Background In the European Economic Area (EEA) the parallel trade of trademarked products between member states is permitted if the products in question have been put on the market in the EEA by the trademark owner or with its consent. In recent years a number of traders importing products from outside the EEA without the consent of the rights holders have raised competition law defences in response to trademark infringement actions, arguing that the claimants are acting anti-competitively in the manner in which they enforce their rights. These so-called ‘Eurodefences’ have so far been dismissed by UK judges, who have been willing to grant summary judgment against the parallel importers. However, the Court of Appeal’s recent decision in Oracle America, Inc (formerly Sun Microsytems, Inc) v M-Tech Data Ltd ([2010] EWCA Civ 997) suggests that such defences may require fuller consideration, potentially by the European Court of Justice (ECJ).

Article 5(1) of the EU Trademarks Directive (89/104/EC) states that:

“a registered trade mark confers on the proprietor exclusive rights therein [and entitles the proprietor]… to prevent all third parties not having his consent from using [the mark] in the course of trade.”

This entitlement is qualifi ed by the doctrine of exhaustion of rights, laid down in Article 7 (1) of the directive, which states that: “[t]he 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.”

Parallel importers of trademarked products can rely on Article 7 to import products into the United Kingdom which have been lawfully put on the market elsewhere in the EEA. However, in order to import such products from outside the EEA, the parallel importer must demonstrate that it has the trademark owner’s consent.

Article 28 of the EC Treaty states that “quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States.” Thus, companies cannot engage in activities that are capable of directly or indirectly hindering intra- Community trade. Article 81 of the treaty1 prohibits:

“all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market.”

Articles 28 and 101 have traditionally been understood not to impinge on a trademark owner’s ability to enforce its rights against parallel trade, except where goods have been put on the market in the EEA by the rights holder or with its consent.  

Facts

Oracle, a US corporation, made and sold computer hardware and related services and was the registered proprietor of a series of UK and Community trademarks registered in respect of computers. M-Tech purchased 64 of Oracle’s drives from a US broker and sold them to a third party in the United Kingdom. Oracle launched an action for trademark infringement against M-Tech and applied for summary judgment, contending that M-Tech had put the drives on the UK market without its consent. M-Tech argued that it had reasonable prospects of defending the claim, maintaining that Oracle was acting in contravention of: (i) Articles 28 to 30 (ie, preventing the attainment of a single market) by a combination of aggressive litigation and the refusal to assist independent traders that were not on Oracle’s authorised distributors list to identify Oracle hardware that had been placed on the market in the EEA by Oracle or with its consent; and (ii) Article 101 because Oracle’s network of agreements with its authorised distributors in the EEA contained anti-competitive provisions, in that they prevented those distributors from buying Oracle hardware from independent distributors unless authorised by Oracle.  

High Court decision

In November 2009 the High Court granted summary judgment to Oracle and rejected the Euro-defences, pointing out that Articles 5 to 7 of the directive were written with Articles 28 to 30 of the treaty in mind. It stated that Articles 5 to 7 provide an unqualifi ed right for the proprietor of a registered trademark to control the fi rst marketing of goods bearing the trademark in the EEA.

Court of Appeal decision

The Court of Appeal held that the defendant parallel importer’s Eurodefences were properly arguable and that the order for summary judgment should be set aside, with the case being remitted to the High Court for trial. The Court of Appeal also strongly suggested that the validity of such defences should be the subject of a reference from the High Court to the ECJ.

Comment

Until this recent judgment by the Court of Appeal, the approach of the UK courts (and the ECJ) to parallel imports has been clear: unless the parallel trader can demonstrate that the goods in question were put on the market in the EEA by the trademark owner or with its consent, the trader has committed a trademark infringement.

This is a clear and consistent approach, although it has occasionally punished innocent or unknowing parallel traders and has protected rights holders who had not given express consent to EEA trade, but whose other behaviour and agreements might not have followed best practice in terms of furthering the aims of the single market.

The importance of the Court of Appeal decision should not be overstated - the court is not necessarily persuaded by the defences, but merely considers that they deserve a proper hearing. However, this is a worrying development that threatens to sacrifi ce clear and consistent trademark jurisprudence in favour of an unclear competition law aim. It is hoped that the High Court will resist the invitation to over-complicate matters.