UK: Supreme Court Reverses Court Of Appeal Decision Concerning Importation Of "Sun" Branded Products

Oracle America Inc (formerly Sun Microsystems Inc) v M-Tech Data Ltd [2012] UKSC 27, 27 June 2012

In a decision that will be welcomed by brand owners, the Supreme Court has upheld an appeal by a trade mark owner, Oracle America Inc (formerly Sun Microsystems Inc), confirming Oracle's right to prevent importation of trade mark branded goods into the European Union – but the Supreme Court noted that, whilst not relevant to the appeal, there may be a claim for damages against Oracle for preventing M-Tech (the importer) from selling Sun products because of Oracle's policy of withholding information about the origin and previous history of such products.

The claimant Oracle America Inc (formerly Sun Microsystems Inc) is a manufacturer of computer systems and related goods and the registered proprietor of Community trade marks and UK trade marks for use in connection with computer hardware. The defendant M-Tech Data Ltd is a supplier of computer hardware in Manchester.

In 2009, M-Tech bought 64 new Sun disk drives through a broker in the United States and imported them into the United Kingdom. The disk drives had originally been supplied by Sun to purchasers in China, Chile and the United States. Sun had not consented to the disk drives being put on the market in the European Economic Area (which includes the European Union) and pursued M-Tech for trade mark infringement alleging that MTech had put the disk drives on that market without Sun's consent. On the face of it, therefore, M-Tech infringed the marks contrary to article 5.1(a) of the Trade Marks Directive (2008/95/EC) by using them in circumstances where Sun's exclusive right had not been exhausted under article 7.1.

Sun sought summary judgment seeking damages for the infringement and an injunction restraining any further infringements. Validity of the trade marks and the facts alleged to constitute infringement were not challenged. In the High Court, Oracle was granted an order for summary judgment. M-Tech's appeal was allowed by the Court of Appeal. Oracle appealed to the Supreme Court.

M-Tech put forward "Euro-defences" arguing that Sun's trade marks were not enforceable because (i) the object and effect of enforcement would be to partition the EEA market in Sun hardware contrary to the treaty provisions relating to the free movement of goods (articles 34 to 36 of the Treaty on the Functioning of the European Union ("TFEU")); and (ii) the exercise of Sun's trade mark rights was connected with its distribution agreements, which were said to contain restrictive provisions inconsistent with article 101 TFEU. M-Tech later added a third argument: that enforcement of Sun's trade marks would constitute an abuse of rights under EU law.

The Supreme Court ruled that the provisions on free movement of goods contained in Articles 34 to 36 of the TFEU were not engaged as Oracle only sought to enforce the right to control the first marketing of goods in the EEA market, and not to assert its rights on goods that had already been placed on the market. On the agreed facts, the goods were never marketed in the EEA until they were imported and marketed there by M-Tech without Sun's consent. It was not in dispute that the only right derived from its trade marks which Sun was seeking to enforce was its right to control the first marketing of the goods in the EEA. This exercise of rights did not engage the principle of free movement of goods between member states embodied in articles 34 to 36 of the TFEU. It affects only the entry of goods onto the EEA market not the movement of goods within it.

Article 101 of TFEU prohibits agreements and concerted practices so far as they have as their object or effect the prevention, restriction or distortion of competition within the internal market. Sun's distribution agreements were said to contain restrictive provisions inconsistent with article 101 in that dealers in Sun products were obliged under the terms of distribution agreements to obtain supplies from Sun or from other authorised Sun dealers (supplies could not therefore be sourced from independent resellers). Sun dealers had access to Sun's databases from which the provenance of goods could be determined. Independent resellers did not have such access.

M-Tech alleged that Sun had two tactics for eliminating the independent resellers market: withholding information from independent resellers and giving their own authorised distributors an advantage by granting access to the database. The Supreme Court said the question to be determined was whether that has any relevant connection with the exercise by Sun of its right to control the first marketing in the EEA of its trade marked goods. On the facts, there was no relevant connection. Neither the trade marks nor the rights conferred on their proprietor by the Directive can be characterised as the subject, the means or the result of an agreement or concerted practice contravening article 101.

As to whether enforcement of Sun's trade marks would constitute an abuse of rights under EU law, the rule of law invoked by Sun was to be found in articles 5 and 7.1 of the Trade Mark Directive. The Supreme Court said it was beyond argument that the purpose of those provisions was to enable the trade mark proprietor to control the first marketing of his trade marked goods in the EEA. The exercise of that right by Sun did not only satisfy the formal requisites of those articles, it was also entirely consonant with their purpose. Even if by achieving that purpose Sun was enabled to do other things which resulted in independent resellers being eliminated from the market, that would not make it an abuse of rights.

Finally, the Supreme Court declined to make any reference to the ECJ regarding the particular legislative provisions and legal principles at issue in the case. Such a reference was ruled to be unnecessary – the relevant provisions and principles were entirely clear and a reference would not be required to elucidate them.

While the decision may be welcomed by brand owners in that it emphasises their right to prevent importation of trade-marked goods into the EEA, a word of caution is necessary. Lord Sumption in the Supreme Court judgment acknowledges that M-Tech may have had a perfectly good cause of action against Sun, based on articles 34 to 36 of the TFEU, for damages for preventing M-Tech from selling Sun products because of their policy of withholding information about the previous history of goods. However this was not relevant to the appeal. The appeal was concerned with business which M-Tech had done in infringement of Sun's trade marks; it was not concerned with business that MTech had been prevented from doing. It was not a defence for M-Tech to argue that there was other business that M-Tech had been prevented from doing because of Sun's arguably unlawful policy of withholding information.

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