The Court of Appeal has dismissed an appeal by a parallel importer against a High Court ruling that the imported goods infringed the claimant's trade mark; Flynn Pharma Ltd v DrugRUs Ltd and Another [2017] EWCA Civ 226. The decision confirms that trade mark owners have a legitimate interest in the enforcement of their marks against imported goods that they have not placed on the market and over which they have no control. This applied even when the imported goods are identical products produced by the same manufacturer.
Relevant law
Article 34 of the Treaty on the Functioning of the EU ("TFEU") provides for the free movement of goods between member states.
Article 36 of the TFEU provides for exceptions to this rule: prohibitions or restrictions on imports can be justified on grounds of the protection of industrial and commercial property, such as national trade mark rights, but must not constitute a means of arbitrary discrimination or a disguised restriction on trade between member states. The CJEU has recognised that in order to give trade marks their full effect in some cases artificial barriers to trade would need to be erected which were 'disguised restrictions on trade'.
Facts
In 2012 Flynn Pharma ("Flynn") acquired the marketing authorisation in the UK from Pfizer for an anti-epileptic drug, whose international non-proprietary name ("INN") is phenytoin sodium, but which Pfizer sold under the brand name EPANUTIN everywhere else in Europe. Flynn intended to genericise the drug in the UK and sell the drug by reference to its INN.
The drug however has a very 'narrow therapeutic index' which means that the level of the drug in the bloodstream was crucial to its efficacy, even a slight excess could cause toxicity and seizures. Two preparations of phenytoin sodium from different sources might have subtle difference and therefore produce different effects on the patients. Therefore the Medicines and Healthcare Products Regulatory Agency ("MHRA") has advised that doctors should ensure patients were subscribed a specific manufacturer's product.
Due to this issue with the narrow therapeutic index the MHRA refused to allow the drug to be marketed under its INN due to concerns that different sources of the drug may be become indistinguishable. Therefore Flynn obtained UK and EUTM trade marks for FLYNN and a license to market the product as "Phenytoin Sodium Flynn" instead of EPANUTIN. Flynn invested substantial resources into educating doctors, patients and pharmacists that "Phenytoin Sodium Flynn" was in fact EPANUTIN but under a new name.
The defendants planned to parallel import EPANUTIN capsules into the UK. However they ran into a number of difficulties:
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the MHRA restriction requires pharmacists to supply the specific branded product prescribed and not substitute it for another brand;
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as the supply of EPANUTIN was via parallel imports, not a stable source of supply, doctors would not prescribe it; and
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the MHRA advised that they could not supply the drug under the generic name as this is counter to its policy of ensuring that each patient had the same source of supply.
The defendants therefore wanted to re-label their product "Phenytoin Sodium Flynn" when importing into the UK. Flynn initiated proceedings for trade mark infringement.
High Court decision
The defendants claimed that enforcing trade mark rights against re-branded parallel imports constituted a disguised restriction on trade between EU member states, contrary to Article 36 of TFEU. The High Court found that Article 36 could only be relied on if it could be shown that the imported goods were marketed in the EU by or on behalf of the same entity seeking to enforce its trade mark against importers. In this case the imported goods were placed on the market by Pfizer and the relationship between Pfizer and Flynn did not establish any control by Pfizer over the FLYNN trade mark.
The High Court held that applying the sign Phenytoin Sodium Flynn would infringe Flynn's trade mark rights. The defendants appealed this decision.
Court of Appeal decision
In considering whether the enforcement of the trade marks against the parallel imports did not amount to a disguised restriction under Article 36 the Court of Appeal adopted a two-step approach:
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Were the goods which the alleged infringer wanted to import goods placed on the market by the trade mark owner or with their consent?
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Even if the answer is no, is the party who did place the goods on the market under a trade mark also in effective control of the trade mark being enforced?
The Court of Appeal unanimously upheld the High Court's decision finding that:
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In relation to the first step:
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Pfizer had placed the goods on the market, not Flynn;
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Flynn and Pfizer are completely separate entities with no corporate links and Flynn had no control over the quality of the EPANUTIN placed on the market in other EU member states by Pfizer; and
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Even though the parallel goods were from the same source as Flynn's goods, this is not equivalent to Flynn giving consent to the marketing of such goods or having control over their quality. Pfizer independently controlled these aspects.
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In relation to the second step:
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The relationship between Flynn and Pfizer was at arms-length between independent companies;
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Flynn could put its own trade mark on the product and Pfizer had no control over this and was not entitled to use that trade mark.
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As the above two-step test was answered in the negative the Court of Appeal found that Flynn had a legitimate interest in the enforcement of its trade mark against good bearing its mark that had not been placed on the EU market by it and over which it had no control. This was not a disguised restriction on trade mark and Flynn was therefore entitled to enforce its trade mark rights against the importers
Comment
This case provides welcome comfort for trade mark owners whose products are targeted in this way by parallel importers. The facts of this case were different to the typical parallel imports case. The decision develops the heavily considered law on parallel imports in a situation where the relevant goods were not put on the market by the trade mark owner, but by a third party, and focuses on the issue of 'control'. However, according to press reports, DrugsRUs has indicated that it intends to seek permission to appeal this decision to the Supreme Court. We will keep you updated on this case as it develops.