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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Flynn Pharma Ltd v Drugsrus Ltd & Anor [2017] EWCA Civ 226 (06 April 2017)
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Cite as: [2017] Bus LR 1874, [2017] ETMR 25, [2017] 3 CMLR 11, [2017] RPC 18, (2017) 156 BMLR 124, [2017] EWCA Civ 226

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Neutral Citation Number: [2017] EWCA Civ 226
Case No: A3 2015 3757

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
THE HON MRS JUSTICE ROSE DBE

[2015] EWHC 2759 (Ch)

Royal Courts of Justice
Strand, London, WC2A 2LL
06/04/2017

B e f o r e :

THE CHANCELLOR OF THE HIGH COURT
LORD JUSTICE KITCHIN
and
LORD JUSTICE FLOYD

____________________

Between:
FLYNN PHARMA LIMITED
Claimant/
Respondent
- and -

(1) DRUGSRUS LIMITED
(2) TENOLOL LIMITED

Defendants/
Appellants

____________________

Martin Howe QC and Henry Ward (instructed by RR Sanghvi & Co) for the Appellants
Guy Burkill QC and Nicholas Saunders (instructed by Pinsent Masons LLP) for the Respondent
Hearing dates: 28 February and 1 March 2017

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Floyd:

    Introduction and factual background

  1. This appeal is concerned with the interaction of trade mark rights and the EU rules about the free movement of goods. The issues involve the application of Article 36 of the Treaty on the Functioning of the European Union ("TFEU") which prohibits disguised restrictions on trade between member states. DrugsRus Limited and Tenolol Limited (together "the appellants") appeal from the decision of Rose J dated 6 October 2015 in which she found that the appellants would infringe UK registered trade mark number UK 2630656 and Community registered trade mark number EU 11097383, each for the word FLYNN and belonging to Flynn Pharma Limited ("Flynn"), if they applied the sign "Phenytoin Sodium Flynn" to the packaging of the drug phenytoin sodium which they wished to import from other EU member states.
  2. Phenytoin sodium

  3. Phenytoin sodium is that drug's international non-proprietary name ("INN"). It is principally an anti-epileptic drug or AED. It was originally developed by Parke-Davis in the 1930s. It is what is described as a mature drug, in that it is now prescribed very rarely to new patients. Nevertheless, it has a substantial cohort of patients for whom it continues to provide continuing and welcome therapy. A significant characteristic of the drug is that it has a narrow therapeutic index or window. This means that there is a small difference between the blood level of the drug which is necessary to achieve therapeutic efficacy, on the one hand, and the blood level at which the drug becomes toxic, on the other. Epilepsy patients must therefore achieve a high degree of stability of their blood level; even a small change in blood level may render the drug ineffective or toxic.
  4. The narrow therapeutic index of phenytoin sodium caused the Medicines and Healthcare Products Regulatory Agency ("MHRA") to issue guidance in November 2013 about prescribing AEDs ("the Guidance"). The MHRA was concerned that, even if two products have the same active ingredient and are presented in the same form, different sources of the active ingredient or different places or methods of manufacture might result in subtle differences in the product such that one product might not be therapeutically or clinically the same as another. The MHRA advised doctors to ensure that their patients were maintained on a specific manufacturer's product, by which it meant the product of a particular marketing authorisation holder ("MAH"). It additionally advised pharmacists that they should ensure continuity of supply of a particular product when the prescription specified it.
  5. Before September 2012 all phenytoin sodium capsules supplied in the UK were made by the pharmaceutical company Pfizer and were sold under Pfizer's brand name Epanutin. Pfizer was the holder of a marketing authorisation granted by the MHRA. It made the active ingredient for Epanutin at its facility in Kalamazoo, USA and it was placed into capsules at a facility in Freiburg, Germany.
  6. In September 2012, the price at which Pfizer could sell Epanutin was controlled in the UK by the pharmaceutical price regulation scheme ("PPRS"). It was sold at a price of about £3 per bottle containing 84 capsules of 100 mg. Although Pfizer never stated that continuing to market Epanutin at these prices was loss-making, it apparently regarded it as "economically challenging".
  7. Flynn's launch of Phenytoin Sodium Flynn in the UK

