UK: Court of Appeal Allows Euro-Defence Arguments in Parallel Trade Case

Last Updated: 20 September 2010
Article by Isabel Davies and Lucy Kilshaw

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.