Side by Side - AG Mengozzi Sets Out the Rules Around Parallel Importation and TM Infringement

Many brands don't only compete in a domestic market these days, but a larger global market where individual countries can be incredibly valuable in addition to the country of origin. In these instances parallel importation can be a thorny subject, particularly when the rights to particular goods (or the IP in them) has been licensed or even sold on from the original proprietor. Parallel importation also shares the field with exhaustion, potentially leaving the original seller without recourse as their rights have expired, but the matter hasn't been addressed in the EU courts for over 20 years. In the light of this silence, a case has recently been referred to the CJEU, and ahead of its decision an Advocate General stepped in to provide some well-needed insight into the law and its interpretation.

The case of Schweppes SA v Red Paralela SL related to the sale of soda water. The Schweppes brand of soda water has been sold since the late 18th century by Schweppes. The company also registered the name as a trademark in all European countries as national marks, e.g. the UK (TM 508257). In 1999 Schweppes sold the rights to the name to the Coca-Cola Company in 13 EU Member States (including the UK), keeping their rights in 18 other countries in the EU, among which was Spain. Red Paralela started to import bottles of Schweppes from the UK to Spain, after which Schweppes took Red Paralela to court for trademark infringement, with Red Paralela defending the matter under exhaustion.

The referring court asked four questions, which revolve around Article 7 old Trade Mark Directive and Article 15 of the new Trade Mark Directive relating to the exhaustion of rights in registered trademarks.

Advocate General Mengozzi set out to considered all of the questions together, summarising them as asking "…whether Article 36 TFEU and Article 7(1) of Directive 2008/95 preclude… the licensee of the proprietor of a national trade mark from invoking the exclusive rights enjoyed by the latter under the law of the Member State in which the trade mark is registered in order to oppose the importing into and/or marketing in that State of goods bearing an identical trade mark which come from another Member State, one in which that trade mark, which was once owned by the group to which both the proprietor of the mark in the importing State and its licensee belong, is owned by a third party which has acquired the rights to it by assignment".

In essence, the questions ask whether it is possible for the original owner of trademark rights, having since sold them in some jurisdictions, to prevent a seller from importing legally sources goods from another country to another where the rights don't exist for those goods.

The AG started off with setting out what the exhaustion of rights under EU law looked like.

Parallel imports provide "great" opportunities for young adults

In order for exhaustion to operate, two conditions have to be met: (1) the goods bearing the trade mark must have been put on the market in the EEA; and (2) the proprietor of the trade mark must, if it has not itself put the goods on the market, have consented to their being put on the market. The first condition is only met when the goods are sold, not merely imported on the market. The second condition requires consent, which can be, according to case law, derived from when the goods are put on the market by an operator that is economically linked to the trade mark proprietor, such as, inter alia, a licensee. This stems from the protection of the free movement of goods under EU law. Consent can also be implied in the absence of an economic link through circumstances and facts before, during or at the same time of placing the goods on the market, which demonstrate an unequivocal renouncement of rights.

The next point was the fragmentation of rights and the exhaustion of those rights through the distribution of exclusive rights for the goods.

National trademarks, according to EU case law, operate independently. If the importing entity and the owner of the national trademark in that country are the same or economically linked, the rights are exhausted. This does require that the goods were manufactured under the control of a single body, and that there was a possibility of control over the quality of the goods. In the event of assignment, there is no control over the quality of the goods by the original owner of the rights, and exhaustion therefore wouldn't apply.

In the light of the above, the AG then considered whether the importation of Schweppes from the UK to Spain would infringe on Schweppe's rights.

The AG looked at the economic link between the parties, specifically in the instance of parallel importation after the assignment of rights in different countries. Exhaustion, in the AG's view, can also exist not only where the two entities are strictly dependant on each other, but also where the trademark is under 'unitary control' in the circumstances of a matter. This would also be the case where the two parties that own national rights have 'joint control' over the exportation and importation process, or if the marketing and manufacturing of the goods happens under unitary control. Joint control would have to entail an agreement as to "…determining directly or indirectly the goods to which the trade mark may be affixed and of controlling their quality". In other words, exhaustion can apply where two companies "…coordinate their commercial policies with a view to exercising joint control of the use of their respective marks".