  8. Flynn is an entirely separate company from Pfizer. It sells a range of pharmaceuticals, some of which come from Pfizer, but others of which do not. Flynn's products carry the Flynn name and a logo consisting of a bird in flight. Before 2012, Flynn had made extensive use of their name both as part of its company name and on its products, but had not yet registered it as a trade mark.
  9. Before 2012, Flynn had had no involvement with Epanutin. By a series of agreements between Pfizer and Flynn in early 2012 the UK marketing authorisations for phenytoin sodium were transferred to Flynn. The intention at the time was to "genericise" the product in the UK, which would have meant removing the Epanutin branding on the packaging and selling the drug by reference to its INN, phenytoin sodium. Counterintuitively, the process of genericising the drug would allow Flynn to increase the price, because the drug would then be free from the constraints of the PPRS, which only applies to branded products. The price of generic products is assumed to be regulated by market forces, but for that to happen there must be a sufficient number of competitors in the generic market.
  10. In pursuit of its genericisation plan, Flynn applied to the MHRA to change the name of the product from Epanutin to phenytoin sodium. The MHRA declined to permit this. Instead, its response was that the product should be called "Phenytoin Sodium Flynn". The MHRA was at the time developing the Guidance, and it was the considerations underlying the Guidance which led them to make this suggestion. If the name had simply consisted of the INN, then it would be difficult to avoid products from different sources being indistinguishable, a state of affairs which the Guidance was concerned to avoid. After some initial resistance, Flynn ultimately agreed to this variation. Flynn received an assurance that the incorporation of the name Flynn into the regulatory name of the product would not cause the product to be treated as a branded product, and thereby brought back within the price constraints of the PPRS. It then applied to register the word "Flynn" as a trade mark, which, as I have said, it had not previously done. The word trade marks which I have identified above were in due course obtained. Nothing turns on the fact that one is a Community registered trade mark. Flynn launched Phenytoin Sodium Flynn on 24 September 2012. Pfizer stopped selling Epanutin capsules in the UK shortly afterwards.
  11. Once Phenytoin Sodium Flynn had replaced Epanutin on the market, the price of a bottle of 84 capsules of 100 mg rose to about £66.50, a more than 20-fold increase. The price at the time of Rose J's judgment was about £54, which is still 18 times the previous price. There are separate proceedings concerning the pricing of Phenytoin Sodium Flynn involving the Competition and Markets Authority and the Competition Appeal Tribunal.
  12. It was important to Flynn that patients and healthcare professionals should be confident that Phenytoin Sodium Flynn was the same as Epanutin, so that patients stabilised on Epanutin could take it without risk. Flynn invested considerably in educating patients and healthcare professionals that Phenytoin Sodium Flynn was exactly the same as the product which they were used to prescribing, dispensing or taking under the brand name Epanutin. This was referred to in argument as "the information campaign".
  13. The appellants' business

  14. The appellants are two companies in a group established in about 1997 by Mr Naresh Shah and his wife to trade in parallel imported pharmaceutical products. The role of the second respondent ("Tenolol") is that it applies for, holds and maintains product licences for parallel imports ("PLPIs"). The role of the first appellant ("DrugsRus") is as an importer and wholesaler of pharmaceutical products, under Tenolol's PLPIs. In 2010 the appellants started to import phenytoin sodium under the brand name Epanutin from Spain. Later they applied to amend their existing licence to permit the marketing of the imported product under its INN as well. The MHRA again objected, saying that the product could not be marketed under its generic name in accordance with the policy underlying the Guidance. The MHRA explained that the product name for a parallel imported AED product should be the name under which the UK cross-referred product is marketed (i.e. Phenytoin Sodium Flynn). Alternatively, the name of the product in the source country (Epanutin) might be used providing this would not lead to any confusion or doubt over continuity of supply to the patient. The MHRA, of course, takes no account of intellectual property rights when it makes recommendations such as were given to the appellants.
  15. The appellants' original position was that the option of marketing the product in the UK under the name Epanutin presented them with two problems. The first was that pharmacists would not be able to use that product to fill prescriptions written for Phenytoin Sodium Flynn: they could only use it where prescriptions were written by reference to Epanutin or the INN. The second problem was that the appellants could not, as parallel importers, guarantee the continued supply of Epanutin capsules. This latter problem was not one which Mr Shah wholly adhered to in cross-examination, when he explained that he would have no difficulty in maintaining a buffer stock of some two years' worth of product.
  16. The market for phenytoin sodium

