however, do not stop there. The requirement of notice, if it exists, is there to protect trade mark interests. It is designed to allow the proprietor to enforce his trade marks against unlicensed use to which he objects. I have discussed above why a proprietor can object to use of his mark not just when it is attached to goods or their immediate packaging, but also when it is used, for example, in advertisements. If a proprietor can insist on advance notice of use of his mark on imported goods, he must surely be entitled to like notice in relation to any other use of his mark in relation to those goods. It would appear to follow that the requirements of notice which are said to arise under the recent jurisprudence of the ECJ must apply also, for example, to all advertisements placed by the importer or by others in respect of imported goods. Just as the proprietor has an interest in ensuring that the products in the box are not adversely affected by re-boxing, he has an equal interest in ensuring that other uses of the mark do not damage the legitimate message of his mark. So advance notice of all other uses of a trade mark must be given and if it is not then such uses are infringements, even if they do not damage the specific subject matter of the trade mark rights. Once again, Mr Silverleaf agrees that this must follow from the decisions he relies on and it is the reason why Boehringer Ingelheim seek relief not just in relation to re-boxed products but also to stickered products.
- It appears to me that this issue raises very similar concerns to those expressed above in relation to the issue of necessity. If the law is as Mr Silverleaf says, then a wide ranging and powerful instrument for preventing or dislocating the free movement of goods has been introduced under the guise of protection of trade marks which is de-coupled from the need to preserve the specific subject matter of those rights. Once again, if this is so one cannot be surprised if proprietors use the law to inconvenience those who are adversely affecting their profits by engaging in parallel importation. In these circumstances it is not surprising that Ms Edwards, the Trade Marks Manager in the Global Intellectual Property Department of Glaxo Wellcome said that during a meeting of senior Glaxo Wellcome personnel it was decided:
"... that we should try and improve the quality of parallel imports by requiring notice and samples "across the board" and also by raising any necessary objections."
From the evidence given during the trial, I have no doubt that this attitude was not designed to improve the quality of parallel imports as Ms Edwards claimed. Rather it was for the purpose of putting as many hurdles as possible in the importers' way.
- Mr Silverleaf's submissions warrant careful analysis of the major ECJ case-law on this subject. It is convenient to go through it in chronological order, not least because it illustrates how this area of law has developed and been refined over time.
The AHPC case
- In AHPC, the proprietor of a pharmaceutical product put it on the market under one mark, SERESTA, in the Benelux countries and under another, SERENID D, in the United Kingdom. The defendant imported from the United Kingdom into Benelux countries. It repackaged the product and applied the Benelux trade mark, SERESTA, to it and used that mark in its price lists and catalogues (p. 1825). The ECJ was asked whether Centrafarm could use its trade mark rights to prevent the importation of such rebranded goods. The ECJ noted the pre-eminence of Article 28 (Decision, paragraph 7). It held, in accordance with well accepted jurisprudence, that under the first sentence of Article 30 the proprietor of a trade mark acquired a prima facie right to overcome the principle of free movement of goods only to the extent necessary to safeguard the trade mark's specific subject matter (see Decision, paragraph 10). It then went on to consider the impact of the second sentence of Article 30. It held that where the proprietor had acquired such a prima facie right to enforce his trade mark under the first sentence of Article 30, it could be removed if the proprietor was partitioning the market artificially - for example by deliberately using different trade marks in different Member States.
- The court's approach to Article 30 is of significance. In essence it comes down to this; the first sentence sets the first hurdle to the proprietor enforcing his national trade mark rights. He will only be able to do so in cases where enforcement is needed to protect the specific subject matter of the rights. However, even if its requirements are met, the first sentence of Article 30 only gives rise to a prima facie right to sue. The second sentence of the Article specifies that that prima facie right can be removed if it is shown that the proprietor is partitioning the market artificially. Thus the second sentence of Article 30 has nothing to do with the actions of the parallel importer, only with whether the proprietor has done something which removes his prima facie right to sue for infringement. In these circumstances it is not surprising that the ECJ imposed no conditions, such as a condition of prior notice, on the importer. The first sentence of Article 30 is concerned only with whether the proceedings brought by the proprietor are for the purpose of safeguarding the specific subject matter of the trade marks. That is an issue which would be unaffected by notice. On the other hand the second sentence is only concerned with whether the proprietor's right to sue is being removed because of he is artificially partitioning the market. It is difficult to see how this could be used to impose any conditions on the alleged infringer, let alone an obligation of notice. If the proprietor is artificially partitioning the market, notice or the absence of it from the importer does not alter the position and the proprietor loses his right to sue. On the other hand if the proprietor is not artificially partitioning the market, notice or the absence of it from the importer still does not alter the position and the proprietor does not lose his right to sue. In other words notice should be irrelevant either way.
The Hoffman-La Roche case
- The issue of notice appears to have arisen for the first time in Hoffman-La Roche. The claimant sold a pharmaceutical under the trade marks ROCHE and VALIUM in, inter alia, Germany and the United Kingdom. Although the product was identical in each country, the number of tablets per pack was different. The pills were cheaper in the United Kingdom. The defendant imported from the United Kingdom into Germany and repackaged the goods. It applied the claimant's marks to the new packs. The claimant sued for infringement.
- The Court considered the two sentences in Article 30. As to the first, after considering the specific subject matter of a trade mark, it said:
"It is accordingly justified under the first sentence of Article [30] to recognize that the proprietor of a trade-mark is entitled to prevent an importer of a trade-marked product, following repackaging of that product, from affixing the trade-mark to the new packaging without the authorization of the proprietor." (Decision, paragraph 8)
- This is expressed in unqualified terms; the proprietor "is entitled" to prevent use of his mark on repackaged imported goods. This is not consistent with more modern jurisprudence under Article 30 in accordance with which the proprietor's entitlement only arises where it is necessary to safeguard the specific subject matter of the trade mark rights. If the importer repackages and applies the mark in a way which does not prejudice that subject matter then, according to current interpretation of the law, the proprietor cannot enforce his rights. If that is so, the last quoted passage is, it is respectfully suggested, difficult to reconcile with established jurisprudence, because it assumes that the proprietor is entitled to enforce his rights in all circumstances and whether or not the importer's actions are prejudicial to the specific subject matter. The ECJ then proceeded to consider the second sentence of Article 30 and said:
"Where the essential function of the trade-mark to guarantee the origin of the product is ... protected, the exercise of his rights by the proprietor of the trade-mark in order to fetter the free movement of goods between Member States may constitute a disguised restriction within the meaning of the second sentence of Article [30] of the Treaty if it is established that the use of the trade-mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between Member States." (paragraph 10)
- Once again, with respect, this does not accord with the modern jurisprudence of the ECJ. This paragraph is concerned only with cases "where the essential function of the trade mark ...is protected". In such cases, in accordance with the first sentence of Article 30 and the core principles set out above, the proprietor is not entitled to enforce his trade mark to prevent importation of goods. In such circumstances, one never gets to the second sentence of Article 30, which only comes into operation when the proprietor has a prima facie entitlement to restrict importation under the first part of the Article.
- The judgment then proceeds as follows:
"Although this conclusion is unavoidable in the interests of freedom of trade, it amounts to giving the trader, who sells the imported product with the trade-mark affixed to the new packaging without the authorization of the proprietor, a certain licence which in normal circumstances is reserved to the proprietor himself. ...
Since it is in the proprietor's interest that the consumer should not be misled as to the origin of the product, it is moreover right to allow the trader to sell the imported product with the trade-mark affixed to the new packaging only on condition that he gives the proprietor of the mark prior notice and that he states on the new packaging that the product has been repackaged by him." (paragraphs 11 and 12)
- These paragraphs also give rise to difficulties. First, it is not open to doubt that one person can be given a conditional licence under another's rights. Failure to comply with the condition means that the licence is not perfected and the potential licensee has no entitlement to use the rights he was to be licensed under. But where X has no rights which he can enforce against Y, Y's freedom to do what he pleases cannot be made subject to conditions. If an attempt is made to impose conditions and Y ignores them, X still has no rights to enforce against him. Where the principles of free movement of goods in Articles 28 and 30 override a trade mark owner's rights, he can no longer enforce them against a parallel importer. In those circumstances he has no rights under which the importer requires a licence and, under normal legal principles, the importer cannot be subject to conditions. The ECJ appears to have reached the conclusion that it did in relation to notice by treating the importer as if he had "a certain licence" whereas, of course, he did not. He did not need one.
