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.

To view the article in full, please see below:


Full Article

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.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was xx/xx/xxxx.