  17. The market for phenytoin sodium in the UK at the date of the trial was made up as follows. In terms of prescriptions, a very small percentage were for a product called Phenytoin Sodium NRIM. 7-9% of prescriptions were for Phenytoin Sodium Flynn. About 90% were written generically. In terms of market share Flynn had about 40% of the market with about 60% being supplied by other phenytoin sodium products, namely the NRIM product and parallel imports of Epanutin. Some of Flynn's market share was due to pharmacists checking, in accordance with the Guidance, for continuity of supply, but it was common ground that it had also secured some share by simple competition. The market share which was available for competition was therefore well in excess of 60%.
  18. The issues in the appeal

  19. The appellants' principal case before the judge and before us was that the exercise of Flynn's trade mark rights against parallel imports rebranded as Phenytoin Sodium Flynn was contrary to EU law. They contended that restricting importation by use of Flynn's trade mark rights constituted a disguised restriction on trade between member states contrary to Article 36 TFEU. The appellants had a secondary case based on the propositions that their use of the trade mark Flynn was either not trade mark use at all, or was the kind of use protected by section 11(2)(b) of the Trade Marks Act 1994. Flynn, on the other hand, contended that in order for a trade mark owner's claim to be defeated by EU law, the appellants had to show that the Epanutin which they were seeking to import into the UK was placed on the market in the exporting member state by or under the control of the same entity as was now trying to prevent its import. They joined issue with the appellants on their secondary case as well.
  20. The judgment of Rose J

  21. The judge rejected the appellants' contention as to the test under Articles 34 and 36 TFEU, concluding, at paragraph 56, that the authorities showed that the appellants could only rely on Article 36 to defeat the claim of infringement if they could show that the Epanutin which they wished to import was placed on the market in the exporting member state by the same entity as was now seeking to prevent its import into the UK. She also rejected the "not trade mark use" and section 11(2)(b) defences.
  22. The judge then went on to consider whether the connection between Pfizer and Flynn was such as to lead to the conclusion that the Epanutin which was sought to be imported was indeed placed on the market in the exporting member state by the same entity as was seeking to enforce the trade mark rights. This involved an analysis of the various agreements entered into between Pfizer and Flynn. These were:
  23. i) An asset sale agreement which provided for the sale by Pfizer to Flynn of the marketing authorisations for the various strengths of phenytoin sodium capsules together with sales and marketing know-how for the products, technical product data and key regulatory and other product-related data. The information transferred excluded manufacturing know-how. Clause 9.1 of the asset sale agreement provided, originally, that if the parties failed to enter into the exclusive supply agreement, or if the agreement expired or was terminated for any reason, the asset sale agreement also terminated and the assets, including the marketing authorisations, had to be returned to Pfizer. By a subsequent agreement entered into on 27 August 2014 Pfizer and Flynn agreed, amongst other things, that clause 9 be deleted.

    ii) An exclusive supply agreement which set out the arrangements for Pfizer to manufacture and supply Flynn with its requirements for phenytoin sodium capsules for 3 years from 17 April 2012. The agreement has been extended on an interim basis since it expired in April 2015. The exclusive supply agreement contained terms as follows: (i) a requirement that Pfizer must manufacture the product in accordance with the Specification (i.e. the quality agreement: see below) and good manufacturing practices. Thus, where the source of an ingredient in the product is specified in the marketing authorisation, Pfizer must not change that source or the source of any active ingredient without the prior written consent of Flynn. Pfizer is required to ensure that each batch of product is manufactured in compliance with the requirements of the marketing authorisation and must produce a certificate of compliance by Pfizer's Qualified Person. Pfizer was required to inform Flynn in the event of any change in the manufacturing process or in the analytical specification and of any noted incident occurring during the manufacture of the product.

