Too well known for your own good. Free movement of goods and protection of trade marks

Artificial partitioning of the market. How the re-branding of a drug by a parallel importer was ruled lawful by the Court of Appeal of England & Wales (Civil Division)

Typology: Case Law
Tags: Trade Mark

The Court of Appeal found that the enforcement against a parallel importer of a trade mark used for a pharmaceutical product created an artificial partition in the market in the UK and was a disguised restriction on trade between Member States which made it unlawful, pursuant to art.36 TFEU.

The Appellant/Defendant, Doncaster Pharmaceuticals Group Limited (“D”), a well-known UK based parallel importer of pharmaceuticals, imported a drug from France and Germany, where it was marketed under the trade marks “Céris” and “Urivesc” respectively, into the UK where they marketed it under the trade mark “Regurin” by re-branding the boxes with “Regurin” stickers.

The Claimant/Resistant, Speciality European Pharma Ltd (“SEL”), was the exclusive licensee of the Regurin trade mark in UK and it brought action against D for infringement of trade mark.

The first-instance judge held that D’s re branding infringed the “Regurin” Trade Mark.

D appealed to hear the Court of Appeal reversing the first-instance decision.

At the heart of the Court of Appeal’s decision are the basic free movement provisions of the Treaty on the Functioning of the European Union (TFEU) namely: Article 34 which provides that quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States and Art. 36 which provides that the provisions of Articles 34 […] shall not preclude prohibitions or restrictions on imports […] justified on grounds of […] the protection of industrial and commercial property and that such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

In essence the rights of the trade mark owner to enforce the trade mark give way, where this condition is established, to the more important principle of free movement.

In his judgment Lord Justice Floyd provides a remarkable analysis of the current ECJ’s case law on the artificial partitioning of the market. He refers extensively to the following landmark ECJ decisions:

a) The joined cases C-427/93, C-429/93 and C-439/93 Bristol-Myers Squibb v Paranova (“BMS”) where the ECJ explained that the trade mark owner could not legitimately enforce a trade mark against a re-packaged or re-labelled parallel imports if five conditions are established namely, and as summarised in C-384/04 Boehringer Ingelheim and others: a) It was necessary to repackage to market the product; b) No effect on original condition and proper instructions; c) Clear identification of manufacturer and importer; d) Non-damaging presentation; and e) Notice.

b) Pharmacia & Upjohn SA v Paranova A/S (C-379/97) where the ECJ ruled that it was for the national court to decide, in any given case, whether the circumstances made it necessary for a parallel importer to replace the original trade mark on packaging with the trade mark that was used in the country of importation, in order for it to effectively market the product there; and

c) Boehringer Ingelheim v Swingward (C-143/00) (“Boehringer”) in which the ECJ ruled that the replacement packaging of pharmaceutical products is objectively necessary within the meaning of the ECJ’s case-law if, without such repackaging, effective access to the market concerned, or to a substantial part of that market, must be considered to be hindered as the result of strong resistance from a significant proportion of consumers to relabelled pharmaceutical products.

After considering briefly also three national decisions (Sweden, Denmark and Germany) where re-branding had been considered and where, in all three cases, the national courts found that there was no necessity to sell under the trade mark, Lord Justice Floyd distils the current ECJ’s case-law as follows:

1) Subject to compliance by the importer with all the BMS conditions, a trade mark owner may not enforce his mark against parallel imported goods which are re-branded if it is established that it is necessary to re-brand in order to gain effective access to the market

2) Effective access to the market is not achieved by being able to place some goods on the market.

3) It may be necessary to re-brand where the parallel importer is not excluded from the whole of the market, but is merely excluded from a substantial part of it or from a significant proportion of consumers (like the alternate local sizes in BMS, and the label-resistant group in Boehringer);

4) In determining whether it is necessary to re-brand, the court must consider what alternatives exist for the parallel importer, and whether they are realistic (e.g. trying to eliminate label-resistance amongst pharmacists or consumers).

5) Whether it is necessary for a parallel importer to re-brand in order to gain effective access to the market in a particular case is a question for the national court to decide, applying these principles.

Having assessed the ECJ’s case-law as above, Lord Justice Floyd considers the crucial question of this case which is whether the High Court judge had been entitled to hold that by adopting its own brand D could realistically compete for the whole of the market by seeking to persuade doctors to prescribe it.

The evidence established that, despite generic competition, there remained a proportion of the prescription market which was resistant and which demanded Regurin.

Lord Justice Floyd in particular gives credit to D’s argument, which was somehow dismissed by the judge of the first instance, that it was unrealistic for it to adopt its own brand for its parallel imports and market them directly to doctors as to do so the parallel importer would have asked the doctors to place reliance on an inherently unreliable source of supply - the parallel importer’s supply line. On the basis of the regular interruptions of supply which are the lot of the parallel importer it would be verging on the irresponsible to encourage a doctor to prescribe an own brand of a parallel importer.

The conclusion that Lord Justice Floyd reaches is that it is not realistic for a parallel importer to adopt its own brand to market a parallel imported drug and therefore a significant portion of the market at both prescribing doctor and pharmacist level remains inaccessible to D.

Therefore the enforcement of the trade mark against the background of the national practices in this case create an artificial partition in the market in a way which makes it unlawful, pursuant to the second sentence of Article 36 of the TFEU to enforce the Trade Mark.

The Appeal was allowed.

(Altalex, 11 May 2015. Article by Francesco Camilotti)

England and Wales Court of Appeal

Civil Division

Judgment 6 February 2015

Full transcript of the case

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