Any shade of grey: UK Court ruling affirms tough EU free movement of good sales


Author: Eddie Powell


This article was previously published in ILN Insider on 18 March 2015

IP owners continue to get punishment dished out to them, and not on a consensual basis. A recent decision of the UK’s Court of Appeal has reviewed the rules that dictate when parallel (or “grey”) market product can be rebranded to match the brand used by the market leader in the national market concerned.

The scope of the Court’s powers to effectively ignore what would be a blatant infringement of IP in the name of the single EU market may come as a surprise to some IP owners.

EU free movement of goods rules

It has long been a key part of EU jurisdiction that an IP right cannot be enforced when doing so would artificially partition the EU internal market. This rule has allowed grey market importers to repackage and relabel products where this was necessary to make the products suitable for market conditions in different EU countries. Previous decisions of EU courts have confirmed that this can include changing the brand of the product where this was the only way the product could legally achieve any sales in the EU state of importation. The test the court must apply is what changes are necessary to give “effective access” to a “substantial part” of the local market concerned?

The facts

A drug was manufactured by a German manufacturer (M) and distributed throughout Europe by exclusive distributors appointed in each country. The drug was sold in different countries under different names. So in Germany it was marketed as URIVESC, in France as CERIS and in the UK as REGURIN. The Defendant (D) parallel imported product, purchased from the French and German markets, into the UK and over-stickered the existing packaging with new branding featuring the REGURIN mark. They were sued by the UK exclusive licensee/distributor for trade mark infringement.

The evidence was that, in certain forms, the product was already out of patent, and so generic product was available on the market alongside M’s branded product REGURIN. D identified, however, that about 10% of doctors’ prescriptions for the drug specified the drug by the name REGURIN and, where they did so, the pharmacies had to provide that branded product to the patient.

The decision

The first instance judge decided that the fact that D’s product could access 90% of the market without rebranding meant that it had effective access. However, the Court of Appeal disagreed, on the basis that 10% was a “substantial” part of the UK’s pharma market. An interesting argument put forward by the UK licensee was that there was nothing to stop D from setting up its own brand and promoting it to doctors so as to penetrate that part of the market. D successfully argued that as they were relying on parallel market product, there was no security of supply; they would therefore be spending a lot of time, effort and money in promoting a product where they could not guarantee the patients would actually be able to get hold of the product. The Court accepted that this was not a realistic proposition and that the only way that D could realistically access the 10% segment market was to use the REGURIN brand.

The full decision can be found here: http://www.bailii.org/ew/cases/EWCA/Civ/2015/54.html

Conclusion

It seems like a big step when a court allows an importer to switch brands to market parallel market product using the best brand on the market, even though in the overall scheme of EU case law in this area, it is not such a big leap. The pharmaceutical market has its own vagaries which are less likely to occur in other industries, but it is worth bearing in mind that EU courts are allowed to go to great lengths to prevent IP owners from carving up the EU into national markets by using IP rights in different ways. There is no safe word.

Eddie Powell, Partner, Fladgate LLP (epowell@fladgate.com)

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