    iii) A quality agreement which sets out and allocates the responsibilities for the manufacture and testing of the products between Pfizer and Flynn. The agreement includes quality responsibility tables which allocate responsibility for different aspects of the production process to Flynn, Pfizer or Pfizer Manufacturing Deutschland GmbH ("Pfizer Germany"). Pfizer Germany was the actual manufacturer of the product and therefore shouldered the great majority of responsibilities. Many responsibilities were shared between all three signatories. Flynn was allocated sole responsibility for handling recalls of the product and making submissions to the MHRA.

    iv) A pharmacovigilance agreement provided for the exchange of drug safety information.

    v) A trade mark licence which granted Flynn the right to use the name Epanutin in the identity code on the capsule shell itself, but not otherwise.

  24. The judge did not find it helpful merely to ask whether the agreements, looked at together, were more like an exclusive distribution agreement than an outright assignment of rights. At paragraph 71 she held that the correct question was whether there was anything (a) in the corporate relationship between Flynn and Pfizer or (b) arising from the agreements between them that indicated that the same entity could exercise control over the quality of the Epanutin sold in other member states and the product sold as Phenytoin Sodium Flynn in the United Kingdom.
  25. Having considered the CJEU jurisprudence and in particular Case C-9/93 IHT Internationale Heiztechnik GmbH v Ideal Standard GmbH [1994] ECR I 02836 ("Ideal Standard"), the Judge concluded at paragraphs 77 and 78:
  26. "77. I do not accept, however, that the fact that Flynn Pharma is obliged to or chooses to acquire its supplies of Phenytoin Sodium Flynn for the UK from the same manufacturer as makes Epanutin for other Member States means that the same entity is responsible for the quality of the two products for the purposes of applying the free movement provisions. What is more important is whether responsibility for the quality of both products lies with the same entity so that it is not misleading for the parallel importer to attach the Flynn name to the Epanutin. When considering responsibility here, I am referring to responsibility to the ultimate consumer for the quality of the product. Of course Pfizer is responsible to Flynn Pharma for the quality of the product it supplies under the agreements and the specification of that product is set by Flynn Pharma and monitored by them. What matters is whether there is anything in the suite of agreements which gives Flynn Pharma power to control the quality of the Epanutin supplied by Pfizer in other Member States or anything that entitles Pfizer to control the specification of the Phenytoin Sodium Flynn supplied in the UK if, for example, Flynn Pharma decided to change it. I do not see any such control granted to either company over the other's product. Pfizer can sell Epanutin anywhere else it likes - Flynn Pharma has no control over Pfizer's other products and no control over the trade mark that Pfizer uses elsewhere. Flynn Pharma can put its own trade mark on the products made for it, and Pfizer has no control over that. Only the products Pfizer manufactures for Flynn Pharma at its direction can be packaged as Phenytoin Sodium Flynn. As the holder of the marketing authorisation it is Flynn Pharma that takes the responsibility for those products. Legal responsibility for manufacture at all levels (API, product formulation & packaging) to ensure compliance with authorisation lies with Flynn Pharma for the Phenytoin Sodium Flynn product. It could manufacture in-house if it chose and where, as here the manufacture is contracted out, it must have a supply agreement, technical agreement and quality agreement in place.
    78. Having considered the agreements between Pfizer and Flynn Pharma, it would not be right to say that the owner of the right in the importing State is, directly or indirectly, able to determine the products to which the trade mark may be affixed in the exporting State and to control their quality. I therefore hold that Flynn Pharma's trade mark rights in the name Phenytoin Sodium Flynn are not exhausted in respect of packages of Epanutin placed on the market in other Member States. Flynn Pharma is therefore entitled to prevent the relabelling of the parallel imported product by the Defendants."
  27. Those conclusions were sufficient, in the judge's view, to dispose of the Article 36 defence. However the judge also considered, in the alternative, whether it was necessary for the appellants to rebrand in order to gain effective access to the United Kingdom market for phenytoin sodium. Having considered the decision of this court in Speciality European Pharmaceuticals Pharma Limited v Doncaster Pharmaceuticals Group Limited and another [2015] EWCA Civ 54 ("SEP"), she concluded that it was necessary. This was principally because the appellants would be excluded from a significant part of the market, namely that in which the product was prescribed by the name Phenytoin Sodium Flynn. However, Flynn's market share was significantly greater than the percentage of prescriptions which included their name. This was in part due to pharmacists following the Guidance, so that when a patient presents with a generic prescription, he checks what the patient was on before and fulfils the prescription with the Flynn product and not others. This expanded the share of the market which was effectively closed to the appellants beyond the share represented by Phenytoin Sodium Flynn prescriptions.
  28. Legal principles

