Trade mark owners can legitimately prevent the parallel importing of pharmaceuticals within the EU of products they had already put on the market in the EU, where the importer has "overstickered", "de-branded", "co-branded" or "repackaged" in any way that is likely to cause damage to the reputation of the brand or the proprietor. So held the ECJ on 26 April 2007, when it finally handed down its judgment on the second set of questions referred in the long-running parallel import repackaging case of Boehringer Ingelheim (and others) v Swingward Ltd (and another).
Parallel importation exists and is profitable because of price differentials between goods sold in different EU Member States. The importation of pharmaceuticals within the EU usually involves some repackaging or relabelling of those products. Parallel importers argue that they need to repackage the goods in order to put them on the market in the Member States of importation and that any objection to this by the trade mark proprietor, in circumstances where the products are not damaged in any way, is an unjustifiable interference with the free movement of goods. On the other hand trade mark proprietors say that the parallel importers are taking unfair advantage of their trade marks and are free-riding, building up their own goodwill on the back of the proprietor's products.
The eight Claimants are well-known pharmaceutical manufacturers. The Defendants are parallel importers of branded pharmaceutical products within the EEA, who repackage the products and re-affix the trade marks to the outer packaging, whilst also using their own branding ("co-branding"), and in some cases, remove the trade mark and use the generic name of the drug on the box ("de-branding"). The legal point in dispute was whether a trade mark proprietor is entitled to rely on its trade mark rights to prevent repackaging of its goods by parallel importers.
Two references to the ECJ have been made during the life of this case, by Laddie J. in 2000 and then in 2004 the Court of Appeal, having given its views, referred a second, more comprehensive set of questions, as reported in our 24 June 2004 Newsflash.
These questions revolved (again) around Article 7 of Directive 89/104 (when are the rights conferred by a trade mark exhausted) and the correct application of the conditions set out in the ECJ judgment of Bristol-Myers Squibb and Others (1996) ECR I-3457 (the "BMS Conditions"), which were outlined in our 11 March 2004 Newsflash.
Article 7(1) of Directive 89/104 reflects the basic principle of the free movement of goods: the rights of a trade mark are exhausted once the goods under that mark have been put on the market by the proprietor in a Member State. Article 7(2) is an exception to the exhaustion of rights principle, so that a trade mark owner may oppose use of their mark in relation to further commercialisation of the goods, where there are 'legitimate reasons' for doing so. Repackaging of pharmaceutical products will constitute a 'legitimate reason' unless the BMS Conditions are satisfied. If the five BMS Conditions' requirements are met by the parallel importer then the trade mark proprietor's rights remain exhausted and it is not entitled to object to the repackaging.
The ECJ disagreed with the Advocate General's view (Opinion of Advocate General Sharpston delivered on 6 April 2006), that the BMS Conditions would only apply to repackaging parallel imports of pharmaceutical products and instead applied them to overstickered packaging as well. The ECJ held that:
Overstickering and repackaging to be treated the same
The importation of overstickered (as well as repackaged) pharmaceutical products can legitimately be opposed by trade mark proprietors, unless the BMS Conditions apply. Thus overstickering is to be treated in the same way as repackaging. This deviates from the Advocate General's Opinion, which was that the BMS Conditions should not apply at all where a parallel importer merely applies an additional external label printed in the language of the Member States of importation.
The ECJ held: "… the relabelling of the trade-marked medicinal products, just like the reboxing of those products, are prejudicial to the specific subject-matter of the mark… The change brought about by any new carton or relabelling of a trade-marked medicinal product creates by its very nature real risks for the guarantee of origin which the mark seeks to protect. Such a change may thus be prohibited by the trade mark proprietor unless the new carton or relabelling is necessary in order to enable the marketing of the products imported in parallel and the legitimate interests of the proprietor are also safeguarded" (i.e., unless the BMS Conditions are satisfied).
The requirement that repackaging or overstickering be necessary (the first BMS Condition) applies solely to the fact of repackaging or overstickering and does not extend to their precise manner and style.
Damage to reputation
The requirement that the repackaging does not damage the reputation of the trade mark or the proprietor (the fourth BMS Condition) is not limited to cases where the repackaging is defective, of poor quality or untidy. The ECJ held that it is a question of fact for the national court to decide in light of the circumstances of each case, whether such damage is liable to occur but, in principle, any de-branding, co-branding, overstickering that obscures (wholly or party) the trade mark, failure to state that the trade mark belongs to its proprietor, or printing of the name of the parallel importer in capitals, is liable to damage the trade mark's reputation.
Burden of proof
The burden of proof is on the importer to show that it has fulfilled each of the BMS Conditions, and therefore that the trade mark proprietor does not have the right to object to their repackaging/overstickering.
However, in relation to the BMS Conditions that require the parallel importer to show that the repackaging cannot affect the original condition of the product inside the packaging (the second BMS Condition), and that the reputation of the trade mark or the proprietor is not being damaged (the fourth BMS Condition), it is sufficient to provide evidence that leads to the reasonable presumption that these Conditions had been fulfilled.
Further, in relation to the damage to reputation (the fourth BMS Condition), once the importer has furnished sufficient initial evidence, it will then be for the proprietor to prove that the repackaging is likely to damage his and the trade mark's reputation (as he is best placed to do this).
Prior notice and financial remedies
If notice of intention to import repackaged or restickered items is not given to the trade mark owner, then any subsequent importation is an infringement, until appropriate notice is given.
The trade mark owner’s right to prevent parallel importation of pharmaceutical products which have been marketed in breach of the requirement to give prior notice (but that fulfil all the other BMS Conditions) is no different from the owner's right in respect of goods that fall foul of the other BMS Conditions. In both cases, the products ought not to have been marketed on the market concerned.
The amount of the financial remedy for failing to comply with the notice requirements is to be determined by the national court according to the circumstances of each case, particularly in the light of the extent of damage to the trade mark proprietor caused by the infringement, and must be proportionate. The Advocate General's Opinion suggested that there should be a lesser sanction than would apply, if the other BMS Conditions had been breached. The ECJ did not necessarily agree: "… the trade mark proprietor is entitled to claim financial remedies on the same basis as if the goods had been spurious, is not in itself contrary to the principle of proportionality."
The judgment has gone a long way to answering the uncertainty that has been hanging over this area of law for some time. On balance the judgment (more so than the Advocate General's Opinion) appears to benefit the trade mark proprietor more than the parallel importer, particularly in allowing the proprietor to prevent overstickered parallel imports.
Trade mark owners will be relieved to see the extension of the definition of damage into co-branding and de-branding in principle, although it remains to be seen how the courts will apply this. Parallel importers now have more leeway in relation to the way they repackage – as long as an importer is able to establish that it is necessary to repackage in the first place, then there is more freedom as to the manner or style of such repackaging. This flexibility for the importer is of course tempered by the recognition of a broader class of damage. There is still room for ambiguity in some areas: for example, in relation to the burden of proof for the fourth BMS Condition and the requirement to "provide evidence that leads to the reasonable presumption that the condition had been fulfilled". A further clear advantage to the proprietor is their potential entitlement to claim the same financial remedies for importation without prior notice (even where the other BMS Conditions are satisfied), as the proprietor would be entitled to, if the importer did not fulfil the BMS Conditions and the importation was fully actionable.
This remains a technical area of the law to be studied carefully by trade mark proprietors and importers alike, particularly for the sale of products in the pharmaceutical, chemical and the electrical retail sectors.