The Court of Appeal has decided that arguments concerning breach
of competition law may be used in defence of trade mark
infringement allegations in a parallel trade case. In
Oracle America Inc, (formerly Sun Microsystems Inc) v M-Tech
Data Ltd branded computer hardware was imported from outside
the EEA into the EEA. In November 2009 the High Court gave
summary judgment to Oracle on the basis of trade mark infringement,
rejecting the importer's complaints about Oracle's alleged
anti-competitive behaviour. The Court of Appeal has now found
this approach to be overly simplistic and has permitted competition
law arguments to be made in defence at trial and has also indicated
that the case may call for a reference to the ECJ. The result
comes as a blow to brand owners who are now likely to face
additional difficulties in preventing parallel trade from outside
the EEA.
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Background
M-Tech, a dealer in second hand hardware, had bought in the USA
disk drives which were branded with Sun Microsystems' trade
mark and imported them into the UK for onward sale. Sun alleged
trade mark infringement on the grounds that it had not consented to
these products being sold on the EEA market and applied for summary
judgment. Its evidence demonstrated that the products had first
been supplied by Sun to China, Chile and the USA.
The worldwide secondary market in computer hardware was very
substantial. M-Tech stated this to be worth $260 billion per annum
of which $160 billion was accounted for by dealers independent of
authorised manufacturer networks. In the EEA the figures were $1.07
billion in 2007 of which $0.64 billion comprised trade outside
authorised networks. Trade was substantial as hardware was durable
and transport costs cheap compared to the value of the goods. The
previous history of a product was often impossible to ascertain and
was not usually available from the vendor.
Sun acknowledged this on its website which warned of its trade mark
rights and of the dangers of purchasing grey market products, even
where they were marked with a EU serial number, because even
products manufactured by Sun in Europe were as likely to be first
sold outside the EEA as within it. Sun itself was in a position to
ascertain the destination of first marketing by reference to its
internal databases, but had refused to supply this information to
independent traders.
M-Tech argued that Sun's enforcement of trade mark rights was
contrary to Articles 28-30 (now Articles 34-36) of the EC Treaty as
the effect was to prevent the attainment of a single market in
hardware which has been marketed by Sun or with its consent in the
EEA. M-Tech claimed that Sun wanted to secure the secondary market
for itself – hence its aggressive response to requests
for information from independent traders and also its vigorous
enforcement of trade mark rights. The result of this, it was
argued, was to dissuade independent traders from dealing with any
Sun product, not only those originating from outside the EEA, for
fear of being sued. This had caused artificial partitioning of the
legitimate market in Sun branded hardware within the EEA, caused
legitimate parallel trade to dwindle and permitted Sun to control
the secondary market via its own network, thereby maintaining
artificially high prices.
Further M-Tech alleged that Sun's enforcement of its trade mark
rights was contrary to Article 81 (now Article 101) as the
agreements between Sun and its distributors required distributors
to buy Sun equipment within the authorised supply network whenever
possible.
High Court decision
The judge, Mr Justice Kitchin, granted summary judgment, despite
noting the remark of the Court of Appeal in Doncaster
Pharmaceuticals v Bolton Pharmaceuticals concerning summary
judgment: "The relevant law is still in the process of
formulation and, rather as this Court has held in Sportswear
SpA v Stonestyle Ltd..., summary disposition is not
appropriate in what is a developing area of law".
He reiterated the law set out by the ECJ in the Davidoff
cases (C-414 to 416/99) which made clear that the trade mark owner
has a right of action to prevent marketing of his product on the
EEA market for the first time without his consent. He concluded
that "the application of these principles in the context of
the present case would seem to lead to the inevitable conclusion
that M-Tech has no defence to the claim".
The Judge assumed that M-Tech's allegations against Sun were
correct. However, he ruled that the answer lay within the Trade
Mark Directive and Regulation which set out a complete code
relating to registered trade mark rights: the trade mark owner is
expressly given the right to first marketing in Europe and there is
nothing to suggest that this right must then be considered by
reference to competition law. Any remedy concerning Sun's
failure to publish its database or assist independent traders must
lie in competition law. Under Article 81, the High Court found that
there was no nexus between this alleged breach and the enforcement
of trade mark rights.
Court of Appeal decision
By the time of the appeal, Sun Microsystems had changed its name
to Oracle. Also, at this stage M-Tech introduced a further argument
in defence that its trade mark rights were being "abused"
and that the law was developing in the area of abuse of
rights.
The Court held in a concise judgment that there was a real prospect
of establishing at trial that the Trade Marks Directive had to be
interpreted by reference to Articles 28 and 30 of the EC Treaty and
that on M-Tech's case, a breach of Article 28 would be shown,
which would affect Oracle's right to sue for trade mark
infringement. It cited in support the case of Van Doren
C-244/00, in which the ECJ had applied Articles 28 and 30 to a
parallel trade case where a brand owner sought disclosure by an
importer of his sources.
Further, the Court commented that Oracle's alleged practices arguably had more to do with restricting imports with the object of preventing price competition within the EEA and thereby protecting Oracle's profit margins, than with the proper exercise of the right to control the first marketing of its products within the EEA. While it may be that these are complaints to be made via competition law channels, the point was arguable.
The Court found that EU law concerning of abuse of rights was developing and that the application of the doctrine on the facts, as alleged by M-Tech, was a possibility and therefore could not with certainty be excluded as an argument.
Lastly, the Court held that there was an arguable point on the
connection between trade mark rights and competition law arguments.
Oracle's arguments did not take account of the allegation that
the agreements with distributors formed part of an overall scheme
for excluding secondary traders from the market. The ECJ had not
previously held that Article 81 could not be used in trade mark
cases.
Therefore the Court found that the summary judgment should be set
aside and the defences argued in full at trial. Further it was
directed that Oracle apply for a case management conference when
the judge could consider whether to make an order expediting the
trial. The Court further stated that there was a strong case for a
referral to the ECJ, after the facts had been considered in further
detail, as the issues were not acte clair and involved
questions of economic policy likely to be of significance to the EU
as a whole, commenting "the economic function of parallel
imports and the grey market is controversial".
Comment
This is an unwelcome decision for all brand owners, and is
highly vulnerable to a reference to the ECJ. This would delay
matters considerably and lead to great uncertainty for both brand
owners and parallel traders, but may be inevitable. Previous Court
of Appeal decisions had refused summary judgment in other trade
mark infringement cases. In Sportswear SpA v Stonestyle
Ltd the Court decided that a breach of Article 81 could
possibly constitute a defence to trade mark infringement (but the
case later settled before trial). In Doncaster Pharmaceuticals
v Bolton Pharmaceuticals, which concerned split ownership of
trade marks, the Court wanted more details on the historical facts
and so refused summary judgment. By contrast, in the current case,
the facts were considerably more clearcut. Nevertheless, the
relationship between intellectual property claims and competition
law considerations has always been controversial and there are
undoubtedly real issues for traders in identifying the provenance
of goods in which they trade.
For a copy of the judgment, click here.
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