From an evidentiary standpoint, the burden of proof on the relationship between the companies and their business relating to the relevant marks falls on the parallel importer (Coca-Cola in this instance), showcasing the exhaustion of rights. Should there be enough evidence to potentially prove exhaustion; the original proprietor has to prove that they have no agreement in place, or collaboration, with the importer on unitary control, which exhausts their rights.

In short, the AG set out his opinion on the questions asked: "… Article 36 TFEU and Article 7(1) of [the] Directive… preclude the licensee of the proprietor of a national trade mark from invoking the exclusive rights enjoyed by the latter under the law of the Member State in which the trade mark is registered in order to oppose the importing into and/or marketing in that State of goods bearing an identical trade mark which come from another Member State, one in which that trade mark, which was once owned by the group to which both the proprietor of the mark in the importing State and its licensee belong, is owned by a third party which has acquired the rights to it by assignment where, given the economic links existing between the proprietor of the mark in the importing State and the proprietor of the mark in the exporting State, it is clear that the marks are under unitary control and that the proprietor of the mark in the importing State has the possibility of determining directly or indirectly the goods to which the trade mark in the exporting State may be affixed and of controlling their quality".

The opinion does set the tone for the decision by the CJEU in the near future, and it will be an important landmark on the law surrounding parallel importation. The simple assignment of some rights, at least in the mind of this writer, shouldn't preclude the restriction of importation by a competitor in the absence of clear acquiescence through either agreement or a joint relationship relating to those goods. The division of rights sets a clear marker on the retention of rights in key jurisdictions, and the ignorance of that purely through assignment would be short-sighted and effectively remove the possibility of doing so anywhere in the fear of losing global rights elsewhere.  In the end the CJEU will set the test for this, but the AG's opinion seems like a realistic and common sense approach to the issue at hand.

Throwing a Flag - The Use of an Amazon Listing can be TM Infringement and Passing Off

With more sales of goods being conducted online, it is often very difficult to distinguish your goods from a cascade of others, particularly on third-party selling platforms like Amazon. How these platforms often work is either by listing individual sales in isolation, therefore potentially swarming the website with similar, isolated sales of the same goods, or by lumping them together in one entry, promoting the best price for the consumer from all of the sellers on that listing (how Amazon works, for example). But with this mixing of sellers on a given listing could there be trademark infringement or passing off in these instances over the original goods being sold? A recent Intellectual Property Enterprise Court decision looked at this very question.

The case of Jadebay Ltd & Ors v Clarke-Coles Ltd (t/a Feel Good UK) dealt with the sale of aluminium flagpoles on Amazon. Jadebay sold the flagpoles under the trademark "Design Elements" (UKTM 2653159) on the platform through a licensor, which were listed under the seller "DesignElements" on the website. The defendant, Feel Good, listed their equivalent flagpole, with a lower price, under the sale Amazon listing, ultimately becoming the default seller of the goods on the listing. The claimants took Feel Good to court, alleging both trademark infringement and passing off due to Feel Good's use of the listing for inferior, non-identical goods, also excluding the trademark as above.

Judge Clarke, the presiding IPEC judge for the case, first considered the matter of trademark infringement. Under section 10(2) of the Trade Marks Act 1994, a trademark is infringed if, in short, it is used in the course of trade and there is a likelihood of confusion on part of the public, including association with the registered trademark.

The use of a sign in the course of trade includes "…offering or exposing goods for sale, putting them on the market or stocking them for those purposes under the sign", or simply used "…in the context of commercial activity with a view to economic advantage and not as a private matter". A variety of principles are applied when considering a likelihood of confusion, set out in more detail in the decision of Comic Enterprises Ltd v Twentieth Century Fox Film Corporation (discussed more here).

