The Supreme Court (the UK’s highest court) has unequivocally upheld the rights of a trade mark owner to the first marketing rights of its products in the EEA, notwithstanding complaints from a parallel importer that the exercise of those rights was anti-competitive (see Oracle America Inc. (formerly Sun) v M-Tech Data Ltd1). The decision will, no doubt, be unpopular amongst parallel traders operating outside of recognised distribution networks, but will be welcomed by European trade mark proprietors who continue to benefit from the unambiguous legal protection afforded by the EU’s Trade Marks Directive.

The background facts

In 2009, M-Tech supplied to a UK purchaser 64 Sun disk drives which had previously been sold in the US, China and Chile, and which had been sourced by M-Tech through a US broker. The drives had not previously been sold or marketed in the EEA, nor had Sun (the trade mark owner) ever consented to them being placed on any market within the EEA.

Sun sued for trade mark infringement, seeking to enforce its rights under Article 5(1) of the Trade Marks Directive, which confers upon a trade mark owner the exclusive right to control the first marketing in the EEA of goods bearing its trade mark. This right applies even if the goods are entirely genuine and have been previously marketed outside the EEA by the owner or with its consent. The rights are exhausted if they have been marketed in the EEA by the owner or with its consent.

At first instance, Sun successfully persuaded the court to give summary judgment (ie judgment without the need for a full trial), ordering (amongst other things) an inquiry into damages and to impose an injunction preventing M-Tech from marketing the goods in the EEA. However, the Court of Appeal, while not offering any legal conclusion on the merits of the case, felt that M-Tech’s “competition defences” (described below) were at least arguable and thus ruled that summary judgment should not have been granted. Sun, as trade mark owner, subsequently appealed to the Supreme Court.

M-Tech’s defence

In its appeal, Sun invited the Supreme Court to make a reference to the CJEU on whether a person who has imported and sold goods in the EEA without the consent of the trade mark owner is able to defend an action for trade mark infringement on the basis that the owner has engaged in conduct designed to obstruct the free movement of goods within the EEA. The Supreme Court decided that such a reference would only be required if this were an arguable defence.

M-Tech’s defence was threefold. It argued that Sun should not be permitted to enforce its trade mark rights at all because:

  1. enforcement would have the object and effect of partitioning the internal market in violation of the principle on the free movement of goods within the EEA – a principle which goes to the very heart of the successful operation of the European Union;
  2. Sun was seeking to exercise rights connected with distribution agreements containing restrictive provisions contrary to Article 101 of the Treaty on the Functioning of the European Union (TFEU) – a crucial Treaty provision which seeks to prevent companies from entering into agreements which have as their object or effect the prevention, restriction or distortion of competition; and
  3. enforcing Sun’s trade marks would constitute an abuse of rights under EU law.

According to M-Tech, Sun was seeking to reserve the secondary market for its products, estimated to be worth approximately $1.07bn, for itself and its authorised distributors by refusing to disclose information on whether the goods in question had already been legitimately marketed in the EEA, a practice which (in conjunction with Sun’s aggressive trade mark enforcement) would have a “chilling effect” on the ability of independent resellers to market and resell the goods.

Judgment of the Supreme Court

The Supreme Court ruled in Sun’s favour. This is perhaps not surprising given that its ruling follows case law dating back to 1976, affirming the principle subsequently enshrined in the Trade Marks Directive, that trade mark owners have an exclusive right to control the first marketing of their goods in the EEA.

On M-Tech’s key argument in its defence, that Sun’s enforcement of its trade mark rights violated EU law on free movement of goods, the Supreme Court held that the logic of that defence was simply incorrect. Free movement principles apply only to intra-EEA trade once goods have been lawfully put onto the market within the EEA. Given that Sun’s entire case was based on the products not having been put on the market in the EEA lawfully and with its consent, free movement objections did not apply. So, free movement and trade mark rights exhaustion go hand in hand – they each only apply when products have been first marketed lawfully within the EEA with the brand owners’ consent.

Nor did the exercise of Sun’s rights constitute an abuse of rights under EU law, or the conclusion of agreements which violate Article 101. The Court found no relevant connection between Sun’s alleged policy of withholding information about previous marketing within the EEA and the prevention, restriction or distortion of competition. In any event, it seems that even if M-Tech had established that Sun had been in breach of the Treaty provisions, it would still have been difficult for M-Tech to justify the trade mark infringement because of the longstanding principle that a person may not profit from his own illegal act. As such, establishing a breach of a treaty provision (which in any event it failed to do) would not necessarily have conferred on M-Tech a legitimate defence to an action for trade mark infringement.

Comment

In addition to denying M-Tech’s defence (described as “extreme”) and reinstating the summary judgment award, the Supreme Court declined to make a reference to the CJEU – a clear indication that the exhaustion of rights principles remain, for the moment at least, unimpeachable. If there is a development here, it is the Supreme Court’s elegant analysis of how free movement principles can be said to co-exist with trade mark law, explaining that free movement principles don’t even come into play until products are lawfully on the market with the trade mark owner’s consent.