On 27 June 2012, the UK Supreme Court handed down its unanimous judgment in Oracle America Inc (Formerly Sun Microsystems Inc) (Appellant) v M-Tech Data Limited (Respondent)  UKSC 27. In a decision that will be welcomed by brand owners, the Supreme Court has reversed the Court of Appeal and finds that the Defendant's 'Euro-defences' fail in a trade mark infringement case involving parallel imports from outside the EEA.
- The Supreme Court found that the Defendant parallel importer was not entitledto rely on the so-called 'Euro-defences' or an abuse of rights defence in response to a trade mark infringement claim.
- The Order of Kitchin J. at first instance was restored, granting the Claimant summary judgment in its trade mark infringement claim against the Defendant on the basis that the Defendant had no real prospect of successfully defending the claim.
- No reference to the CJEU was required as the CJEU had already laid down the relevant principles of the law in clear and consistent terms in respect of the issues which arose in this case.
- The ruling is good news for brand owners who will be relieved that the Court of Appeal's decision has been reversed. Had it been allowed to stand, it would have been difficult for brand owners to obtain summary judgment in trade mark infringement actions against parallel importers, where the parallel importers raised a Euro-defence to the claim. If trade mark owners had no real prospect of obtaining summary judgment against parallel importers, they would be faced with a cost/benefit analysis of taking trade mark infringement proceedings against parallel importers to a full trial, where the delay in obtaining a judgment may have outweighed the rationale for taking action in the first place.
- The effect of this judgment should hopefully preserve the UK as a forum where brand owners can defend their trade marks against parallel importers in an efficient and cost effective way by seeking summary judgment, where appropriate.
The Claimant, Sun Microsystems (now Oracle America Inc.) ("Sun") manufactures computer systems, workstations and related goods, including disk drives. The disk drives are sold under the 'Sun' brand and Sun is the proprietor of various Community trade marks ("CTMs") and UK national trade marks for "Sun".
The Defendant, M-Tech Data Limited ("M-Tech") is a supplier of computer hardware based in the UK. M-Tech purchased a consignment of genuine Sun disk drives from a broker in the US and imported them into the UK.
Sun does not sell its disk drives in the EEA and did not consent to these goods being placed on the market in the EEA. Sun sought summary judgment against M-Tech for trade mark infringement under Art. 5.1(a) of the Trade Marks Directive 2008/95/EC claiming that its exclusive rights under Art. 7.1 had not been exhausted. Art. 7.1 provides that:
"The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent".
M-Tech claimed that Sun's trade marks were not enforceable because:
- 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 (i.e. Arts. 34 – 36 of the TFEU); and
- the exercise of Sun's trade mark rights is connected with distribution agreements which contain restrictive provisions which are contrary to Art. 101 TFEU (formerly Article 81 EC).
- the effect of enforcing Sun's trade mark rights would be an abuse of M-Tech's rights.
The third defence was added by M-Tech at a later stage in the proceedings but the first two arguments constitute so called "Euro-defences" and are commonly raised by parallel importers. Traditionally, the UK courts have adopted a somewhat sceptical approach to these defences. At first instance, Kitchin J. found that neither of the Euro-defences had any real prospect of success and he gave summary judgment in favour of Sun, ordering an inquiry as to damages and an injunction.
The Court of Appeal allowed M-Tech's appeal, finding that there was a real possibility that Art. 7 of the Trade Marks Directive must be interpreted by reference to Art. 34-36 TFEU and that this might preclude enforcement of the trade marks in this case. The Court of Appeal also found that there was an arguable case that a sufficient nexus existed for the purposes of Art. 101 TFEU and that enforcement of trade mark rights in these circumstances could be an abuse of rights. As a result, this case was not one which was suitable for summary judgment. This was a surprising decision and one which was greeted with alarm by trade mark owners, particularly in light of the fact that the CJEU appears to be moving in the opposite direction on these issues as seen in the recent case of Copad v Christian Dior Couture . Sun appealed to the Supreme Court who heard the case on 30 April and 1 May 2012.
Decision of the Supreme Court:
Lord Sumption delivered the leading judgment and the 3 defences as raised by M-Tech all failed. Lord Sumption stated that it was not good enough for M-Tech to simply establish a breach of the Treaty - it had to show that the breach gives it a defence to the trade mark infringement action. It was clear that the unlawful conduct by M-Tech was collateral to the right which Sun was seeking to enforce.
Art. 5 of the Trade Marks Directive provides that the proprietor of a mark shall be entitled to exercise certain rights, including the right to prevent others using his own or an identical mark in connection with the goods and services for which the mark is registered. Lord Sumption found that Art. 5 "is not qualified by any proviso relating to free movement of goods because it does not need to be". The reason is that the reconciliation between Art. 5 of the Trade Marks Directive and Arts. 34-36 TFEU is achieved in the harmonised Directive by Art. 7, where the exhaustion of rights principle is set out.
Sun was entitled to rely on its trade mark rights to control the first marketing of its goods in the EEA and its exercise of these rights did not engage the principle of free movement of goods between Member States as enshrined in Arts. 34-36 TFEU. In this case, Sun's exercise of its trade mark rights only affected the entry of goods onto the EEA Market, and not the movement of goods within it.
Turning to M-Tech's second Euro-defence which was based on Art. 101 TFEU, it was found that an intellectual property right is not in itself an agreement or concerted practice capable of contravening Art. 101 TFEU. However, Lord Sumption found that "there are undoubtedly circumstances in which it may be unenforceable because there is a sufficient nexus between the exercise of the right and the agreement or concerted practice in question". In this case, there was no such nexus.
M-Tech's Art. 101 arguments focused on Sun withholding information about the provenance of its goods and Sun's distribution agreements with a network of authorised dealers. The Judge held that there was no relevant connection between the policy of withholding information about provenance and the prevention, restriction and distortion of competition by means of distribution agreements. Further, there was no relevant connection between the policy of withholding information and the enforcement of Sun's right to control the first marketing of its trade-marked goods in the EEA.
As both of M-Tech's Euro-defences had failed, Lord Sumption found that its defence which was based on an abuse of its rights was also incapable of succeeding.
Reference to the CJEU
Whilst many commentators had expected that this case might necessitate a reference to the CJEU and indeed the Supreme Court was invited to make such a reference, it did not find that one was warranted in this instance. The Court found that whilst there are obscurities in parts of this area of EU law, the particular legislative provisions and principles which made M-Tech's case impossible were entirely clear and no reference was required to elucidate them.