An alternate claim under section 10(3) of the TMA sets out that a trademark is infringed when it a person "…uses in the course of trade, in relation to goods or services, a sign which is identical with or similar to the trade mark, where the trade mark has a reputation in the United Kingdom and the use of the sign, being without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark".

Finally, the claim of passing off concerns the elements set out in Reckitt & Colman Product v Borden (discussed more here), which look at goodwill or reputation, misrepresentation leading to deception or a likelihood of deception, and damage resulting from the misrepresentation.

Judge Clarke then turned to analysing the issues at hand, starting with trademark infringement.

In her view, the average consumer would be an average flagpole-buying consumer, purchasing it for their home or commercial setting. The purchase would be driven by considerations of utility, quality and price rather than aesthetics or design, and that his purchase will be a considered one, rather than a whimsical or impulsive one, leading to an inclination of looking at the details and specifications of the listing used.

In terms of the use of the sign that was complained about, i.e. the name "Design Elements", the judge saw that it had been used by the Defendant. I her view "…[w]hether the sign complained of appears in the listing title itself, or in the descriptor 'by DesignElements', it still acts to indicate the origin of the goods for sale on the listing". The descriptor isn't merely a shop name, but an indicator of manufacturing origin, and a sign of their quality to the consumer.

Throwing your flags away isn't a viable option to avoid infringement

Looking at the actual similarities of the signed complained of and the registered trademark above, the judged had to consider their visual, aural and conceptual similarities (does it sound the same, look the same and cover the same or similar good/services). Their aural and conceptual similarities were not disputed by the defendant, so the judged quickly determined them to be identical. As to their visual similarity, the judge concluded that, as the trademark and the sign complained of share the same words in the same order, and while they are connected as one word, they are nonetheless separated by the capitalization of both words. Lastly, stylistically there were few differences between the two. Judge Clark therefore decided that the sign and the trademark had a high degree of similarity.

The judge then moved onto the next components in infringement. She swiftly determined that the sign is clearly used in the course of trade, and that it was used in relation to similar goods (i.e. the sale of flagpoles).

The next step is to establish a likelihood of confusion on the part of the average consumer. In her view, after a review of all of the circumstances, there was a high probability of a likelihood of confusion. This included factors such as the similarity of the sign and the trademark, careful consideration by the average purchasing consumer and the likelihood that the average consumer would think the product came from Design Elements. While she considered the lack of evidence of actual confusion, this didn't change the ultimate determination.

The judge concluded that there was therefore trademark infringement under section 10(2).

Judge Clark moved onto infringement under section 10(3). In looking at the trademark's reputation in the UK, the first limb of the test under the subsection, the judge saw that reputation in relation to the trademark only existed with the people who had bought a flagpole bearing the trademark. Without proper evidence as to the relevant public judge Clark couldn't establish that the trademark would have a reputation amongst a significant part of the relevant public. Infringement under section 10(3) therefore failed.

Finally, the judge turned to the claim of passing off, and determined that the defendant had passed off their goods as the claimant's.

It was quickly established that the claimant's business did have goodwill in the UK (albeit at a very low threshold on non-triviality). According to the judge, the sale of many flagpoles of a number of years, including garnering positive reviews, clearly demonstrated goodwill. The judge also agreed that a substantial number of members of the public would be misled by the defendant's listing, especially once the consumer would dive deeper into the details of the listing and the flagpoles themselves. Finally, the judge saw that almost every sale the defendant made would have been a lost sale to the claimant, and they had suffered damage as a result.

The case is quite the curious one, since it has, in effect, created a new type of trademark offense. Should someone use a pre-existing Amazon listing, they could potentially infringe on any associated trademarks, and would have to be careful to sell goods under that particular brand. The decision does set the bar quite high, and anyone selling authentic goods for a lower price would be safe, but anyone trying to ride the coat tails of a more well-known brand, selling inferior or different branded goods, might just fall foul of the precedent set.

