Sun Microsystems Inc v M-Tech Data Limited and Stephen Lawrence Lichtenstein  EWHC 2992 (Pat)
M-Tech Data Limited (M-Tech) imported disk drives manufactured by Sun Microsystems Inc (Sun) into the UK and sold them to a third party. Sun successfully made an application for summary judgment against M-Tech in an action for infringement of its registered community and national trade marks, on the basis that it had not consented to first marketing of the disk drives in the European Economic Area (EEA). Sun therefore asserted that its trade mark rights were not exhausted, and it was entitled to rely on them to prevent commercialisation of the goods.
M-Tech opposed Sun's application on the grounds that:
- Sun had failed to establish where the disk drives were first marketed;
- The enforcement by Sun of its trade mark rights is contrary to Articles 28-30 of the Treaty establishing the European Community (ECT) as the enforcement of those rights will prevent the attainment of a single market in products which have been marketed by Sun or with its consent in the EEA; and
- The enforcement by Sun of its trade mark rights is connected with agreements which are contrary to Article 81 ECT and are therefore prohibited, so enforcement of the trade mark rights should also be prohibited.
Consent to first marketing
Kitchin J. drew on the following six principles from European jurisprudence regarding whether goods had been put on the market in the EEA with the trade mark proprietor's consent (see paragraphs 11 to 16 of the judgment):
- "Consent" is tantamount to the proprietor's renunciation of his exclusive right under Article 5 of the Trade Mark Directive (TMD);
- It is for the European Court of Justice (ECJ) to supply a uniform interpretation of the concept of "consent";
- Consent must be so expressed that an intention to renounce those trade mark rights is unequivocally demonstrated;
- Such an intention will normally be gathered from an express statement of consent, although it may be inferred from surrounding facts and circumstances;
- Implied consent cannot be inferred from the mere silence of the trade mark owner; and
- The importer's ignorance of the trade mark owner's lack of consent to importing the goods into the EEA is irrelevant.
Where were the disk drives first marketed? (paragraphs 18 to 22)
Sun cited evidence to show that the disk drives had not been marketed in the EEA, and had been sold to M-Tech in the United States of America.
M-Tech argued that Sun's evidence of the first marketing of the disk drives contained discrepancies.
Kitchin J. held that although there had been an initial error in Sun's evidence regarding first marketing - which made the timescale for Sun's initial sale to a third party, the return of the disk drives to Sun, and their subsequent sale by a broker to M-Tech look unrealistic - this had been corrected as soon as Sun became aware of it. In the circumstances, he held that the disk drives had not been put on the market inside the EEA by Sun or with its consent.
Was Sun's enforcement of its trade mark rights contrary to articles 28 to 30 ECT? (paragraphs 23 to 53)
Article 28 ECT prohibits "quantitative restrictions on imports and all measures having equivalent effect... between Member States".
Article 30 ECT states that Article 28 "shall not preclude prohibitions or restrictions... justified on grounds of... the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States".
M-Tech argued that the combination of (i) the impossibility of an independent trader knowing whether a particular disk drive had been put on the market in the EEA with Sun's consent or not; (ii) Sun's refusal to allow independent traders access to its internal database, which lists where each disk drive was first marketed; and (iii) Sun's vigorous enforcement of its trade mark rights against independent traders, has the object and effect of shutting down the grey market, not just in Sun products which have not been put on the market in the EEA by or with Sun's consent, but also in those which have.
Kitchin J. held that (paragraph 36):
- M-Tech's submission involves reading into Articles 5 to 7 TMD a further qualification to the right conferred by a registered trade mark, namely a restriction on the right to prohibit the use of the trade mark in circumstances where the exercise of the right may affect the free movement of goods between Member States. But this is precisely what the Community legislature has chosen not to do. To the contrary, it has expressly given to trade mark proprietors the right to control the first marketing in the EEA of goods bearing the registered trade mark; and
- if and so far as M-Tech has a remedy in respect of failure by Sun to publish its database or provide sources of information to independent traders, then it must lie in other provisions of competition law.
M-Tech referred to several previous cases of the ECJ (discussed at paragraphs 38 to 52), which related to national trade mark and design rights, and which held that the exercise of those rights could be prohibited if it was incompatible with the free movement rules in the ECT, where the goods in question have already been put on the market in the EEA by the trade mark proprietor or with its consent. M-Tech submitted that these decisions should be expanded to cover Community rights as well, where the goods have not previously been put on the market by the trade mark proprietor or with its consent.
Kitchin J. held (paragraph 43) that cases regarding the exhaustion of the national trade mark rights of member states by the placing of goods under those marks on the market in another member state have no relevance to the question in issue. This involves the exhaustion not of a national right, but the alleged exhaustion of a right conferred by the Community legislature by placing the goods on the market outside the EEA.
