UK COURT DIARY

Parallel Imports Update

Two recent appeals concerning pharmaceutical repackaging have aired important issues on the extent to which parallel importers may legitimately interfere with original packaging and branding. The Court of Appeal has also considered the question of when a brand owner is deemed to have exhausted his rights by placing goods on the market within the EEA.

 

Boehringer Ingelheim KG & Another v. Swingward Ltd. & Others

In this case, the claimant pharmaceutical companies objected that various techniques employed by parallel importers to adapt foreign packaging to U.K. regulatory requirements amounted to trade mark infringement and passing off.

 

Restickering and Re-boxing

The crux of the appeal was whether parallel importers who re-boxed genuine goods in order to achieve a neater pack appearance were infringing registered trade marks by applying the marks to the new packs.

Under existing ECJ guidance on Article 7 (reproduced at end of article) of the E.U. Trade Marks Directive, such repackaging would not infringe if the repackaging was objectively necessary. Objective necessity included circumstances where, if packs were overstickered rather than repackaged, a parallel importer would encounter “strong resistance from a significant proportion of consumers” so that “effective access to the market concerned, or to a substantial part of that market” would be hindered.

In this case, the brand owners argued that repackaging was not objectively necessary because overstickered packs were not strongly resisted. The parallel importers were therefore not entitled to go further than applying stickers to existing packs.

The Court of Appeal agreed with the High Court, however, that there was in fact a strong resistance to the purchase of overstickered pharmaceuticals. Restickered boxes had a less professional look than neat, new boxes, and even neat restickering could not always cover all foreign writing on a pack. Evidence suggested that a significant number of patients would avoid such boxes because of the concern that they could be missing important information. Consequently, pharmacists were reluctant to buy restickered packs. Re-boxing was therefore objectively necessary.

It was no answer to say that pharmacists could explain to patients that restickered boxes were no less safe or informative than the originals. “This is not the real world,” Jacob LJ wrote in his judgment. “Pharmacists have better things to do than to explain things to concerned patients. They have to ask themselves whether the cost in time of explaining a stickered box is worth the extra profit to be made by buying parallel imports.” If that were not the case, the Court questioned why the brand owners had invested so much in this litigation.

 

De-Branding and Passing Off

A further technique employed by the parallel importers was de-branding, which involved re-boxing without re-applying the original trade mark. The product was sold under a generic name instead.

One of the claimants contended that de-branding involved a misrepresentation that the drugs were sourced from a generic manufacturer rather than from the brand owner, and therefore amounted to passing off.

The Court of Appeal gave this argument short shrift. There was no evidence that any pharmacist or customer had been deceived. Substantial sales had already been made, and the significant efforts and resources invested in this case could have been expected to have unearthed such evidence if it existed. This claim was roundly rejected.

 

De-branding, Co-branding and Trade Mark Infringement

In addition to de-branding, some of the importers practiced co-branding, which involved re-packaging in the parallel importer’s own livery, or with the parallel importer’s own trade marks as well as those of the brand owner. The pharmaceutical companies argued that these practices undermined their rights and that such an effect constituted a legitimate reason to oppose further commercialisation under Article 7.

In the High Court, Laddie J. had held that both de-branding and co-branding could affect a brand owner’s rights by reducing public awareness of his mark or by undermining his exclusive reputation and the link between mark and owner in the public mind.

The Court of Appeal agreed that some co-branding could damage a mark’s reputation, but found that there was no evidence of damage in this case. In particular, there was no evidence that the co-branding had suggested a link between the importer and manufacturer in a way that had led to substantial confusion, and no evidence that the de-branding had caused any damage at all. On the objection to de-branding, Jacob LJ was particularly scourging: “I do not think,” he wrote, “that a trade mark owner has any right that requires subsequent dealers in his product to keep his trade mark on the product.”

Despite this clarity, however, courts across Europe were adopting different approaches to these issues and on when such practices could be deemed objectively necessary. The Court therefore indicated that it would refer further questions to the ECJ seeking clear guidance on restickering and re-boxing.

 

Glaxo Group Limited v. Dowelhurst Ltd.

This was an application for summary judgment in a case where the claimant had sold pharmaceuticals within the EEA at discounted rates on the understanding that they would only be used for humanitarian purposes in Africa. In fact, the drugs were sold to a Swiss company who sold them on to a parallel importer. The drugs then found their way onto the U.K. market, where the claimant sued the importer for trade mark infringement.

Under Article 7, the claimant’s rights would have been exhausted if, by its sale, it were found to have put the goods on the market in the EEA. The claimant argued that it had not done so because even though the sale was made in the EEA, the claimant had not intended that the goods would be sold within that territory. The first buyer’s decision to sell the drugs onward rather than to use them in Africa was “cheating,” the claimant alleged, although there was no evidence that any contract had been broken.

The German courts had already found on virtually identical facts that “goods are put on the market where the buyer has the power of disposal within the market” (Glaxo v. Kohlpharma, 20 March 2003, Hanseatisches Oberlandesgericht, Hamburg). This applied even where the buyer was under a contractual duty to export the goods. The Court of Appeal agreed that there were real problems with deciding that the seller’s intention should be determinative. A sale without contractual restrictions gives a buyer the right to dispose of the goods as he wishes, and “it seems unlikely that ‘put on the market’ can depend purely on the vagaries of an unenforceable and a freely changeable intention of either side.”

The Court held that the full facts of this case were not yet known and could be highly influential. It refused summary judgment and ordered the case to go to trial. It declined to make a reference to the ECJ, which it noted was already due to hear Peak Holding v. Axolin-Elinor, a reference from the Swedish Court of Appeal on the position where there has been a sale in the EEA subject to a contract that the goods would not be sold there.

 

 

Comment

In Boehringer, Jacob LJ was scornful of the general principle allowing importers of genuine repackaged goods to be sued for trademark infringement. He observed that, “Sometimes I think the law may be losing a sense of reality in this area—we are, after all, only considering the use of the owner’s trade mark for his goods in perfect condition. The pickle the law has got into would, I think, astonish the average consumer.”

In the Court’s view, parallel imports are more properly objectionable only where they amount to unfair competition, and existing rules on passing off were, in its view, adequate to deal with such cases. Use of trade mark law to deal with these issues involved “stretching” the law further than it was designed to go, in order to bring parallel importers within the concept of trade mark infringement. It was this stretching that made the issue so complex and had necessitated so many references already for guidance from the ECJ. The Court in both Boehringer and Glaxo expressed real reluctance to involve the ECJ further, although in Boeheringer it ultimately agreed to do so.

These cases show that we are some distance yet from determining the definite boundaries of what parallel importers can and cannot do to original packaging. Nevertheless, the Court’s views on whether re-boxing as opposed to restickering is objectively necessary in the field of pharmaceuticals are welcome. The Court’s fact-based approach shows that a different result might well be reached in the context of other goods, however, where the level of public anxiety over foreign languages on packs might be less.