A Point of Direction - UK Supreme Court Considers Direct and Indirect Patent Infringement

Due to the limited monopoly period in patents, infringement can be very problematic for the rightsholder, and would need to be dealt with as quickly as possible to maintain the competitive edge the patent provides. What remains tricky is establishing whether a competing product infringes on the patent, be it directly or indirectly. Drawing the line in the sand for the two types of infringement is very important, and judicial consideration on both might not be as clear as one hopes. In an attempt to clarify the position, the UK Supreme Court took on a case that involves two rivals in the pharmaceutical business.

The case of Eli Lilly v Actavis UK Ltd dealt with the chemical Pemetrexed, developed by Eli Lilly, used for the treatment of cancerous tumors. Used solely by itself the drug can be harmful, even fatal, and hence is not used as an anti-cancer drug. The side-effects of the drug could, however, be negated by using it in combination with vitamin B12 or folic acid and used for its original purpose. Eli Lilly has sold the combination drug, called Alimta, since 2004. The company also patented this combination drug in the EU (patent no. 1313508) including designations in France, Italy and Spain. Actavis proposed the launch of competing products that used pemetrexed together with vitamin B12, but, instead of using the same active ingredient Actavis would've used a different, albeit similar combination (differing from the patent claims). Eli Lilly alleged that the products would directly or indirectly infringe on their patent, with the matter ultimately reaching the Supreme Court in July.

The focal point of the matter is the use of a particular pemetrexed diacid or a pemetrexed salt with vitamin B12, which is specified in claim 1 of the patent, while Actavis uses a slightly different salt. Article 69 of the European Patent Convention sets out the extent of a patent's protection, which "…shall be determined by the claims. Nevertheless, the description and drawings shall be used to interpret the claims". A combination of the claims and its associated description should be used to determine the patent's remit of protection, i.e. could it include more compounds than the one set out in claim 1. The relevant provision for the infringement of patents in the UK is section 60 of the Patents Act 1977, which is governed by the above provision in the EPC.

After discussing the precedential history of patent infringement in both the UK and Europe, Lord Justice Neuberger, handing down the Court's unanimous decision, set out the proper test on patent infringement. In his view, to assess patent infringement matters, one has to look at two issues through the eyes of the person skilled in the relevant art. Namely, "...(i) does the variant infringe any of the claims as a matter of normal interpretation; and, if not, (ii) does the variant nonetheless infringe because it varies from the invention in a way or ways which is or are immaterial". He further specified that the second issue should viewed as not merely identifying what the words of the claim would mean to the skilled person, but also considering the extent if any to which the scope of protection afforded by the claim should extend beyond that meaning.

Lord Justice Neuberger then moved onto discussing the two issues above in more depth.

The first issue, in his view, is a straightforward application of claim interpretation, considering that the ingredients used by Actavis would not fall within the expression "pemetrexed disodium" in claim 1.

Steve wasn't a big fan of taking Pemetrexed 

The second issue proved to be trickier. Lord Justice Neuberger saw that, to determine what would amount to an 'immaterial' variation of the invention, it would be helpful to look at the three questions set out in Improver Corpn v Remington Consumer Products Ltd. These ask "i) Notwithstanding that it is not within the literal meaning of the relevant claim(s) of the patent, does the variant achieve substantially the same result in substantially the same way as the invention, ie the inventive concept revealed by the patent? ii) Would it be obvious to the person skilled in the art, reading the patent at the priority date, but knowing that the variant achieves substantially the same result as the invention, that it does so in substantially the same way as the invention? iii) Would such a reader of the patent have concluded that the patentee nonetheless intended that strict compliance with the literal meaning of the relevant claim(s) of the patent was an essential requirement of the invention?"

The judge then turned to answering the above three questions.

For the first question Lord Justice Neuberger quickly determined that both drugs work in the same way as the patented invention, ultimately comprising of a medicament containing the pemetrexed anion and vitamin B12. The drug will achieve substantially the same result, in the same way, as the invention.