- The above difficulties are echoed in the answers given by the ECJ to the first question asked of it:
"(a) The proprietor of a trade-mark right which is protected in two Member States at the same time is justified pursuant to the first sentence of Article [30] of the EEC Treaty in preventing a product to which the trade-mark has lawfully been applied in one of those States from being marketed in the other Member State after it has been repackaged in new packaging to which the trade-mark has been affixed by a third party.
(b) However, such prevention of marketing constitutes a disguised restriction on trade between Member States within the meaning of the second sentence of Article 36 where:
- It is established that the use of the trade-mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between Member States;
- It is shown that the repackaging cannot adversely affect the original condition of the product;
- The proprietor of the mark receives prior notice of the marketing of the repackaged product; and
- It is stated on the packaging by whom the product has been repackaged." (p. 1166)
- Once again (a) does not appear to accord with modern jurisprudence for the reasons set out at paragraph 126 above. In (a) the proprietor's right to bring infringement proceedings against parallel imports is not stated to be dependent upon a necessity to safeguard the specific subject matter of the rights. It is treated as a stand-alone right. In addition (b) appears to create surprising results. The prevention of importation will only constitute a disguised restriction on trade - and therefore be prohibited - if all four of the 'conditions' are met. So, if only three or less are met, the proprietor can prevent importation. Thus if it is established that the use of the trade mark rights by the proprietor will contribute to the artificial partitioning of the market between Member States, the proprietor is free to stop importation as long as it can be shown that he either has not received prior notice of the repackaged product or the new package does not state who did the repackaging. Similarly, if it is shown that the repackaging cannot adversely affect the original condition of the product, then in absence of notice or suitable statement as to the identity of the repackager, the proprietor can stop importation. Furthermore the court expressly noted that its conclusions applied generally, not just to cases involving pharmaceuticals (see Decision, paragraph 13). Therefore whether one is considering re-boxed carbonated drinks, golf balls or any other product, the proprietor of the trade mark can bring infringement proceedings if either he is not given notice or the name of the importer or shop keeper (whoever did the repackaging) is not written on the box.
- It is to be noted that the ECJ expressed these views in a case where neither the claimants nor the defendants appear to have raised the issue of notice. This is not surprising. The claimants wanted to stop the import trade in its tracks. It can be assumed that they would not have been satisfied if advance notice was all that were needed to clear the way for Centrafarm. Furthermore, it appears that Centrafarm had already given notice in relation to future repackaging (see p. 1170). The issue of notice was also not argued by any of the intervening parties nor by Advocate General Capotori. The issue was not raised in the questions submitted to the ECJ by the German courts. It follows that no one argued for or against notice nor did anyone address the question of what would happen if notice was not given. Similarly the issue of marking the new packaging with the repackager's name was not raised by either of the parties (not least because the repackaged products in suit were already so marked, so no issue turned on this), nor by any of the intervening parties. It was mentioned only by the Advocate General. It is on this shaky foundation that recent case law has been erected.
Pfizer Inc. v Eurim-Pharm GmbH [1982] ECR 2913
- In this case the importer took the claimant's United Kingdom pharmaceutical product and re-boxed it in new boxes with a window on the front through which the trade mark on the original blister packs could be seen. The re-boxed product was put on the market in Germany. Under German law this was an actionable infringement. The importer had notified the claimant in advance of its intentions and had marked the new boxes with its own name and the fact that it had repackaged the contents so, presumably, the issues of notice and marking the package with the importer's details were not before the ECJ. The Landsgericht Hamburg referred a question which was narrowly restricted to repackaging in boxes with windows. However the decision has wider implications.
- First, the court reiterated that Article 30 permits derogations from the fundamental principle of free movement of goods only to the extent to which they are justified for the purpose of safeguarding the specific subject matter of the trade mark rights (paragraph 6). Second, it identified the essential function of a trade mark to be as a guarantee of the origin of the goods (paragraphs 8 and 9). Third it noted that the Landsgericht's findings were to the effect that the type of packaging in issue before the Landsgericht was not "liable to impair the guarantee of origin" of the trade mark (paragraph 10). It then stated:
"In such circumstances the repackaging in fact involves no risk of exposing the product to interference or influences which might affect its original condition and the consumer or final user of the product is not liable to be misled as to the origin of the product, above all where, as in this case, the parallel importer has clearly indicated on the external wrapping that the product was manufactured by a subsidiary of the proprietor of the trade mark and has been repackaged by the importer." (paragraph 11)
It appears that this passage was crucial to the court's decision that the claimant's trade mark rights could not override the fundamental principle of free movement of goods. The words from "above all where" to the end of this passage indicate particular reasons why, in this case, consumers were not going to be misled. However the important factor in deciding whether the claimant could sue for infringement was whether or not the origin function of the trade mark was compromised by the importer's actions, not whether he had marked the boxes as described.
- It is also to be noted that although the Hoffman-La Roche case was the only one referred to in the judgment, the ECJ did not suggest that prior notice was a condition precedent to allowing importation and sale of repackaged goods.
The Paranova case
- Paranova has been considered at some length above. It is also of significance in relation to the issue of notice. Once again it is convenient to start with the Opinion of Advocate General Jacobs. In a passage of marked understatement he said:
"The precise justification for a requirement that the trade mark owner must receive prior notice of the repackaging is not clear from the judgment in Hoffman-La Roche v. Centrafarm, and there may be circumstances in which such notice would be superfluous." (paragraph 86, p. 3496)
- If the Opinion ended there, it would not advance Mr Silverleaf's case. It would be simple and adequate to say that where the repackaged goods do not harm the specific subject matter of the marks notice is superfluous. But the rest of the Opinion supports Mr Silverleaf. The Advocate General goes on in the same paragraph to say that prior notice "in general is not an unreasonable requirement" and suggests that it is justifiable on the basis that it helps to suppress counterfeits. With respect, it is a little difficult to see why a legitimate importer of unadulterated goods should be subject to restrictions, unrelated to the condition of his goods, so that the proprietor can more easily catch counterfeiters. Presumably the obligation of prior notice applies even when there are no counterfeiters. Furthermore the whole justification appears to me to be inherently divorced from reality. The whole point about these repackaging cases is that the importers change the packaging, for example to replace the foreign language. In not one case, to the best of my knowledge, has the importer's product after repackaging looked identical to the original. They can never be mistaken for counterfeits. In addition it is difficult to see how notice relating to authentic goods will have any impact on the pursuit of counterfeiters. Finally, the Advocate General's explanation for the requirement of notice does not touch upon the critical issue of what happens if notice is not given. Does it mean that goods which are being marketed in a way which does not harm the specific subject matter of the mark must be removed from distribution? If that is so, it appears to me that the punishment is far worse the crime.
- These observations aside, there can be little doubt that the Advocate General was of the view that prior notice must be given if an importer is to be allowed to deal in legitimate goods. For example he said:
"I would in fact go slightly further than the Court went in Hoffman-La Roche v. Centrafarm and hold that an undertaking which repackages trade-marked pharmaceuticals must not only give prior notice to the trade mark owner but must also provide him with a specimen of the repackaged product ..." (Opinion, paragraph 87 p. 3496 - emphasis added)
and
"The person who repackages the goods must in principle inform the trade mark proprietor and provide him with a specimen of the repackaged product." (Opinion, paragraph 89 p. 3497- emphasis added)
- The ECJ followed the Advocate General's lead. It reiterates the four conditions referred to in Hoffman-La Roche v. Centrafarm without qualification and stated:
"... a trade mark owner may legitimately oppose the further marketing of a pharmaceutical product where the importer has repackaged it and reaffixed the trade mark, unless the four conditions set out in the Hoffman-La Roche judgment, cited above, have been met." (Decision, paragraph 50 p. 3534)
- I do not see any way out of this. Absent clarification and reconsideration by the ECJ, it appears to be the law that a proprietor can complain about repackaged goods which have had the mark reapplied to the packaging if no prior notice has been given by the importer. His right so to do appears to be unqualified and, in particular, it is not dependent on showing that the activities of the importer will cause the proprietor or his marks any harm.
