Parallel imports: 2005 cases largely favour brand owners

A string of parallel imports cases continued throughout 2005, further clarifying the law largely in favour of brand owners.

Trade from outside the EEA

The Courts gave a resounding “no” in 2005 to the unauthorised importation of branded consumer goods into the UK from outside Europe by third parties. The issue came to the fore in the lucrative electronics market, with middle men and traders seeking to benefit from high consumer demand for Sony’s new PSP console and Hewlett Packard’s personal organisers (Sony v Nuplayer and Hewlett Packard v Expansys).

In both cases the goods were sourced from the Far East with the aim either of undercutting UK prices or pre-empting the official UK launch date for the product. Sony and Hewlett Packard took legal action based on their registered trade marks to prevent this trade which disrupted their distribution chains within Europe. The ECJ had made clear in 2001 in the case of Davidoff/Levi v Tesco/Costco that unless the trade mark owner had given unequivocal consent to the sale of its branded goods within the EEA, the proprietor’s rights would be infringed by any importation, sale or advertisements of such goods. The High Court had no hesitation in fully implementing that decision by granting summary judgment in favour of both brand owners on the same day.


Inventive, but unsuccessful
The Court rejected an assortment of inventive arguments raised by the importers, finding that:

• a claim that the importer had removed Sony’s trade mark from its products was not genuine and was as a practical matter impossible (although had it been possible, interesting questions would have arisen about the extent to which dealing in a “de-branded” product constitutes trade mark infringement)
• brand owners do not give the necessary consent just because they may not fully police their rights
• even if some parts of the brand owner’s organisation may have acquiesced in exporting to Europe, for example by oversupplying particular local markets, this did not constitute consent
• the fact that sales and advertising took place over the internet was no defence to trade mark infringement
• the enforcement of trade marks by brand owners in these circumstances was not an abuse of their dominant position under Article 82 of the Treaty of Rome.

Similarly in the case of Sportswear v Sarbett Ghattaura, which involved the parallel importation of clothing sold with defaced labels, the Court struck out a defence raised by the importers under Article 81 of the Treaty of Rome based on the alleged anti-competitive conduct of the trade mark owner and his distributor. Even if there had been such conduct there was insufficient “nexus”, that is, an insufficient connection between the alleged breach of competition law and the infringement of trade mark rights. While there might be a separate claim under competition law the trade mark owner’s right to enforce his trade mark was unaffected.

These judgments confirm that brand owners do have clear powers to prevent the importation into the EEA of their goods. As always, the principal difficulties in bringing such actions are the practical ones of identifying defendants, tracking their activities and ensuring that a consistent approach has been taken throughout the brand owner’s organisation.

Trade within the EEA

The basic rule is of course that parallel trade is permitted across national European borders, but that there is an exception under trade mark law where the trade mark owner has “legitimate reasons” to object (Article 7(2) of the Trade Marks Directive). Currently, debate in this area focuses on the repackaging by importers of branded pharmaceutical products, which has culminated in the case of Boehringer Ingelheim v Swingward. The case, which has been active for over five years, is undergoing a second reference to the ECJ to determine in particular whether a parallel importer may “de-brand” (remove the manufacturer’s trade mark) or “co-brand” (add his own design elements or housestyle to new outer packaging). A hearing before the ECJ took place in January 2006, with the Advocate General’s opinion expected in April 2006, and hopefully a full judgment to follow before the end of this year. The result will be of importance not only to the pharmaceutical industry but to anyone involved with parallel imported goods.

Goods held at Customs

An interesting ECJ judgment was given in 2005 concerning the status of goods held by Customs within the EEA under the transit and warehousing procedures whereby they may be held in the EEA temporarily without incurring import taxes. In Class International v Colgate Palmolive, a consignment of imported AQUAFRESH toothpaste from South Africa was detained, believed to be counterfeit. In fact it was a genuine parallel imported product and the question arose as to whether the brand owner could use registered trade mark rights to prevent its onward transit. The destination of the goods was unknown and in these circumstances the ECJ found that the goods could not be impeded unless the brand owner had firm evidence that the ultimate destination was within the EEA. As yet they had not entered the EEA market. Thus there had been no infringing use.

Separate ownership of marks

Parallel trade will not be permitted in any event (whether within or from outside the EEA) where a trade mark is in the separate ownership of more than one party and the consent of both has not been demonstrated. Last year, in the case of Bolton v Swinghope a pharmaceutical company succeeded in preventing parallel trade of its branded product within the EEA because the trade mark, while owned by it in the UK, was owned by another entity in the country of export, whose consent was irrelevant to the question of exhaustion of Bolton’s rights. For this reason, the product had not been placed on the market with the consent of the UK trade mark owner and therefore was not free to move around the European market. The Bolton case follows well established European case law, set out in Hag II and IHT Internationale. Such a scenario is more common than may be imagined and will often occur following a transfer of some of the intellectual property rights connected with a brand as part of a corporate transaction. The defendant also failed in an estoppel defence, the Court finding that a mere delay of five months on the claimant’s part before raising complaint could not give rise to such a defence.

The future

Generally, it seems that the arguments available to defendants in parallel imports cases are themselves becoming exhausted, and with a result expected from the ECJ in the Boehringer case shortly, it is to be hoped that a further degree of clarity will be achieved to the benefit of both trade mark owners and those who deal in parallel imports.

This article first appeared in our UK Brands Review March 2006. To view this publication, please click here to open it as a pdf in a new window.