Was Sun's enforcement connected with agreements contrary to Article 81 ECT and therefore prohibited (paragraphs 54 to 56)?
M-Tech argued that: (i) the network of agreements Sun had entered into with its authorised distributors, which prevented them from buying Sun hardware from independent distributors unless such hardware could not be supplied from within the authorised network; and (ii) Sun's vigorous enforcement of its trade mark rights, appreciably distorted or restricted competition in the secondary market for Sun disk drives, thereby affecting trade between member states.
Sun was prepared to admit for the purposes of the application that the agreements were contrary to Article 81. However, it submitted that there is no nexus between this alleged breach and the enforcement of its trade mark rights.
Kitchin J. held that (paragraph 56):
- the disappearance of the independent secondary market in Sun hardware is not attributable to the offending network of agreements between Sun and its authorised distributors, but is attributable to the inability of independent traders to ascertain the provenance of the Sun disk drives in which they are dealing; and
- there is no connection between Sun's enforcement of its trade mark rights and the contractual requirement for Sun's authorised distributors to buy disk drives from within the network wherever possible.
Kitchin J. granted Sun's application for summary judgment.
From a strictly trade marks perspective, there is nothing out of the ordinary about the granting of summary judgment in this case. M-Tech could not demonstrate that the disk drives in issue had been put on the market by Sun or with its consent. The distribution agreements did not license the registered trade marks in issue to M-Tech. While those agreements may have distorted competition within the common market, even if they had been found to be void, this would not have prevented Sun from enforcing its registered trade mark rights.
That said, it is debateable that had M-Tech conducted itself differently, and presented different arguments, it might have reached a different outcome. If not in this case, then in its commercial dealings with Sun.
From the judgment it seems that M-Tech's complaint is that Sun is shutting down any secondary market in disk drives, whether unlawful parallel imports which do infringe Sun's registered trade mark rights, or not. M-Tech's allegation is that Sun is doing this by (i) refusing to supply to independent traders in its goods information regarding whether its products have been put on the market inside the EEA by it or with its consent; (ii) vigorously enforcing its trade mark rights; and (iii) prevented authorised resellers from buying Sun hardware from independent distributors unless such hardware could not be supplied from within the authorised network. M-Tech argues that these actions result in the risk of being sued by Sun and found to infringe its registered trade mark rights out-weighing the benefits of dealing in Sun's goods (whether infringing or not).
As Kitchin J. decided, none of this impacts on Sun's ability to enforce its trade mark rights. Kitchin J.'s commented that "if and so far as M-Tech has a remedy in respect of failure by Sun to publish its database or provide sources of information to independent traders, then it must lie in other provisions of competition law." Therefore perhaps M-Tech could have obtained access to Sun's database of products if it had argued that Sun's refusal to supply information regarding which products had been put on the market in the EEA by it or with its consent amounts to an abuse of dominant position contrary to Article 82 ECT, relying on C-241/91P RTE v Commission (commonly referred to as "Magill"), case T-184/01 IMS Health Inc v Commission, and case T-201/04 Microsoft Corp v Commission.
M-Tech could rely on Magill, IMS and Microsoft if it could persuade the court that (i) Sun is in a dominant position in the market for information regarding whether its trade mark rights have been exhausted (the "upstream market"), and (ii) the refusal to supply this information to independent traders "has the object and effect of shutting down the grey market (the "downstream market"), not just in Sun products which have not been put upon the market in the EEA by or with Sun's consent, but also in those which have.
If Sun's refusal to supply access to its database did indeed have this effect (which would be for M-Tech to prove) then such refusal might well have an anti-competitive effect, which, if it were damaging to consumers (for example, because they had to pay higher prices), and if it affects trade between member states, might well be prohibited by Article 82 ECT.
If M-Tech believed that it had an arguable case under Article 82, then it could have approached Sun to seek a licence of the database of products in respect of which its trade mark rights have been exhausted. If (as M-Tech alleges) such a request was met with an aggressive response from Sun requiring M-Tech to provide the identity of their sources and a detailed account of their stock (as M-Tech alleges Sun has done in the past), they could commence an action for abuse of dominant position, seeking access to the database on fair, reasonable and non-discriminatory terms. If parallel importers knew that such licences were available, they would have a choice between whether to pay for a database licence, or not. It would therefore (where information as to provenance is held by a single undertaking) mitigate to a significant extent the perceived harshness of the established position that ignorance on the part of the trader importing unlawful grey goods into the EEA (or dealing with them subsequently) is irrelevant to the question of infringement.