The Loendersloot case
- This case also supports Mr Silverleaf's submission. The ECJ reiterates without question the four conditions in Hoffman-La Roche (see Decision, paragraph 29, p. 6255) and then applies them in exactly the same way to a case involving the repackaging of alcoholic drinks (see Decision, paragraph 50, p. 6261/2). Any suggestion, therefore, that the requirement of prior notice applies only to pharmaceutical cases can be put to one side. It is of general application.
The Dior case
- Finally on this topic mention should be made of the Dior decision. This is considered at some length above. Just as it is inconsistent with the claimants' arguments relating to 'necessity', so too and for much the same reasons it is inconsistent with their arguments in relation to prior notice. If prior notice is required in respect of repackaging which does no harm to the proprietor's mark, so too should prior notice be required in relation to all other non-harmful uses of the mark including, in particular, use in advertisements. It is not surprising that in Dior it was not suggested either by the Advocate General or the ECJ that any such requirement for prior notice exists where advertising is concerned. However the fact that the approach adopted in Dior is inconsistent with the logical extension of Mr Silverleaf's argument does not alter the fact that in those cases where the issue has been raised, the ECJ has held that prior notice is a condition precedent to the importer being allowed to put repackaged goods on the market.
Conclusion in relation to whether notice is a pre-condition to marketing repackaged imported goods
- In the light of the developed cases law, I have to accept that Mr Silverleaf's primary submission in relation to the requirement of notice is correct. I do so with no enthusiasm. For reasons which are apparent from what I have said above, such a requirement, if carried to its logical conclusion, will empower proprietors to prevent importation of their own goods when that importation will do them no relevant harm. In my view that conclusion runs counter to the supremacy of the rule of free movement of goods. The facts of this case demonstrate how unappealing that will be. Mr Silverleaf made it clear that, absent notice, his clients would object to even the most innocuous repackaged goods. No doubt it will be said that it is only a little interference with the free movement of goods because competent importers will set in place procedures for ensuring that they give notice. To that there are a number of responses. First, in the real world not all importers are as familiar as intellectual property lawyers with the intricacies of this part of Community law. I have no doubt that many small scale importers who use the proprietor's mark to accurately state whose goods they are importing will be taken by surprise and unnecessarily turned into wrongdoers. I do not think it is the purpose of the Treaty of Rome to set man-traps for the innocent. But of more importance, I do not accept the legitimacy of the suggestion that unjustifiable interferences with the free movement of goods are acceptable as long as they are small. The creation of a common market is one of the prime functions of the Treaty of Rome and even small interferences should be eradicated. After all, even if only on a small scale, they will help to keep in place the trading barriers between Member States, and what is the purpose of retaining such barriers? Further if, as logic demands, the requirement for notice applies also to all advertisements, it is not possible to dismiss this as trivial.
- The decision in HAG II demonstrates that the ECJ is prepared to reconsider its case-law. I am not convinced that the full potential repercussions of the requirement of notice have been brought to the attention of the Court. It may well be surprised to find that its jurisprudence can be used to fetter the free movement of goods which do not harm the originator of them nor mislead the public. This case illustrates that that can and will happen. It seems to me that this is another issue which should be reconsidered by the Court as soon as possible.
- I therefore turn to consider the rest of the questions raised in relation to notice. The first is to decide what amounts to adequate notice. This really covers two issues; how is notice to be communicated and how long must the notice be?
How must notice be given?
- Mr Silverleaf says that notice must be given by the importer to the proprietor. It is not sufficient for the importer to hope or expect the proprietor to find out for himself, for example through the trade. On the other hand Mr Green says that all that is necessary is that the proposed use comes to the attention of the proprietor. In fact Mr Silverleaf's submissions on this point seem to me to be inconsistent with the concession he made on behalf of his clients. It will be recalled that he said that his clients were adopting a pragmatic approach in respect of the specific packages which are in issue in these proceedings. He put it in the following way in a letter sent to Mr Green and Mr Carr on the second day of the trial:
"Our clients have always accepted that by now they have had notice of all your clients' packaging complained of in these actions by reason of the fact that those products have now come to their attention. If the court were to conclude that the only valid objection our clients had to your clients' repackaging was lack of notice, we would accept that our clients' right to damages in respect of each product ceased 28 days after it came to their attention." (emphasis added)
Nevertheless, I shall proceed on the assumption that Mr Silverleaf maintains his argument that the importer must actually give notice to the proprietor.
- Unfortunately the case law of the ECJ supports both the claimants' and the defendants' submissions. In Paranova the ECJ said the importer had permission to market if he "gives notice to the trade mark owner" whereas in Hoffman-La Roche it said that it was sufficient if the proprietor "receives prior notice". In the absence of clear guidance one way or the other on this issue, it seems to me that the better view is that what counts is whether the proprietor receives or should be taken to have received prior notice. That will be the case either when he learns of the importer's intended use of his mark or when the importer notifies him. In the latter case the proprietor cannot avoid the consequence of notice having been given by, for example, avoiding service.
How long must the notice be?
- Whatever the correct mechanism for giving notice, the notice must be given some period in advance of marketing. How long is that to be? Even that apparently innocuous question causes problems because unless one knows what the precise purpose of the notice is, it is very difficult to say how long it should be. Needless to say, the claimants argue that the general purpose of notice is to give the proprietor sufficient time to analyse the proposed use of his trade mark so that he can come to a reasoned decision as to whether to object or not. If the objection is to be based on a fair assessment of whether the proposed use of the mark will harm the specific subject matter of the mark, no doubt a little time will be necessary to consult sufficiently within the proprietor's organisation for the purpose of working out the possible impact of the importer's proposed use. However, as pointed out above, the claimants say that any objection taken by the proprietor does not have to be justified on that basis at all. He is entitled to object if the importer's proposed use is not 'necessary'. It was apparent from the performance of many of the claimants' in-house witnesses during the trial, that a decision on that topic could be taken in seconds, not least because in virtually all cases the answer was almost bound to be in the negative.
- In the absence of guidance from the ECJ, it appears to me that the approach to notice, if it is a pre-condition, should be as follows. The purpose is to give the proprietor sufficient time to come to a fair decision as to whether to object or not. If no objection is to be made, that is a matter which should be conveyed to the importer as soon as possible so that any dislocation of inter-State trade is kept to a minimum. How long is needed for that exercise is something which is primarily within the knowledge of the proprietor. Therefore, if anything other than a very short time is needed, it is for the proprietor to demonstrate how long is necessary. In this case no attempt was made by Mr Silverleaf's clients to show that they needed anything more than a few minutes to make up their minds. Where, as here, the importers are well known to the claimants and readily accessible by phone, only a day or two at most would be reasonable. Of course if that sort of notice is all that is given and the response from the proprietor is a legitimate "no", this may cause dislocation and loss to the importer. However that is a problem he will have to shoulder if he decides to gives such short notice. It has no impact on how long the notice should be for the purpose of allowing the proprietor to come to a fair decision.
What is the consequence if notice is not given?
- Mr Green says that even if he is wrong in relation to notice and it was necessary for his clients to inform the individual claimants directly of their proposed use of the relevant trade marks prior to each new type of use and that his clients had failed to do so - which is the case except in relation to Glaxo - that would not get the claimants home on this issue for two reasons. First he says that the penalising his clients for such failure would be disproportionate and therefore impermissible under Community law. Secondly he says that such a breach is to be treated as de minimis and should be ignored for that reason as well.
- In relation to proportionality, Mr Green drew my attention to R v. IBAP, ex parte E D & F Mann (Sugar) Limited [1985] ECR 2889. E D & F Mann ("EDF") was a sugar trader and broker involved in exporting to non-Member countries. Such exports could, in certain circumstances, result in the payment of what was effectively a subsidy. However the exporter had to leave a deposit with the relevant official authority administering the scheme against the possibility that the subsidy would be repayable. EDF had placed a deposit of about £1.6 million. In accordance with the provisions of the relevant Community regulations, EDF was required to apply for export licenses by 12.00 a.m. UK time on a particular date at the very latest. Due to negligence within EDF, the tenders were received between 3 and 4 hours late. As a result of the delay and in accordance with the provisions in the regulations, the security was declared forfeit. EDF applied for judicial review upon the basis that the forfeiture was unfair and contrary to Community principles of proportionality. The matter was the subject of a reference.
