EUROPEAN PERSPECTIVES

ECJ Raises Stakes for Parallel Importers

Keeping parallel imports on the right side of the law is not easy. It may become harder still following the recent judgment of the ECJ in Boehringer Ingelheim KG and Another v Swingward Ltd. and Others (C-384/04).

In this case, the Court laid the burden of proving that repackaged and re-labelled pharmaceuticals meet the requisite legal criteria squarely at the parallel importers’ feet, and upheld the legality of financial penalties on importers who fail to give notice to the brand owner prior to distributing repackaged or re-labelled goods.

 

Background

The judgment is the latest instalment in a case that began over 5 years ago, when a group of well-known pharmaceutical companies sued various parallel importers who were buying up the claimants’ branded drugs in the E.U., re-boxing or re-labelling them, and selling them at discounted prices in the U.K. The drugs giants claimed that the sales amounted to trade mark infringement.

At the request of the English High Court, the ECJ reviewed the case in 2002 and held that brand owners could block the sale of repackaged drugs unless parallel importers proved that such action would result in the artificial partitioning of the market. Legal action by brand owners would amount to artificial partitioning where the repackaging was in fact necessary to gain effective access to the market concerned. The mere fact that repackaging was objectively necessary to gain market access would not legitimise parallel imports, however, if the importer did not give reasonable notice to the brand owner prior to the sales.

Following the ECJ’s guidance, the High Court ruled for the claimants. On appeal, however, the Court of Appeal referred yet further questions to the ECJ on the legal criteria applying to re-labelled (as opposed to repackaged) products, the burden of proof that the criteria had been met, and the acceptability of financial penalties on parallel importers who fail to notify brand owners in advance where repackaged and re-labelled goods are to be sold.

 

The Basic Criteria for Parallel Imports

In its judgment, the ECJ affirmed the continuing relevance of the five criteria laid down over 10 years ago in Bristol-Myers Squibb and Others (Joined Cases C-427/93, C-429/93 and C-436/93). These permit trade mark owners to challenge the parallel import of repackaged pharmaceuticals unless the repackaging:

• is necessary to enable the product to be marketed in the relevant member state;
• is not capable of affecting the original condition of the goods;
• clearly identifies the repackager and manufacturer;
• is not liable to damage the reputation of the brand through being eg defective, of poor quality or untidy;
• has been notified in advance to the trade mark owner, to whom the importer must provide a sample on demand.

 

Overstickered Products

Although the Bristol-Myers Squibb criteria were intended to deal with repackaging, the Court reasoned that re-labelling was as capable as re-boxing of undermining a trade mark’s ability to function as an indicator of origin.

The facts of this case showed, in particular, that overstickering could involve obscuring the brand owner’s trade mark (“de-branding”), affixing a further, repackager’s trade mark (“co-branding”) or altering the overall look and presentation of the packaging.

The Court affirmed the Bristol-Myers Squibb criteria as relevant not only to repackaging, but also to cases where labels or stickers were affixed to original packaging. To escape liability for trade mark infringement, therefore, a parallel importer had to show that overstickered drugs complied with Bristol-Myers Squibb.

 

Damage to Reputation

Although the Court in Bristol-Myers Squibb had identified only defective, poor quality or untidy packaging as capable of damaging reputation, the Court in its more recent judgment recognised that damage could arise from other circumstances, too.

In particular, the Court found that inappropriate presentation of a drug carton or label could detract from “the image of reliability and quality attaching to such a product and the confidence it is capable of inspiring in the public concerned.” This went beyond mere defective, untidy or poor quality packaging, reaching into overall look and presentation. Hence, the requirement that repackaging or re-labelling not damage the reputation of a trade mark was not limited to the examples of damage listed in Bristol-Myers Squibb.

Whether particular circumstances of repackaging are likely to damage a brand owner’s reputation is a question of fact for the national court. The ECJ did not, therefore, consider whether the fact patterns relied on by the claimants would lead to such damage. It noted, however, that a national court might consider whether damage could be caused by de-branding, co-branding, failure to identify the brand owner as the proprietor of the brand, and the giving of greater visual emphasis to a parallel importer’s name.

 

Burden of Proof

The burden of proving that repackaged or overstickered pharmaceuticals comply with Bristol-Myers Squibb is firmly with the parallel importer, the Court ruled. Compliance would not be presumed, and a trade mark owner need not prove that the criteria were not met in order to succeed in a claim.

The only exceptions were in respect of the negative conditions. For example, the brand owner was in a better position to address the impact of new packaging or labelling on the condition of the goods or reputation. It was more appropriate that it should bear this burden, therefore, where the importer had raised a prima facie case that the use would not have such an effect.

 

The Cost of Not Giving Notice

Under Bristol-Myers Squibb, parallel importers are obliged to give advance notice to brand owners of the intended distribution of repackaged or re-labelled drugs. It is not sufficient that a brand owner receives notice or learns of the sales from another source.

In Boehringer Ingelheim, the Court declined to regard imports distributed in breach of the notice requirement as “spurious,” as alleged by the claimants. However, it did regard them as illegitimate in the sense that they should not have been placed on the market in the absence of notice, regardless whether they fulfilled the other Bristol-Myers Squibb criteria. National courts were obliged to deal with such cases under national law in an appropriate manner, taking account of the need to ensure that the law was effective and an adequate deterrent.

Provided the measures were proportionate in light of the damage caused by the sales, the Court confirmed that a national court could impose financial penalties on a parallel importer who fails to give the required advance notice to brand owners of the proposed distribution of repackaged or re-labelled pharmaceuticals.

 

Comment

The ECJ let fall a few crumbs of comfort for parallel importers.

It found, in particular, that there is no need for them to prove that the manner and style of repackaging or re-labelling is necessary in order to gain effective market access, provided the fact of the repackaging or re-labelling was necessary. The court’s recognition that parallel importers can only reasonably go so far in proving a negative will also be welcomed by repackagers.

The overall message, however, is stern. Parallel importers must prove compliance with the Bristol-Myers Squibb requirements for both repackaged and relabelled drugs, must take care to ensure that their packaging is not potentially damaging to the goods or the brand owner’s reputation in any way, and must always give reasonable notice directly to the brand owner prior to the sales, failing which stiff penalties may await.

The question of reputation, however, arguably holds the greatest dangers for parallel importers and the greatest opportunities for the brand owners opposing them. The list of circumstances capable of affecting a brand’s reputation in different fact scenarios is endless, and the pharmaceutical companies are likely to waste little time in getting the issues before the national courts.

The scope for litigation in this field remains as broad as ever. Boehringer Ingelheim may soon near its end, but the next challenge is unlikely to be far behind.