In the light of the second question, Lord Justice Neuberger considered that the skilled person would appreciate that each of the Actavis products would work in precisely the same way as pemetrexed disodium when included in a medicament with vitamin B12. The use of different free acids or salts would not change this outcome, as they were clearly established as at the priority date of the patent, and the skilled person would clearly investigate their effects as a part of routine. A test for knowing whether the drugs work or not would, in his mind, is too strict.

In answering the third question, Lord Justice Neuberger diverged from the Court of Appeal's decision. He considered that the skilled person would understand that the use of ' pemetrexed disodium' would not limit infringement to only that particular salt – this just happened to be the one used during experimentation. He concluded that it is unlikely that any other pemetrexed salts or pemetrexed free acid would have been excluded from the scope of protection.

Lord Justice Neuberger ultimately saw that the patent had been directly infringed by Actavis. He affirmed his position even in the light of the patent's prosecution history, as reliance on it should be reserved to limited instances and not every matter concerning infringement. The judge also considered direct infringement in France, Italy and Spain, and concluded that the patent had been infringed in these jurisdictions as well.

Finally, the Court looked at whether the patent had also been indirectly infringed had they determined the patent to not have been directly infringed, also set out in section 60 of the Patents Act 1977. The parties argued about the manufacture and administration of the drugs, diverging on whether both contribute to infringement or not. Ultimately Lord Justice Neuberger determined that Actavis would have indirectly infringed Eli Lilly's patent if they knew, or it was obvious given the circumstances, that the drug would be used by dissolving it into a saline solution

The Supreme Court's decision in the case will be very influential, and redefines how direct infringement in particular is assessed. It'll be interesting to see how the new tests are applied to different types of patents, not just pharmaceuticals, and whether it will make proving infringement easier or more difficult.

Sales are Offline - Advocate General Allows for the Restriction of Third-Party Sales of Goods Online

Selling goods online can be incredibly lucrative, since the potential reach of your business can be near anywhere in the world to millions of people. Many companies therefore sell their goods either exclusively online, or through various third-parties, who could even purchase your goods and then resell them elsewhere without your permission. While the exhaustion of rights is quite pertinent in this scenario (e.g. more on which in relation to patents can be found here), could you still be able to prevent others from selling your goods? After a lengthy spell in the European Courts, a case dealing with just this question has landed on an Advocate General's desk, who has given their opinion on it only some weeks ago.

The case of Coty Germany GmbH v Parfümerie Akzente GmbH dealt with the sale of luxury cosmetics, made by Coty. The company sells its goods through a variety of distributors in a select network, all of which are contracted to do so under a distribution agreement (and its various undertakings). Akzente has been a Coty distributor for some years selling their goods via their retailer stores, including physical locations and via the Internet, primarily through Amazon.de. Coty wanted to make changes to their distributor agreement, which, among others, required that all goods sold online be sold via an electronic store window (not using websites like Amazon) to protect the brand and its image. Akzente refused the amendments, and Coty took the matter to court, which ultimately ended up going to the CJEU.

The crux of the case revolves around the Treaty of the Functioning of the EU and its provisions preventing the distortion of competition. Article 101 of the TFEU, in short, prevents companies from employing contractual measures that affect trade between Member States in a negative way. This could potentially include selective distribution systems, such as Coty's.

The CJEU faced four questions from the referring court, which primarily focussed on the applicability of Article 101 to the above facts.

The first question, as summarized by the Court, asked "…whether selective distribution networks for the distribution of luxury and prestige goods aimed mainly at preserving the luxury image of those goods are caught by the prohibition laid down in Article 101(1) TFEU".

The AG considered both parties' submissions relating to the first question, ultimately deciding that, in his opinion, that selective distribution networks for luxury goods would not be caught by Article 101. Following previous case law, the AG set out the three criteria that have to be met for purely qualitative selective distribution systems not to be prohibited under Article 101:

(1) it must be established that the properties of the product necessitate a selective distribution system, in the sense that such a system constitutes a legitimate requirement, having regard to the nature of the products concerned, and in particular their high quality or highly technical nature, in order to preserve their quality and to ensure that they are correctly used; (2) resellers must be chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all potential resellers and applied in a non-discriminatory manner; and (3) the criteria defined must not go beyond what is necessary.