- Mr Green relies, in particular, on the following passage in the Decision of the ECJ:
"It should be noted that, as the Court held in its [previous judgments] in order to establish whether a provision of Community law is in conformity with the principle of proportionality it is necessary to ascertain whether the means which it employs are appropriate and necessary to attain the objective sought. Where Community legislation makes a distinction between a primary obligation, compliance with which is necessary in order to attain the objectives sought, and a secondary obligation, essentially of an administrative nature, it cannot, without breaching the principle of proportionality, penalise failure to comply with the secondary obligation as severely as failure to comply with the primary obligation."
Later in the same Decision, the Court held that the penalty imposed by a Regulation was "too drastic" (paragraph 29) and said:
"Although the Commission was entitled, in the interests of sound administration to impose a time-limit for the submission of applications for export licences, the penalty imposed for failure to comply with that time-limit should have been significantly less severe for the traders concerned than forfeiture of the entire security and it should have been more consonant with the practical effects of such a failure." (paragraph 30).
By parity of reasoning, Mr Green argues that all the relief sought here by the claimants is disproportionate.
- Although I have great sympathy for Mr Green's submission, I cannot accept it. In the EDF case, the Court criticised the scope of the penalty compared with the breach involved. It said that the penalty went too far. What it did not say was that there should have been no penalty for the breach of the time limits set down in the regulation. There is no suggestion that those time limits were unreasonable. The trouble with Mr Green's submission is that it is not really directed at the issue of proportionality at all. The gravamen of his complaint is that any penalty for failure to give notice where no relevant harm is caused to the subject matter of the trade mark is too harsh and this is not really directed at the penalties themselves but is rather directed at the fact that the judge-made requirement of notice serves no useful purpose since it only has the effect of enabling proprietors to interfere with the free movement of their own goods within the Community when there is no relevant Community law justification for that interference. What Mr Green is really asking for is that there should be no penalties of any type for failure to give notice. If Mr Green's criticisms on proportionality have weight, as I think they do, they should be taken into consideration in deciding whether or not the judge-made rule on notice really is the law, rather than as a means for leaving it in place but depriving it of any practical consequence.
- Mr Green's de minimis argument can disposed of shortly. He says that failure to give notice is a technical breach which has no practical or material consequence. Relying on R v. MAFF, ex parte Ecroyd [1996] ECR I-2731, he says that it should not be treated as a breach at all. This argument fails for much the same reasons as the one relating to proportionality. I accept that the failure to give notice has no 'material' consequence in the sense that it does not harm any interest which is to be protected under Community law. On the contrary it facilitates the interference with free movement of goods. But Mr Green's real point is that, as a practical matter, it can never have a material consequence. The only cases in which failure to give notice will be of interest to proprietors are ones where the activities of the importer are not harming the specific subject matter of their trade mark rights. If they are harming that subject matter, proprietors can enforce their rights without recourse to issues such as absence of notice.
- If the claimants are entitled to relief against the defendants because of the failure to give proper notice, I do not see how it is open to the court to refuse to order relief. True enough the effect of such relief would be to penalise and thereby hinder the defendants in relation to their parallel importation business even though, on the facts of this case, they have not undermined or harmed the specific subject matter of the claimants' trade marks. I have serious doubts whether a court should be making orders which unjustifiably interfere with the free movement of goods but the cure for this must be to reconsider whether under Community law the claimants really do have a right to sue. The question of what relief would be appropriate can be left until after the references to the ECJ which I intend to order have been finally disposed of.
On the facts, has notice been given here?
- If the above views on the receipt and period of notice are correct, then the claimants here obtained reasonable advance notice of the defendants' proposed use of their marks. As explained in paragraph 11 above, each of the claimants receives direct notification from the MCA of the grant of a PL[PI] at the same time as the parallel importer. Furthermore notification of the grant of the licence is also published almost immediately in the London Gazette. I have no doubt that each of the claimants received adequate prior notice by these means. The suggestion advanced on their behalf that receipt of notification of the PL[PI] is not sufficient because such licensee are not always operated by the licensee fails for two reasons. First, the take up of PL[PI]'s well exceeds 90%. Therefore as a practical matter the grant of a licence is a strong indication that the drug will be imported by the licence holder. Secondly notice can only mean a warning of a current intention to do something in the future. That is what the grant of a PL[PI] amounts to. It is not a guarantee that the parallel importer will import.
- In addition to these factors which apply to all the claimants, there are two additional points which relate to some of the claimants. First Ms Hunt, whose evidence I have already referred to, also explained in her witness statement that since April 1997 the MCA has marketed software called "RAMA" (Remote Access to Marketing Authorisation). Glaxo Wellcome, Lilly and SmithKline Beecham all subscribe to RAMA. They are able to access all non-confidential information about all UK product license holders through RAMA. By entering the name of the medicinal product they receive information of all parallel distributors who hold a PL[PI] corresponding to their products. Apparently in respect of more recent licenses, not only are details of the licence available, but RAMA exhibits the importer's form of packaging.
- Secondly Mr Elford of Dowelhurst gave evidence that he attended part of a meeting with Glaxo on 8 October 1997, at which Paul Smith, commercial manager of Glaxo was present. He said that Mr Smith had come to visit Mr Taylor. Mr Taylor had invited Mr Elford to meet him. He said that at the meeting Mr Taylor and Mr Smith discussed Belgian products, especially SEREVENT inhalers and FLIXOTIDE Disk refills. He asserted that Mr Smith was shown packs of Dowelhurst's SEREVENT and FLIXOTIDE products and he was given the batch numbers of preparations, details of the quantities which had been imported, and the identity of the Belgian wholesaler from whom Dowelhurst bought them. There were good reasons for this meeting staying in Mr Elford's mind. He explained in his witness statement as follows:
"Shortly after Dowelhurst's meeting with Paul Smith, Dowelhurst's supplies of preparations from Belgium dried up. Our supplier telephoned us and said "Glaxo has cancelled our export back orders". Richard Taylor recently spoken to the supplier, C V Internos. I was present whilst Richard made the call and he told me that C V Internos' Export Department was told by Glaxo's Belgian Affiliate that Glaxo UK would not supply the Belgian Affiliate with any more stock because "all of it was being exported". Glaxo's Belgian Affiliate had then cancelled all of our suppliers' export departments' back orders, supplying them only with domestic requirement. At that time, we principally used one Belgian wholesaler, who was able to satisfy most of our needs. Now, we use six to seven wholesalers in Belgium to obtain our supplies, each of them having available only a small quantity of products."
- The meeting was the subject of cross-examination although the truthfulness of the latter statement was not challenged. Mr Elford stuck to his story. Mr Smith's evidence was interesting. In his witness statement he admitted that at the relevant time he wanted to obtain market intelligence about the parallel import market and to find out how it was affecting Glaxo's business. Under cross-examination he admitted that he had had lunch with Mr Taylor and that the subject of SEREVENT and FLIXOTIDE was raised. He admitted that Dowelhurst's business plans were discussed with him. He did not suggest that anything was obviously held back from him by Mr Taylor. He admitted that at the meeting some details of sales volumes were supplied to him by Mr Taylor but he said that he cannot remember being told the batch numbers. He also said that he could not recall being shown any of the SEREVENT and FLIXOTIDE boxes. After some pressing his position was that he could not be 100% certain that boxes were not in the room where the meeting was held but he said that he had no personal interest in the packs.
- I have come to the conclusion that the evidence given by Mr Elford on this issue is accurate. It is not in dispute that Dowelhurst were completely open during the meeting and disclosed commercial information to Mr Smith. No plausible reason was advanced why Dowelhurst would have disclosed all the information they did, much of which would have been commercially valuable and probably confidential, whereas they would not have been prepared to disclose the packs which they were about to place on the market for everyone to see. I am prepared to accept that Mr Smith cannot now recall being shown the packs. However I have come to the clear conclusion that they were shown to him and that at the time they probably registered with him. Glaxo were given notice as of that date in respect of the Dowelhurst packaging for those products.
