This article summarises a recent trade mark judgment in the English High Court illustrating the legal problems that can arise when branded goods are traded and/or advertised across the internal borders of the European Union's single market.
The parties
Pfizer is a giant pharmaceutical manufacturer whose range of pharmaceuticals includes phenytoin sodium, an anti-epilepsy drug sold in the EU under the brand name EPANUTIN. Flynn Pharma (the claimant), a UK pharmaceutical supplier, purchased from Pfizer the UK marketing authorisations to the product, which, for regulatory reasons, it then rebranded to PHENYTOIN SODIUM FLYNN (the Rebrand). DrugsRUs, a British parallel importer, planned to purchase the product from EU sources and parallel-import it into the UK under and by reference to the Rebrand.
The litigation
Flynn Pharma was the registrant of UK and Community trade mark registrations for FLYNN in respect of pharmaceuticals, and therefore applied to the English High Court for a quia timet injunction to restrain the defendant's intended imports. Its application was countered by the defendant's reliance on the fundamental EU principle of free movement of goods, from which derives the wide-ranging defence of exhaustion of rights, which (when applicable) will negate allegations of IP infringement. Once a product has been placed on the market within the European Economic Area by an IP rights-holder or with its consent, the latter's entitlement to use those rights to control how the product is subsequently distributed will expire – or will be "exhausted", in legal parlance. Where (as in the instant case) a pharmaceutical parallel-importer re-packages that product to conform to local branding, jurisprudence has developed to lay down the conditions in which exhaustion of rights will, and will not, apply.
But the defendant's attempted reliance on those conditions failed. In order for them to be engaged, the learned judge ruled that the imported goods must have been placed on the market in the exporting state by or with the consent of the same entity as is seeking to prevent their import. As a question of fact, Flynn Pharma (the claimant) was not the same entity as Pfizer; and, as a question of law, the contractual links between the two companies were insufficient to establish that they were effectively the same entity. The defendant's defence therefore failed, and the claimant's case for trade mark infringement was won.
The claimant's victory celebrations may have been muted, however, as a result of the issue by the Competition and Markets Authority this summer of formal allegations that it (and Pfizer) had each abused a dominant position by charging excessive and unfair prices in the UK for the phenytoin sodium capsules. Abuse of a dominant position is a very serious breach of both UK and EU competition law and, if proven, can expose the culprit to (amongst other penalties) fines of up to 10% of its annual worldwide group turnover.
Summary
The case demonstrates that, whilst defences derived from the principle of exhaustion of rights are very wide-ranging, their applicability can be subject to conditions which, if not met, will vitiate them. It also reminds us that one should never lose sight of the potential risks of anti-trust violations, and that the implications of re-branding exercises may involve not just intellectual property, but also competition law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
