Trade Marks - Parallel Imports: When is an import not a parallel?

19 October 2015


The High Court of England and Wales has ruled, in parallel import case Flynn Pharma v Drugsrus, that the importer was not permitted to re-brand a medicinal product from 'Epanutin' (Pfizer) to 'Phenytoin Sodium Flynn' when importing it into the UK. The UK marketing authorisation had been sold to a third party (Flynn), who had no control over product placed on the market elsewhere in the EU.

Background

Over the years the courts of the United Kingdom and the Court of Justice of the European Communities (CJEU) have been asked to define the conditions that allow a parallel importer of goods from other members of the European Community to re-brand the goods with the trade mark used in the country of import. Many of the cases relate to pharmaceutical products.

In Flynn Pharma Ltd v Drugsrus Ltd & Anr [2015] EWHC 2759 (Ch) (6 October 2015), Mrs. Justice Rose has had to apply the decisions to a new set of facts and consider some previously unexplored issues.

Flynn Pharma Limited (Flynn) is a speciality pharmaceutical company trading in both generic medicines and speciality brands. One of their products is an anti-epileptic drug (AED) called 'phenytoin sodium'. Flynn sells the drug under the name 'Phenytoin Sodium Flynn'. Phenytoin sodium was originally patented and sold by Pfizer under the brand name 'Epanutin'. By 2012 the patent had long expired and new AEDs were available. However, the product still had a market as an adjunctive agent for some patients.

Flynn considered that phenytoin sodium would fit into its portfolio and entered into an agreement with Pfizer to acquire Pfizer's marketing authorisations for the product in capsule form for the United Kingdom only. Originally Flynn wanted to sell the product by reference to just its generic name 'phenytoin sodium', but the Medicines and Healthcare Products Regulatory Agency (MHRA) would not accept this and insisted it be called 'Phenytoin Sodium Flynn'. Flynn then registered the word FLYNN as a trade mark.

Drugsrus Limited and Tenolol Limited (the Defendants) are companies in the same group which is in the business of parallel importing pharmaceutical products. The arrangement is that Drugsrus wholesales the products in the UK while Tenolol holds the licences.

Flynn became aware that the Defendants were proposing to import into and sell in the UK phenytoin sodium capsules made and sold by Pfizer in the Republic of Ireland and sold under the brand name Epanutin. The Defendants were proposing to re-brand the product as 'Phenytoin Sodium Flynn'. Flynn commenced these proceedings alleging infringement of the trade mark FLYNN and seeking an injunction among other remedies.

The Issues

The judge dealt with the questions arising under the headings:

  1. Would the use by the Defendants of the name 'Phenytoin Sodium Flynn' amount to a use of the trade mark FLYNN?
  2. Would an injunction to restrain these imports be contrary to EU law? To answer this question, the judge considered, among other issues:
    1. What connection there needs to be between the entity marketing the product in the country of export and the owner of the trade mark right relied on, and
    2. Whether re-branding was necessary to market Epanutin in the UK.

Decision

Is the use of 'Phenytoin Sodium Flynn' a use of the trade mark FLYNN?

The Defendants alleged that the use the mark 'Phenytoin Sodium Flynn' would not be seen by the public as indicating that Flynn was the source of the products, but only as an indication of the source of the active pharmaceutical ingredient (API) or the site of manufacture of the product. They relied in particular of the decision of the CJEU in Case C-48/05 Adam Opel v Autec [2007] ECR I-1034 relating to the use of the Opel badge on toy cars.

Mrs Justice Rose rejected this allegation. The word FLYNN was not a description of the goods. It did not denote the ingredients of, or the qualities or characteristics of, the medicine. The decision of the CJEU in Case 206/01 Arsenal Football Club v Matthew Reed [2002] ECR I-10099 showed that the decision in Opel was of narrow application.

The Defendants offered a disclaimer by including on the packaging and the patient information leaflet a statement that FLYNN was a trade mark of Flynn Pharma Ltd. and that the product was not sold or marketed by them.

Again the judge rejected the Defendants' argument. The Arsenal case illustrated some of the difficulties in trying to overcome a trade mark objection with a disclaimer. She considered that the patient would still be unsure of the relationship between the Defendants' product and Flynn. The mark FLYNN was clearly a brand name. Its significance as a trade mark could not be gainsaid by 'small print' explaining it was not manufactured or sold by the entity owning the rights to the name.

Would an injunction to restrain these imports be contrary to EU law?

Article 34 of the Treaty on the Functioning of the European Union (TFEU) bans quantitative restrictions on imports from other member states and measures having equivalent effect. Article 36 makes an exception for the protection of industrial and commercial property, which includes trade marks, provided the protection of the property right does not amount to a means of arbitrary discrimination or a disguised restriction on trade between Member States.

The CJEU laid down some basic rules for deciding whether enforcement of a trade mark would amount to a disguised restriction on trade in joined case Cases C-427-93, C-429/93 and C-436/93 Bristol-Myers Squibb v Paranova [1997] FSR 102. They decided that, where the importer repackages the goods, the trade mark owner could enforce the mark except where a set of five conditions (the BMS conditions) applied. The most important for this case was:

"where the owner has put an identical pharmaceutical product on the market in several Member States in various forms of packaging, and the repackaging carried out by the importer is necessary in order to market the product in the Member State of importation".