Infringement under the Trade Marks Act, 1994
- I have assumed up to this point that the various pleaded actions of the defendants constitute infringements under our domestic registered trade mark legislation. There is no dispute that the defendants have 'used' the claimants' registered trade marks on and in relation to the pleaded packaging and that, prima facie, this amounts to an infringement within the scope of s. 10(1) of the Act (see paragraph 23 above). However s. 10(6) provides:
"Nothing in the preceding provisions of this section shall be construed as preventing the use of a registered trade mark by any person for the purpose of identifying goods or services as those of the proprietor or a licensee. But any such use otherwise than in accordance with honest practices in industrial or commercial matters shall be treated as infringing the registered trade mark if the use without due cause takes unfair advantage of, or is detrimental to, the distinctive character or repute of the trade mark."
- It seems to me that there could well be strong arguments that the defendants' activities fall outside the scope of infringement on the basis of this provision. However the case did not proceed on that basis. First Mr Thorley points out that this provision was not raised as a defence in some of the actions. He says that it would be wrong to allow it to be added at the very last minute because his clients would need to consider whether to call evidence as to what were honest practices in the relevant field. In any event no application has been made to amend the defences. Even in relation to those cases in which s. 10(6) was pleaded by way of defence, no substantial argument has been directed to the point since it is clear that all the parties are primarily concerned to determine the impact of Community jurisprudence. That could have much wider ramifications than the construction of a section which is unique to British trade mark legislation. For those reasons I have assumed that the claimants have made out a good case of trade mark infringement under our domestic law.
Section 12 of the Trade Marks Act 1994 and The Trade Mark Directive
- No mention has been made of s. 12 of the Trade Marks Act, 1994, which provides:
"(1) A registered trade mark is not infringed by the use of the trade mark in relation to goods that have been put on the market in the European Economic area under that trade mark by the proprietor or with his consent.
(2) Subsection (1) does not apply where there exists legitimate reasons for the proprietor to oppose further dealings in the goods (in particular where the condition of the goods has been changed or impaired after they have been put on the market)."
- This implements Article 7 of the Directive. It was agreed by all parties that the section and the Article are to be interpreted in the same way and that the established jurisprudence of the ECJ is to the effect that Article 7 of the Directive is to be read consistently with and subordinate to the provisions of Articles 28 and 30 of the EEC Treaty. For that reason all parties were agreed that no separate consideration need be given to these provisions.
The facts relating to necessity, re-labelling and re-boxing
- I have explained above that if the ECJ decisions give necessity the restrictive meaning advanced by the claimants, then none of the re-labelled or re-boxed products in issue in this case match up to it. On the other hand, if there is a requirement of necessity at all, then the defendants say that it is a lower test. It need only be shown that the use of the mark is reasonably required to facilitate full access of the imported goods to the market. They say that, so understood, all the pleaded uses are necessary. The claimants join issue with them. Furthermore the issue of necessity is, or should be, intertwined with the issue of harm to the specific subject matter of the claimants' marks. The claimants have gone on the offensive on this both in their pleadings and in some of their written evidence. They assert that the defendants' packs have seriously damaged their reputation and exclusivity although, of course, their primary case is not dependent on proving damage. As I have made clear above, on all of these issues, save for the first one, I find for the defendants.
- Before setting out the main reasons for coming to these conclusions, I should deal with one general point. Both Mr Thorley and Mr Silverleaf argue that each form of the defendants' packaging and allegation of infringement should be assessed on its own merits. It is true that each of the alleged breaches must be looked at. But many of the points apply equally to all or substantially all the packaging and to the same extent. For example it might be said that there is no evidence directed explicitly to showing that any particular patient or pharmacist had expressed hostility to over-stickered boxes of, say, PROZAC, because of the foreign language still visible on the underlying box. Therefore it cannot be said that it has been proved that there is market hostility to over-stickered PROZAC. In my view this is not the way to approach much of the evidence in this case. If the evidence is that a significant number of patients and pharmacists express disquiet over or simply will not accept drugs in packaging on which there is foreign language, it is not necessary to show that those views have been expressed specifically in relation to individual drugs. The objection is a general one and, absent evidence that pharmacists' and patients' attitude to PROZAC is materially different to their attitude to other drugs, it is to be assumed that they object as much to PROZAC in foreign language boxes as they object to other drugs with equivalent get-ups. It is unlikely that most pharmacists or patients who have an objection to over-stickered PROZAC will not have the same objection to all other over-stickered drugs and vice versa. The objection is not tied to the identity of the drug but rather to the nature of the packaging. I should also point out that the claimants' suggestion that one has to look at each piece of packaging on its own rather than look at the overall picture appears to have been applied rather unevenly. The claimants' assertions of serious damage to their respective trade marks are all at a high level of generality. No evidence has been furnished that any of the individual products and packagings in issue has caused any damage at all to the claimants.
(a) Damage to the claimant's reputation and exclusivity
- The claimants say that each of the pleaded packagings, whether re-boxed or over-stickered, is highly damaging to their reputation and exclusivity. Their pleaded trade marks are said to be gravely harmed by the defendants' activities. I have already said that there is no evidence to support these assertions in relation to any particular piece of packaging. But there is also no evidence to support the assertions at the high level of generality at which they are put by the claimants. Indeed there is much to suggest that they are not accurate. Had the claimants' assertions been true one would have expected some material to be put before the court to show that the claimants had suffered. There is none. But more than that, the absence of such evidence is particularly striking in this case for at least two reasons. First the defendants' activities have been on a large scale. They have made sales of tens of millions of pounds worth of parallel imported drugs in the packages in issue here and in similar packages for other drugs of the claimants. If damage was being inflicted, one would have expected some indications of it to have surfaced at some stage over the last few years. They have not. This is so even though it is clear that the claimants have been monitoring the parallel importation market closely for some time. Secondly the claimants' approach to this topic has been rather unusual. It might be said that there are likely to be practical difficulties in the claimants finding pharmacists and patients who could be persuaded to come to court to give evidence of confusion or damage to reputation. In fact the claimants have put in evidence from a number of pharmacists, almost all of which under cross-examination failed to support their case. But even ignoring this, the obvious route would have been to put in evidence from within the claimants of evidence of harm received, for example in the form of letters of complaint, or of information on damage being collected from the trade. The claimants failed to do either of these things. As to the first, I have no doubt that this is because they have not received any relevant complaints against the packaging in issue or in relation to any similar packaging produced by these defendants or anyone else. As to the second, the claimants, who must have had many employees who are steeped in a knowledge of how the market works, chose to put forward in-house witnesses most of whom knew nothing about what was really happening in the market place. Eli Lilly called Mr Hall who first became involved with parallel importation issues in February 1999. He had no contact with doctors or pharmacists. SKB called Mr Cox, an in-house lawyer and trade mark agent, who had no contact with doctors, patients or pharmacists and was unable to express any view. Boehringer Ingelheim relied on Mr Buck and Mr Romhild. As noted above, Mr Romhild is an in-house lawyer. He had no contact with and no knowledge of the practices of United Kingdom doctors, pharmacists or patients. He also knew of no complaint about any re-boxed product. Mr Buck did have experience of the pharmaceutical trade in the United Kingdom but under cross-examination he admitted that he had had no feedback from his sales force complaining about any re-boxed product, and knew of no such complaint.
- The only other major in-house witness relied on was Mr Kearney, a senior executive of Glaxo Wellcome, who said he had extensive experience of the retail pharmacy market and how general practitioners operate. All of the witnesses from within the parties to a greater or lesser degree came to court viewing the issues from the perspective of their respective employers. Nevertheless, I think that nearly all of them tried to be as fair as possible. I am not confident that the same can be said of Mr Kearney who gave the impression of being more concerned to argue Glaxo Wellcome's case than to answer the questions put to him. His witness statement contains a number of assertions to the effect that the defendants' activities will cause harm to Glaxo Wellcome. For example he states that the get-up of the packaging is the easiest and the most used indicator of source and that Glaxo Wellcome "is losing all the benefit of the goodwill generated by its drug while the drug remains patented". He says that if patients are prescribed the parallel import, in its own livery, from the start, they may view the import as the 'right' source and be reluctant to accept the drug in Glaxo Wellcome packaging. Further he complains as follows;
"I attach at Exhibit 'JK5' a SEREVENT product repackaged by Dowelhurst. The colour used by Dowelhurst is blue rather than the conventional green. This will lead to patient confusion and can be dangerous."
- None of these assertions was supported by any hard evidence. The following extract gives some flavour of this witness' oral testimony;
"Q. In your view the reason why there is no evidence of confusion as a result of the re-boxed products is because it is not that confusion is not (sic) likely to occur. What is likely to occur is breaking the association.