Online sales definitely make life easier

The first criteria, necessity of the selective distribution system, needs to take into account the qualitative characteristics of the goods themselves, i.e. that it maintains the high quality of the goods when sold. This can include both the physical characteristics and the 'luxury' image of the goods. The AG summarized that "…the selective distribution networks relating to the distribution of luxury and prestige goods and seeking mainly to preserve the brand image of those goods are not caught by the prohibition laid down in Article 101(1) TFEU". Even so, the AG wanted the CJEU to clarify the possible prohibition of these types of clauses, which has been asserted under case law (particularly in Pierre Fabre Dermo-Cosmétique).

The AG considered that the case should not negate prior case law regarding the allowance of selective distribution networks under EU law, as its judgment only related to the review of the proportionality of a clause preventing the sale of goods online outright. However, he still observed that should the objective of protecting the prestige of the goods not be legitimate and therefore not allowed under EU law. Retaining the exemption for the above distribution systems is important for the preservation of trademark rights, which could be compromised if not allowed to be protected.

Ultimately, the AG set out that the answer to question one should be that such selective distribution systems should be allowed under Article 101, provided they conform to the three criteria set above.

The second question was summarized by the AG asking "…whether and to what extent Article 101(1) TFEU must be interpreted as meaning that it precludes the prohibition imposed on the members of a selective distribution system for luxury products, who operate as authorised retailers on the market, from using in a discernible manner third-party platforms for internet sales of the products concerned".

Following Metro SB-Groβmärkte, the AG set out that, to answer the above question, one would have to assess whether "…operators were chosen by reference to objective criteria of a qualitative nature, determined uniformly for all potential resellers and applied in a non-discriminatory fashion, whether the properties of the product(s) concerned require, in order to preserve their quality and to ensure that they are correctly used, such a distribution network and… whether the conditions defined are consistent with the principle of proportionality". He did note that only the necessity and proportionality criteria would have to be considered in this instance.

Should the prohibition of the use of third-party platforms be used legitimately to protect the quality of the goods, the AG considered this to be allowable. Not only does it potentially ensure that the goods are authentic, but also protects the brand. Therefore the prevention of the use of third-party websites in a distribution agreement would not be contrary to competition law. Coty didn't prevent the parties from selling them online altogether, allowing the goods to be sold on the sellers' websites, just not on third-party sites like Amazon.

The AG also considered that the clause would not be disproportionate to the objective pursued. Due to the original supplier not being able to control the third-party pages in the absence of a direct contractual relationship with them (as opposed to with the distributors), the clause would be proportionate to reach the means of controlling quality. He concluded that the clause would therefore be compatible with Article 101.

Finally, the AG, under the guise of a hypothetical determination of an infringement of Article 101 in a clause such as in the matter, set out possible further provisions that might come into play in that event. This would be Article 4(b) and 4(c) of the Vertical Agreements Regulation. These relate to the restriction of the territory in which goods can be sold, and a restriction of passive sales respectively.

In short, the AG considered that the prohibition imposed on members of the distribution system was not a restriction on the seller's customers under Article 4(b). The clause only prevents the seller from selling on third-party websites, and not online entirely, which does not limit the territory or customers accessible to the seller. The prohibition was not a restriction of passive sales under Article 4(c) either, as the restriction only applies to third-party websites, and not the entire internet. Passive sales can happen via the seller's website just as well as from a third-party site.

The case will be very important to suppliers of luxury goods who wish to maintain the image and the distribution networks selling the goods in a very close and controlled fashion. The AG's opinion would seem to be correct, since the disallowance of these types of restrictions could genuinely dilute the image and value of luxury goods, and only guide the way in which the goods are sold, not preventing some avenues like online sales. In the end the CJEU will decide the matter, but it seems unlikely they will deviate from the AG's opinion.

Source: IPKat