In a long awaited decision, the Supreme Court has refused to allow a parallel trader to rely on so-called "Euro-defences" against a trade mark infringement claim, which will come as a great relief to brand owners across all industry sectors. The Supreme Court overturned the decision of the Court of Appeal and reinstated the summary judgment of the High Court, which had allowed Sun Microsystems' claim of trade mark infringement relating to second hand hardware imported from countries outside the EEA without its consent. The Supreme Court found that the Trade Mark Directive should be treated as "standalone" legislation and not subject to any additional limitation under competition law principles. Further, there was no relevant connection between the allegations made by the importer of anti-competitive behaviour by Sun Microsystems and the trade mark infringement claim.
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Full ArticleBackground: Fortress Europe and Competition Law
Doctrine of Exhaustion
Article 7(1) of the Trade Mark Directive ("TMD") precludes trade mark owners from enforcing their rights in cases where products have been placed on the market in the EEA by them or with their consent (subject to limited exceptions under Article 7(2), for example where a product has been damaged). However, the position is different where goods are imported into the EEA from outside the EEA without consent. In these circumstances, trade marks can be enforced and the CJEU has confirmed that the TMD precludes member states from adopting a principle of worldwide exhaustion. Commentators have termed this Community-only exhaustion policy "Fortress Europe".
Article 34 (ex Art 28) of the Treaty on the Functioning of the European Union ("TFEU") enshrines the principle of free movement of goods. However, Article 36 TFEU (ex Art 30) provides an exception to Article 34 whereby restrictions are justified on the basis of protection of industrial and commercial (including intellectual) property, provided that the restrictions are not a disguised restriction on trade. Further, Article 101 TFEU (ex Art 81) prohibits agreements between undertakings and concerted practices which may affect trade between member states, the object or effect of which prevents, restricts or distorts competition within the EU.
Sun Microsystems Inc ("Sun", which is now Oracle America Inc) sought to enforce its series of UK and Community Trade Marks against M-Tech, a UK company, following M-Tech's importation into the UK of 64 Sun branded disk drives which it had purchased from a broker in the USA. The goods had originally been placed on the market by Sun in Chile, China and the USA and had not entered the EEA market with its consent.
Sun applied for summary judgment in the High Court in 2009. This was resisted by M-Tech on the grounds that Sun's behaviour and its distribution agreements were anti-competitive, which dissuaded independent traders from dealing with any Sun products (even legitimate goods) and allowed Sun to control the secondary market via its own authorised network of distributors. In particular, it was alleged, Sun aggressively enforced its trade mark rights and refused to confirm to traders whether individual serial numbers appearing on its products related to products first placed by Sun within, or outside the EEA, and were therefore infringing or not. This was significant as this type of product was frequently sold on without a full trading history. The High Court dismissed these Euro-defence arguments and granted summary judgment.
To the dismay of many brand owners the Court of Appeal reversed the High Court's decision holding that (i) Articles 5 and 7 of the TMD must be read consistently with Articles 34 to 36 and general principles of EU law; (ii) the TMD is not a complete code and trade mark owners' rights may be subject to sources outside the TMD; and (iii) there was an arguable case of sufficient nexus with the trade mark claim for the purposes of Article 81.
In particular, the Court of Appeal held that the High Court's decision had failed to take account of the allegation that the agreements with Sun's distributors and resellers formed part of an overall scheme for excluding secondary traders from the market, and further that the CJEU had not previously held that Article 101 could not be used in trade mark cases. The Court of Appeal did however acknowledge that it may ultimately be decided that these issues should rightly be addressed in competition law, rather than intellectual property law, and suggested that a reference to the CJEU may be necessary. Permission to appeal the decision was granted and the case was heard by the Supreme Court over 30 April and 1 May 2012.
The Supreme Court Decision
In a decisively brief and definitive judgment, the Supreme Court overturned the Court of Appeal's decision, in particular holding that 'it was not good enough' for M-Tech merely to establish a breach of the TFEU. It was reasoned that as specific legislation exists with the purpose of harmonising EU legislation, then that legislation, here the TMD, supersedes general provisions of the TFEU. The TMD must be treated as a complete and exhaustive code relating to trade marks. The scheme of the TMD (including Article 7) already embodies the TFEU provisions governing free movement of goods in Articles 34-36.
The Supreme Court stated "Sun cannot be prevented from doing something which is in itself entirely lawful and consistent with the free movement of goods, simply because it proposes to do something else as well which is unlawful and inconsistent with that principle... It cannot therefore follow that because Sun enforces it trade mark rights "vigorously" it should have no trade mark right to enforce in those circumstances."
A limitation on Sun's ability to enforce its trade mark rights would effectively suspend Sun's rights across the EEA market as a whole, against anyone, which could not be correct. Logically such an argument would make Sun's trade mark rights unenforceable against not only parallel traders but also counterfeiters.
Further, the CJEU case of Van Doren, Case C-244/00, concerning burden of proof on consent, and used by M-Tech to argue that the enforcement of trade mark rights must be consistent with freedom of movement of goods, was not relevant. That case concerned a dispute as to whether the goods were indeed on the EEA market with the consent of the trade mark owner (and therefore the attempted enforcement of rights potentially affected trade between member states), whereas here it was agreed by all that the goods were not within the EEA with Sun's consent.
Although the Supreme Court acknowledged that M-Tech may have a legitimate claim in competition law against Sun, this was irrelevant. Further, there was no relevant connection between Sun's right to control the first marketing of its product in the EEA and possible breaches of competition law under Article 101. Neither was there an "abuse of rights" as claimed by M-Tech.
The Supreme Court admitted: "That there are obscurities in parts of this area of EU law is beyond question," but despite the Court of Appeal's recommendation for a reference to the CJEU, held that the particular legislative provisions and legal principles were entirely clear, as laid down by the CJEU, and that national courts had a duty to apply them. A reference was therefore not necessary.
This decision brings us full circle: following clear decisions by the CJEU, notably the Zino Davidoff cases, C-414-416/99, trade mark owners were very confident in enforcing their rights against imports into the EEA from outside the EEA without their consent, provided that the evidence was clear. Although in Sportswear SpA -v- Stonestyle in 2006 the Court of Appeal had decided that a breach of Article 101 could possibly constitute a defence to trade mark infringement, that case did not proceed to a full trial, and in any event, concerned parallel trade within the EEA.
The Sun/M-Tech dispute case had cast serious doubt on the ability of trade mark owners to enforce against imports from outside the EEA and threatened to develop into a long drawn-out dispute, with a reference to the CJEU potentially delaying a conclusion for a number of years. Thankfully the Supreme Court has clarified the position without further ado.
For the full text of this decision 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
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The original publication date for this article was 04/07/2012.