A. It depends what you mean by confusion. There is confusion as to who researched, developed and manufactured the product.
Q. And where do you get that from, that particular statement you have just made, that there is confusion?
A. Mrs. Powell showed that confusion in her letter.
Q. It is nothing that has ever been communicated to Glaxo. It is something you have found in the disclosure in this action, is it?
A. I think it is quite obvious from that letter.
MR JUSTICE LADDIE: Are you just relying on one letter or are there lots of these? Is there anything other than that one letter?
A. No. We have not gone out and researched patients in general. We spend a lot of money on developing our relationships with patients. We do know about the association between our products, such as a product like VENTOLIN and our company.
Q. There is not a shred of evidence in any of Glaxo's documentation that any doctor, patient, pharmacist, has ever complained to Glaxo or been in any way confused about re-boxed Glaxo products. You do not know of any such incident, do you?
A. I contend that that is not the issue.
Q. But it is true. You may contend it is not the issue, but it is true.
A. I do not know of much evidence of people complaining about the re-boxing.
Q. Any evidence. I know you say it is not the issue.
A. I know of lots of complaints generally about the acceptability of parallel trading, I think that is well known.
Q. That is not the question I asked you. You do not know of any evidence of patients, doctors or pharmacists having been confused or complaining that they have been confused about re-boxed parallel imports?
A. I know of evidence of re-boxed parallel imports causing confusion in patients as to where the product has come from.
Q. You have not mentioned any of this evidence in your witness statement?
A. I have; Mrs. Powell's letter.
Q. Mrs. Powell's letter. That is the letter from Dowelhurst's discovery; that is your evidence, is it?
A. That is some evidence that has been put before the court.
Q. There is, however, complaints to Glaxo about over-stickered parallel imports, is there not?
A. I am sure there have been, yes."
The reference in this evidence to Mrs. Powell's letter proved to be a red herring. Mr Kearney had assumed that it was a complaint about a re-boxed parallel import. In fact it must have been a complaint about an over-stickered product.
- In addition to these criticisms, I should add that the oral evidence from the claimants' in house witnesses suggests that what they refer to as damage is not really damage at all. They have adopted the stance that anything which is arguably an infringement of their trade marks is, for that reason alone, seriously damaging.
- As I have said, far from the evidence supporting the claimants' claim to damage, there is much to suggest that no relevant damage has or will be suffered. The very inconsistency of many of the objections taken by the claimants points strongly the other way. I have already commented on the fact that the claimants complain when their trade mark is on the box and they complain when it is not and that they object to different get-up being used and to the same get-up being used. The evidence relating to get-up is, perhaps, particularly strange. I can take some of the products in suit by way of example.
- Glaxo Wellcome complain about the use by the defendants of a different get-up to the one they use. Their case, supported by evidence such as that from Mr Kearney referred to above, is that their get-up is closely tied to them and that they will suffer harm if an alternative get-up is used by someone in association with their registered trade marks. However it emerged during the trial that, far from there being one get-up which is associated with Glaxo Wellcome, the company uses at least six different get-ups for its sales in Europe. They are depicted in Annex D1 to this judgment. Any of these products can be parallel imported into the United Kingdom and Glaxo Wellcome could not complain.
- Furthermore, and perhaps even more telling, is the evidence relating to the large multiple retailers such as Boots and Lloyds chemists. Such retailers account for some 40% of the retail pharmacy market, Boots and Lloyds alone accounting for some 25% between them. Each of the claimants has entered into agreements with them under which the respective claimants supply some of their proprietary drugs to the retailer in packaging which bears the claimant's trade mark but also the retailer's trade mark as well. Although the claimants have the right to object to the design of packaging to be used for these products, they have participated in putting on the market packages which are in get-ups which are wholly different to those used either by the claimants or the defendants. This can be illustrated by reference to Eli Lilly's product PROZAC. Dowelhurst has parallel-imported this product in at least three types of get-up. First it has over-stickered the Eli Lilly product available on the market abroad. One of the sources is Spain. The over-stickered product still displays Spanish words. This product is shown in Annex E1 to this judgment. It is not objected to. Dowelhurst also imports PROZAC and re-boxes it in its "Concept Generics" livery. Two forms of this are used. One has the words "Concepts Generics" on the box, the other does not. Both contain original PROZAC in blister packs as marketed by Eli Lilly, i.e. with the PROZAC name on. These are depicted in Annex E2. They are both objected to. However Eli Lilly has at least three licensees. Two of them, Boots and Moss Chemists, market the drug in boxes of their own design but carrying the PROZAC mark. There is nothing on the face of the packs which indicates any association with Eli Lilly. These products are shown in Annex E3. Finally Eli Lilly also licenses another company, Norton Healthcare Ltd. It supplies the product to that company in boxes of the licensee's design. In this case the mark PROZAC does not appear on the boxes or on the contents. The front of this pack is depicted in Annex E4.
- The same point can be made about ATROVENT (see Annex C1 and C2). Not only are there numerous other different get-ups used by other parallel importers but Boehringer Ingelheim has licensed both Boots and Lloyds Chemists who have used their own distinctive get-up. A picture of the Boots product is shown at Annex C3. In fact this depicts the refills, but I understand that the get-up is common to the boxes for both the refills and the inhalers themselves.
- The claimants argue that they have been put under commercial pressure to enter into these agreements with the likes of Boots, Moss, Lloyds and Norton because those companies threatened or implied that they were prepared simply to purchase generic versions of the claimants' drugs and to put them out under their own name. The claimants would have lost sales to third parties. First, of course, that cannot explain all of these licensed activities because if Boots, for example, obtained fluoxetine from a source other than Eli Lilly it could not legally sell it in boxes bearing the PROZAC mark. That would be a simple case of trade mark infringement. Further, Boots could not dispense that product against a prescription written for PROZAC. It can only do so if the prescription is written generically. But of more importance is the fact that this type of activity undermines the suggestion that use of different get-ups harms the claimants here. It was not suggested by any claimant that they had received notice of a single instance where any of these alternative get-ups, whether licensed or not, had caused any harm or confusion.
- At paragraph 170 I referred to the there being no evidence of 'relevant' damage. It is clear that the defendants' activities are harming the claimants in the sense that they are, to some extent, suppressing the claimants' profits. That is an inevitable consequence of the free movement of goods between high price and low price markets. I have no doubt that the present proceedings are an attempt by the claimants to prevent that damage. In so doing, the claimants are behaving as any rational businessman would. If their actions are permissible in accordance with Community law, they will continue. But the only damage which has been caused is not damage to their trade marks, reputation or exclusivity. Furthermore the extent of the claimant's arguments is highlighted by their stance in relation to the Concept Generics packaging. In relation to those, Dowelhurst has re-boxed and has not used the claimants' trade marks at all on the new packaging. Only the generic name of the drug is used, sometimes with and sometimes without their own name "Concept Generics". The only place where the claimants' marks are used is on the contents inside the box. For example the foil blister packs inside the fluoxetine boxes have on them the mark PROZAC so do the capsules within the blisters. This is hardly surprising since the capsules were made by Eli Lilly, packed by them and marked by them. In other words in respect of these products Dowelhurst has not affixed the claimants' mark at all. They cannot be sued in respect of the box, whatever its contents. In reality the complaint is that the defendants are selling the claimants' products on which the claimants have put their own marks. There is no evidence to support the claim of damage nor any reason to suspect that damage will be caused.
(b) The need to re-box
- A lot of evidence was given on this topic. If the Paranova line of cases make it the law that re-boxing must be 'necessary', the defendants say that they can prove that to be the case. This is because of the alleged resistance among pharmacists and customers to over-stickered products. That resistance is said to be the result of a number of factors. It is said that some patients exhibit marked, and in a small number of cases, physical resistance to foreign writing on the boxes. This is partly a reflection of xenophobia and partly a reflection of the fact that ill people, particularly older ones, feel insecure and are worried that relevant instructions or information are lost in the foreign language. It is also said that over-stickered products look unprofessional and shoddy and that some patients fear that the stickers are covering something up. All this is, or was, disputed by the claimants. The claimants from time to time originally argued that there was no resistance to over-stickered products. Mr Silverleaf even went so far as to suggest in cross-examination of Mr Elford that over-stickering was to be preferred. As he put it:
"If your products are cheaper what is your objection to the fact that they look cheaper when they are presented to the customer?"