In Case C-379/97 Pharmacia & Upjohn SA v Paranova A/S [1999] ECR I-6927 the CJEU extended this condition to cases where the trade mark proprietor uses different brands in the country of export and the country of import and the importer re-brands as well as repackages.

What relationship is needed between proprietor of the mark and the entity marketing the product in the country of export?

In the BMS and Pharmacia cases the entity which put the products on the market in the country of export was, in fact, the same as the entity seeking to enforce its rights in the country of import. Whether they were the same had not been an issue.

In this case, the Defendants contended they did not need to be the same entity. They relied on the decision of the Court of Appeal in Speciality European Pharma Ltd v Doncaster Pharmaceutical Group Ltd [2015] EWCA Civ 54. In that case Floyd LJ considered the earlier cases in the CJEU and set out a summary of the existing law based on those cases. He expressed the first BMS condition as:

"a trade mark owner may not enforce his mark against parallel imported goods which are re-branded if it is established that it is necessary to re-brand in order to gain effective access to the market".

There was no mention of any requirement that the two entities be the same. The Defendants argued that the rationale of the earlier cases was not based on any requirement of consent by the owner to the use of the right involved: it is sufficient if the enforcement of the right results in artificial partitioning.

Mrs Justice Rose was unimpressed by this argument. She pointed out that although the statement of the first BMS condition in the Speciality European Pharma case did not include a reference to the two entities being the same, the whole judgement was prefaced by a statement of the question in issue as being:

"When a pharmaceutical manufacturer markets the identical product in EU member state A under trade mark X and in EU member state B under trade mark Y, in what circumstances can a parallel importer take the goods (marked X) from state A to state B and re-brand them with mark Y?"

The cases, in her view, were all based on the principle of exhaustion of rights and the law requires that the goods were put on the market in the exporting country by or with the consent of the proprietor of the mark relied on.

The judge went on to consider whether this condition was satisfied in the present case, given the arrangements made between Flynn and Pfizer when Flynn acquired the marketing authorisations for the UK. These included not only the assignment to Flynn of the marketing authorisation, but also an agreement that Pfizer would manufacture the product.

Mrs Justice Rose relied particularly on the decision of the CJEU in Case C-9/93 IHT Internationale Heiztechnik GmbH v Ideal Standard GmbH [1994] ECR I-2836. The trade mark IDEAL STANDARD was originally held in various EU countries by subsidiaries of the American Standard Group. In 1984 the French subsidiary sold the French mark, together with its business in which the mark was used, to the Defendant IHT. The question was whether the German subsidiary could use the IDEAL STANDARD German mark to stop IHT selling products made by IHT in France on the German market.

The CJEU considered that where the trade mark had been assigned to an entity in the exporting country over which the right holder in the importing country had no control, the principle of exhaustion of right was not engaged and the right owner in the importing country was able to exercise his rights. If the assignment was to a subsidiary, or the transaction was a licence rather than assignment, the situation would be different. A primary role of a trade mark is as a guarantee that the quality of the goods is under the control of the proprietor.

Applying these principles, the judge held that the arrangements between Flynn and Pfizer were such that Flynn was the entity responsible for the quality of the product on the UK market and that Flynn had no control over the quality of the goods which Pfizer placed on the market elsewhere in Europe.

Her conclusion was that, on the facts, the principles of exhaustion of rights were not engaged and the Defendants could not apply the mark FLYNN to its imported products.

Would it be necessary to re-brand the product for the UK market?

In case she was wrong in her conclusion that the BMS conditions were irrelevant, Mrs Justice Rose went on to consider whether, had this truly been a parallel import case, re-branding would have been necessary. This was the main point which the Court of Appeal had considered in the Speciality European Pharma case. In his judgement, Floyd LJ held that the test was not whether, absent re-branding, the defendant would be excluded from the whole of the market, but whether he would be excluded from a substantial part of the market. The product in that case was a generic, but nonetheless a proportion of doctors continued to prescribe it under the brand name, which meant in turn that pharmacists were required to supply the branded product. Without re-branding the defendant would be excluded from this part of the market. This was enough to conclude that re-branding was required.

The same applied in this case. If, contrary to the judge's conclusion that the BMS conditions (discussed above) were not satisfied, the Defendants had established that it was necessary for them to re-brand in order to market the product in the UK: unless they did so, a significant part of the sales for generically prescribed phenytoin sodium were effectively closed to them.

Conclusion

It is, perhaps, not surprising that Mrs Justice Rose applied what appears to be the status quo. The Defendants' arguments, if followed to the logical conclusions, would have had a significant effect on the ability of the brand owner to control the product sold under their names.

With more and more pharmaceutical products coming 'off patent', we must expect the boundaries of the BMS conditions to be pushed. Buyers (and sellers) of pharmaceutical MAs would be well advised to keep this case in mind when structuring deals, with a view to enabling the buyer to protect its brand at a later date.


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