Parallel Imports and International Exhaustion of Rights
When can a parallel importer import from ouside the EEA?
Parallel imports represent an important part of the European pharmaceutical market - around 1 in 5 prooducts dispensed in the UK is said to be a parallel import. Generally, patented products are the subject of parallel imports, but if it were cost effective, generics could also be sold by parallel importers.
On the 8th March our Court of Appeal gave a decision in a case relating to the parallel importation of cigars . Lord Justice Jacob took the opportunity of enunciating, very clearly, the principles which relate to the movement of goods, exhaustion of Trade Marks and parallel imports.
Within Europe, we have "free movement of goods". The EEA is a free trade area. No customs barriers, no internal taxes, no "barriers to trade". However, prohibitions that are justified on grounds of the protection of industrial or commercial property rights are not precluded , provided that they do not partition the market. This apparent contradiction is interpreted to mean that rights are "exhausted" once goods had been put on the market under a Trade Mark by the proprietor or with his consent.
In this case, Jacob L.J. said:
" "Actually it was not even necessary to resort to a notion of "exhaustion of rights" since what really mattered was a requirement of free movement of goods within the Common Market…..but that doctrine is now so firmly embedded in EU law as one of "exhaustion" that it must be taken as settled. It has a life of its own and, particularly in Trade Mark Law, has gone so far as to influence the way courts have thought about the nature of the right itself. By jumping to consider whether or not there is exhaustion, the very function and nature of a trade mark has been overlooked.""
Article 7 of the European Directive on the Trade Marks Directive which provides that:
"The trade mark shall not entitle the proprietor to prohibit use in relation to goods which have been put on the market in the community under that trade mark by the proprietor with his consent…." cannot apply to goods which have been put on the market outside the EEA. Nevertheless, cases which relate to such goods have been considered principally in relation to whether Trade Mark Rights have been exhausted or not, rather than by looking at the basic nature of Trade Marks, as an indication of origin. "
The leading case relating to exhaustion of rights is Zino Davidoff . Whilst Jacob L.J. might criticise this development of Case Law, he had to apply it.
In the Mastercigars case, the Judge and the parties accepted, first, that Articles 5-7 of the Directive defined the rights of Trade Mark proprietors, and that a Trade Mark proprietor's consent to marketing goods within the EEA could be inferred from facts and circumstances which unequivocably demonstrate that the proprietor has renounced his right to oppose the placing of the goods on the market within the EEA, and, secondly, that implied consent cannot be inferred from:
The Judge then went on to look at the standard according to which the importer must prove "consent". Whilst the Judge did not accept the Trademark proprietor's argument that consent must be unequivocal, he also rejected theoretical arguments relating to "control" and said that one must focus on "what is really happening, on actual knowledge and actual, practical control or right of control by the Trade Mark owner."
Looking at the facts, the Cuban "Casa" had the right to sell US$25,000 worth of cigars, and to provide "facturas" which would assist the purchaser in taking the goods out of Cuba. The facturas were translated into several European languages, including German, which is not commonly used outside the EEA. Looking at the degree of involvement which the Trade Mark proprietor had with the Casa, the Judge concluded that there was a sufficient link between the Trade Mark owner and the Cuban seller so that consent by the Trade Mark owner should be implied. As the Judge said "It seems to me blindingly obvious that [the Trade Mark proprietor is] saying in effect to the Casas "You can sell these small but commercial quantities to foreigners and if you do so, you must give them the appropriate documentation so that they can go through Customs so that they can take them home to sell". And that conclusion leads ineluctably to the conclusion that consent to the use of the Trade Marks on the purchaser's home market is given. The "unequivocal" test is passed." He went on to say "This conclusion applies as much to purchasers or Europeans for sale within Europe as it does elsewhere…for two reasons. First the nationality of the purchaser is known…and no distinction is made between Europeans and others. Secondly, there is the use of German on the factura…."
The Judge distinguished this case from the Davidoff case in which the proprietor was acting in concert with the distributor, imposing a limit on quantities and dictating what was on the receipt. He distinguished it from the Levi Jeans case, in which the Trade Mark proprietor had imposed a limit of six pairs of jeans on any one purchase, because six pairs of jeans was not a commercial quantity and there was in that case no question of facilitation for export, or detailed co-operation between the Trade Mark owner and the outlet. He decided that the Judge at first instance had erred in principle in two ways. First in finding that the importer had known of the objection to local purchase for export to Europe, and second in failing to consider the impact of the evidence as a whole, and particularly the combined effect of the facturas and the limit.
Why do I think this case is interesting? Well, we have one of Europe's top judges questioning the development of the principle of exhaustion of rights over the last few years, calling into issue whether the Case Law has lost its way, by looking at the concept of exhaustion of rights, rather than looking at the function of the Trade Mark as a badge of origin, perhaps inviting reconsideration of Trade Mark Law. Secondly, the Judge invites a fundamental consideration of the use of Trade Marks to prohibit imports from outside the EEA and thirdly, I am interested because of the possibilities that this case might afford to parallel importers.
If parallel importers could source products worldwide, rather than merely from relatively affluent Europe, the pattern of pharmaceutical sales could change dramatically. We would perhaps be looking not only at a gradual equalisation of European prices (as has happened over the 15 years or so) but an impact on prices worldwide.
I am not sure practically whether this case will make any immediate difference, but if I were a parallel importer, I would be looking closely at opportunities which could be exploited, even in the short term. This case doesn't overcome practical difficulties for parallel importers, such as the need to obtain a parallel import product licence, but there are circumstances in which that problem does not arise. The major European cases which have concerned products intended for non-EEA countries (eg the Kohlpharma case and Glaxo/Dowelhurst case ) both concern products which would have been eligible for the parallel importer's product licence.
UK courts are already having a reputation for being anti-patentee. I do not believe that that reputation is deserved. I think that our courts have been correct in the decisions they have made. This judgment may cement UK courts' reputation for being against the rights of IP holders generally. If other courts were to take up the suggestions offered by Jacob L.J., there could be a radical shift which consumers may like, and Trade Mark owners deplore. I am interested to see whether this leads to future changes or not.
At the very least, should pharmaceutical parallel importers fail to find any opportunities for new sources of imports into Europe, they may discover a profitable sideline in cigars!
Do talk to me about this case, or anything else that is of interest to you.
Anna McKay, March 2007