- It is not clear how much of this part of the claimants' case now survives. In their written closing submissions the Boehringer Ingelheim and Glaxo Wellcome claimants say that "at the highest level of generality, and other things being equal" a majority of pharmacists preferred re-boxed to over-stickered products. They accept that there is resistance from some patients to over-stickered products and that resistance is based on a variety of grounds.
- In my view this is an issue which took up a lot of the court's time for no good reason. Not only does the evidence show quite conclusively that there is widespread resistance to the use of over-stickered boxes, but at all material times both before and since this litigation was commenced the claimants must have known that to be so. Each of them must keep a close check on the pulse of the industry. They must have known of the perceptions of pharmacists, doctors and patients. I do not believe that they could have avoided finding out that over-stickered products were less acceptable. In fact there is direct evidence in this case that at least some of the claimants were aware of the resistance in the market place at all material times. I shall deal with that evidence first.
- In 1999 Glaxo Wellcome and the Association of the British Pharmaceutical Industry ("ABPI") commissioned an independent research company, Taylor Nelson, to carry out investigations into the parallel import trade. ABPI is a trade association of which most, if not all, major pharmaceutical companies are members. Boehringer Ingelheim, Glaxo Wellcome, SmithKline Beecham and Eli Lilly are all members of the ABPI and the president of the Association is a senior executive of Glaxo. The report was produced by Taylor Nelson and supplied to Glaxo and ABPI shortly before Glaxo Wellcome commenced the current actions. It was initially produced as a confidential document in court, but Glaxo abandoned the claim to confidentiality at the end of the trial. The report states, among other things:
"Pharmacies buy based on price but they are very aware of the varying quality of product and availability. Many pharmacists spoke of changing suppliers because of out of stock problems or issues with the quality of the product. In some cases, the pharmacist refused to use PI suppliers who did not repackage into English language packs, while in others, although they did not refuse foreign language packs, there were less happy about their use." (p. 9)
"There was wide acceptance that UK product was superior to PI. The key reason for this was the packaging issue, with language, patient information leaflets and pack quality all being mentioned as important factors.
Many pharmacists referred to customer dissatisfaction with PI packs, although some said that they managed their expectation by carefully explaining that the product was the same." (p. 10)
- It ends with a series of recommendations:
"From the survey, we can identify a number of key areas, which GW/ABPI could progress with a view to reducing the impact of PIs on the UK brand;
... Maximising the 'added value' element of buying UK pack, such as the quality of packaging and the language issue." (p. 13)
- There is little doubt what this means. First, foreign language is a deterrent to the sale of parallel imported drugs. Second, it is to the advantage of companies like Glaxo Wellcome to ensure that their packaging has a higher quality appearance than that used by parallel importers. Forcing the latter to use over-stickered boxes would hinder their ability to access the market for both reasons. Mr Kearney was cross-examined on this document. I did not find his evidence convincing.
- This report is consistent with evidence given by Ms Edwards of Glaxo Wellcome during cross-examination. She was taken to an internal Glaxo Wellcome minute of mid-1998 dealing with parallel imports. The minute records that Glaxo Wellcome assumed that repackaging (i.e. re-boxing) was carried out by importers "to increase patient acceptability by presenting an English outer carton". Her evidence is as follows:
Q. The assumption is that patient acceptability will be increased by re-boxing?
A. It was assumed, I think this says .... This was our assumption as to why parallel importers were re-boxing.
Q. No, I think .... I see. It is assumed that currently repackaging is adopted. It is your assumption as to their assumption. It is fairly clear, is it not, that you also believed that?
A. I do not think there is any doubt that there is, or may be, some resistance from some patients to foreign writing..."
- I think that Ms Edwards was being frank and realistic when she said that there is no doubt that customer resistance to foreign writing exists. That resistance is experienced directly by pharmacists and is amplified in many cases into a reluctance or refusal by pharmacists to buy over-stickered parallel imports.
- SmithKline Beecham also disclosed a confidential report for the purpose of the action. It is dated April 1998, i.e. before these actions were commenced. Its purpose was to assess the impact of parallel imports on SmithKline Beecham's United Kingdom business. The parties agreed that this report was and should remain confidential and I made a suitable order accordingly. For the purpose of this judgment it is only necessary to note that in it it records that repackaging of parallel imports "is done to remove any potential customer animosity with respect to foreign language labelling on the original pack."
- Although there are no similar internal documents produced by the other claimants, I have come to the conclusion that it is overwhelmingly likely that one of the reasons the claimants have complained about re-boxed products is to force the parallel importers to employ over-stickered products, which they know will sell less well.
- In the immediately preceding paragraphs I have referred to particular internal documents of two of the claimants. However the primary issue is not what the claimants thought was the position but rather whether, as the defendants claim, there is in fact market resistance to over-stickered products. On this, the case is awash with indications that the resistance to such products not only exists but is significant. Of course the resistance is not universal. Some pharmacists are prepared to take over-stickered products and, where necessary, explain to patients that they are identical to the originals supplied direct to the market by the claimants. There is also a minute number of pharmacists who have expressed a preference for over-stickered products to those that have been re-boxed. They are swimming against a very strong tide.
- Some flavour of the evidence on this issue is all that is required. First, the defendants relied on the results of a questionnaire, the like of which I have never seen in a trade mark action before. There are somewhere between 9,000 and 9,500 independent pharmacy outlets in the United Kingdom. The defendants sent out questionnaires to between 3,500 and 4,000 of them. The form of questionnaire is shown in Annex F to this judgment. 1,200 responses were received. 1153 said that they preferred re-boxed, and 1116 indicated that their patients preferred re-boxed. Only 26 stated a preference for over-stickered. 782 stated that they would sell more parallel imported products if they were all re-boxed. 386 said that they would sell the same. In addition to this, literally hundreds of the responding pharmacists have written comments on the questionnaires expressing in their own words the reasons for their preference. Those comments refer extensively to the fact that patients do not like the presence of foreign writing on the packs or that the packs look shoddy, cheap or unprofessional when over-stickered. This exercise was criticised by Mr Malivoire, an opinion poll expert called by the claimants. He criticised the way the sample was selected, the fact that there were what proved to be a very small number of duplicate responses and the methodology employed. He even said that, because of an absence of control, the parallel importers may have procured or persuaded pharmacists to give particular answers. I find the suggestion that the defendants might have tried to put such pressure on hundreds or thousands of pharmacists scattered all over the country surprising, to say the least. Besides being a campaign of immense size and expense it would almost certainly have come to the attention of the claimants. No attempt was made to prove that anyone had done any such thing. The suggestion was not put, for example, to those pharmacists who had both answered the questionnaire and were called by the defendants as witnesses. No doubt some of Mr Malivoire's criticisms are justified to the extent that they reduce the ability to rely on the results as an accurate quantitative assessment of the perception of over-stickered products in the market. However, the results do give a qualitative assessment of the prejudices and objections of pharmacists and patients.
- Those results are consistent with the overwhelming bulk of the rest of the evidence, consisting mainly of the oral evidence of pharmacists, both in private practice and in hospital employment, which indicates that there is widespread and substantial resistance to parallel-imported pharmaceuticals supplied in over-stickered boxes.
- One of the points made by the claimants is that some of the market resistance to over-stickered products could be overcome by reducing further the price of products in such packaging. However this reinforces rather than undermines the point made by the defendants. What it comes to is that over-stickered product is less acceptable than product in clean new boxes bearing English writing only and will not be purchased by a significant proportion of the gatekeepers of the flow of goods in this market, namely the pharmacists. Some of them, but by no means all, will be tempted by much lower prices but that only illustrates their resistance to the over-stickered product.
(c) The need to over-sticker differently
- This is a topic which highlights some of the difficulties which are created if the claimants' views of European jurisprudence are right. Mr Silverleaf's clients object to some of the over-stickered products on the basis that the form of over-stickering used is not necessary. They say that some lesser form of over-stickering is all that is required and that they can therefore prevent importation and sale of the over-stickered boxes. The obscurity of the objections taken in practice have been referred to already above. It goes without saying that some other type of over-stickering is possible, so the defendants' over-stickering is not 'necessary' if that is given a narrow meaning. However even if the requirement of necessity can be met by the importer proving, as the claimants say he must, that the over-stickering is required to give reasonable access to all the market, it is difficult to see how the defendants here can prove that the over-stickering of which the claimants complain is required for that purpose. Put simply, there is no discernible benefit to the defendants in their attempt to access the market in using the over-stickering to which the claimants object rather than the over-stickering to which they do not object. This is because it is not suggested, nor could it be, that there is any difference which any customer would notice between them. But the reverse is true also. There is no discernible harm caused to any claimant by the over-stickered products to which they object as compared to the over-stickered products they accept. If European jurisprudence allows the claimants to interfere with the defendants' importation in these circumstances, it does not flatter that jurisprudence.
- The above conclusions cover all the major areas in respect of which the claimants say that the defendants' activities have caused them harm. I have also looked again at the individual packs which are the subject of complaint and the allegations of damage made in respect of them. None is made out. I should just add a brief comment in relation to one of the claims brought by SmithKline Beecham. It complains that Dowelhurst has imported its product paroxetine from France. In England that product is sold under the mark SEROXAT but in France it is sold under the mark DEROXAT. Dowelhurst has imported DEROXAT and re-boxed it in two forms for its Concepts Generics range. In neither case do the marks SEROXAT or DEROXAT appear on the outside of the box. These products are in all material respects the same in overall appearance to the packages of fluoxetine depicted in Annex E2, save that the word "DOWELHURST" appears on one of them. I have dealt with this type of packaging above and, for the reasons already given, it does not cause any relevant harm to SmithKline Beecham. However an additional complaint is made by the claimants. The patient information leaflet within the box bears on it not only the generic name of the product, paroxetine, but also both SEROXAT and DEROXAT. The claimants say that DEROXAT is confusingly similar to SEROXAT so that the use of the former infringes the English registration of the latter. Even assuming this to be so, this makes no difference to the issues in this case. The ECJ case-law referred to above demonstrates that a parallel importer can import using the same trade mark as used in the country of export and he can translate it into the mark used in the country of import, if different. There is nothing to suggest that he is prohibited from using the mark from the export country in the import country. But, in any event, there is no evidence or credible suggestion that the use of the alternative marks on the patient information leaflet has confused anyone or causes any harm to SmithKline Beecham.
Passing Off
- This leaves the issue of passing off. It is raised only by Mr Silverleaf's clients against the use of the Concepts Generic boxes. It is said that the failure to use the claimants' trade marks on the outside of the boxes (which they would have objected to anyway) while the contents consist of their products bearing their marks is actionable. Any passing off action is dependent upon showing, inter alia, a real likelihood of deception together with substantial damage to the claimant. The claimants fail on both issues. I need say nothing more about substantial damage since to do so would only be to repeat matters canvassed at length above. As far as misrepresentation is concerned, I understand Mr Silverleaf to concede that no pharmacist is misled. The misrepresentation, if there is any, must be found amongst members of the public. There is nothing in this case which suggests, let alone proves, that any members of the public have been deceived in any way at all. Furthermore, as pointed out in paragraph 40 above, the claimants cannot be in any better position under the law of passing off then they are under the law of registered trade marks.
SUMMARY
- This has been a long and detailed judgment. It may be convenient to set out in summary form the major findings of fact and law.
(A) Subject to further clarification from the ECJ and the points made below, the core principles underlying Articles 28 and 30 of the Treaty of Rome as applied to intellectual property right cases are as follows. Free movement of goods is fundamental to the creation, operation and development of the Common Market. Derogations from it are only possible where justified under Community law. One such justification exists where the principle of free movement of goods would give protection to activities which undermine an intellectual property right by harming that right's specific subject matter or function. The derogation extends no further than the justification for it. As a consequence, activities which do not harm the specific subject matter of the rights do not fall outside, but are protected by, the principle of free movement of goods. Even where derogation appears to be justified in accordance with the preceding concepts, if it is shown that the proprietor of the rights, deliberately or otherwise, placed his intellectual property rights in the way of free movement of goods for reasons which are not objectively justifiable or is using them to interfere with free movement of goods in a way which is not objectively justifiable, the derogation will not be allowed to prevail and the principles of free movement of goods continue to apply.
(B) Absent clear guidance from the ECJ to the contrary, a proprietor cannot deploy national trade mark law to interfere with the use of his own mark by an importer on or in relation to the proprietor's goods unless such use causes substantial damage to the specific subject matter of the mark. If it does not inflict such damage, it cannot be objected to, no matter what form the use takes and even if it is 'unnecessary'.
(C) None of the Decisions of the ECJ give clear support for the existence of a right in a proprietor to object to use of his mark which is not 'necessary', whether on re-boxed products or otherwise.
(D) If an objection of lack of necessity exists, it should apply equally to all uses of the trade mark by a reseller of imported goods, including use by way of over-stickering of products or in advertisements.
(E) The better view is that a reseller of imported goods can use the proprietor's trade mark for the purpose of further commercialising the products save where such use damages the specific subject matter of the rights.
(F) Where and to the extent that such use harms the specific subject matter, the proprietor can object to the same unless (i) such use is shown to be necessary or (ii) the proprietor's objection amounts to an arbitrary discrimination or a disguised restriction on trade between Member States.
(G) On the other hand, if a proprietor is given a right to object to use of his mark which is not necessary, necessity is proved when it is shown that the use is reasonably required to overcome actual or potential hindrance to further commercialisation of the products. That would be so even if the means adopted is only one of a number of alternative, equally effective, means of achieving that goal.
(H) A proprietor's attempt to object to use of his trade marks on parallel imported goods for the purpose of interfering with activities of the defendants which do not threaten the interests protected by the specific subject-matter of those marks should mean that he is guilty of creating a disguised restriction on trade contrary to the second sentence of Article 30 of the Treaty.
(I) Absent clarification and reconsideration by the ECJ, it appears to be the law, and subject to indications in Dior to the contrary effect, that a proprietor can complain about repackaged goods which have had the mark reapplied to the packaging if no prior notice has been given by the importer. His right so to do appears to be unqualified and, in particular, it is not dependent on showing that the activities of the importer will cause the proprietor or his marks any harm.
(J) In the light of Loendersloot, it appears that the foregoing requirement of notice applies not just to pharmaceutical goods. Further it should apply to all uses by resellers of the proprietor's trade marks, not just use on repackaged products.
(K) Subject to clarification by the ECJ, if notice is required then that requirement is met where the proprietor receives or is taken to have received prior notice. That will be the case either when he learns of the reseller's intended use of his mark (whether that was brought to his attention by the reseller or not) or when the reseller notifies him. In the latter case the proprietor cannot avoid the consequence of notice having been given by, for example, avoiding service.
(L) In the absence of evidence of any longer period of notice being required, two days' prior notice is sufficient.
(M) On the facts in this case none of the actions of the defendants of which complaint is made herein have caused or are likely to cause any damage to the specific subject matter of the claimants' trade marks.
(N) For reasons set out above, I have come to the conclusion that the claimants' attempt to enforce what they consider to be the Paranova guidelines for the purpose of interfering with activities of the defendants which do not threaten the interests protected by the specific subject-matter of the claimants' trade marks should mean that they are guilty of creating a disguised restriction on trade, contrary to the second sentence of Article 30.
- It appears to me that the outcome of this action is dependent upon the resolution by the ECJ of some important questions of principle. I have been informed that on 19 November of last year, the Vienna Regional Court of Appeals ordered that a reference be made to the ECJ for further clarification in relation to the so-called Paranova guidelines. It seems to me that it would be beneficial if the ECJ had before it at the same time all the questions arising in this area at law. Subject to submissions from the parties, I think it will be beneficial if a number of questions are referred to the ECJ. The areas to be covered are those indicated below.
Possible References to the European Court of Justice
- Subject to any submissions made by Counsel, I think that questions along the lines of the draft ones set out below should be referred to the ECJ.
One type of livery used by Glaxo Wellcome for the purpose of marketing Serevent (salmeterol xinafoate) abroad
Note: This packaging is not the subject of an express plea of infringement in the Glaxo Wellcome pleadings. However the equivalent packaging in relation to other marks is alleged to infringe and it is clear from the evidence that these claimants object to this packaging. No pleading point was taken by the defendants.
Competitors' overstickered products which Boehringer Ingelheim say are acceptable
This is acceptable to Eli Lilly. The design of the Eli Lilly box