  29. Article 34 TFEU provides:
  30. "Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States."
  31. Article 34 is the fundamental free movement of goods provision of the TFEU. Article 36 provides for certain permissible exceptions to this broad provision, provided they are justified:
  32. "The provisions of Articles 34 … shall not preclude prohibitions or restrictions on imports … justified on grounds of … the protection of industrial and commercial property…. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States."
  33. Industrial or commercial property includes national trade mark rights. Thus, subject to the second sentence of Article 36, the free movement provision, Article 34, does not prevent a trade mark owner from enforcing a trade mark so as to stop the importation of goods bearing the mark if it is justified for the protection of that trade mark.
  34. In order to ensure the peaceful co-existence of a rule about free movement of goods and a regime of territorially limited trade mark rights, something has to give way. One approach would be to give the national rights their full scope and effect, so that the trade mark owner would be able to oppose the importation of anything which under national law is an infringement of those rights. The CJEU has, however, recognised that to do so would, in some cases, allow the erection of artificial barriers to trade between member states. (The court uses the term "artificial barriers" as synonymous with the Treaty language "disguised restriction"). Hence Article 36, read as it must be as a whole, recognises that there are cases where, although enforcement of the right would be justified, it should nevertheless be prohibited because it would amount to a disguised restriction on interstate trade.
  35. One of the ways in which the CJEU has sought to address what is meant by a disguised restriction on trade between member states is through the concept of the specific subject matter of a trade mark right. This concept recognises that there is a central core to the right which the trade mark owner will normally be justified in seeking to safeguard. This concept has been explained and developed in a number of cases: Case C-102/77 Hoffmann-La Roche & Co. AG v Centrafarm [1978] 3 CMLR 217, paragraph 7; Case C-3/78 Centrafarm BV v American Home Products Corporation [1979] 1 CMLR 326 paragraph 11; Case C-10/89 CNL-Sucal v Hag (Hag II) [1990] 3 CMLR 571, paragraphs 13 and 14; Joined cases C-427-93, C-429/93 and C-436/93 Bristol Myers Squibb Co v Paranova A/S [1997] 1 CMLR 1151, para. 44; Case C-379/97 Pharmacia & Upjohn SA v Paranova A/S [2000] 1 CMLR 51, para. 15. The specific subject matter is:
  36. "to guarantee to the proprietor of the trade mark that he has the exclusive right to use the trade mark for the purpose of putting a product into circulation for the first time and therefore to protect him against competitors wishing to take advantage of the status and reputation of the trade mark by selling products illegally bearing that trade mark." Hoffmann La Roche paragraph 7.
  37. The court has also used the notion of the essential function of the trade mark, which is to guarantee to consumers the origin of the product, by enabling him to distinguish without any possibility of confusion that product from the products of others. In Hag II the court expanded on the specific subject matter of the trade mark right, its essential function and the free movement rules:
  38. "12. According to settled case law, Article 36 allows exceptions to the fundamental principle of freedom of movement of goods in the Common Market only in so far as such exceptions are justified for safeguarding the rights which are the specific subject matter of the property and, consequently, an owner of an industrial and commercial right protected by the law of a State cannot rely on that law in order to prevent the importation or marketing of a product which was lawfully sold in the market of another member-State by the owner of the right himself or with his consent, or by a person connected with him by ties of legal or economic dependence. (citations omitted)
    13. With regard to trademark rights, it should be observed that such rights constitute an essential element of the system of undistorted competition which the Treaty aims to establish and maintain. In such a system enterprises must be able to gain customers by the quality of their products or services, which can be done only by virtue of the existence of distinctive signs permitting identification of those products and services. For a trademark to be able to play this part, it must constitute a guarantee that all the products bearing it have been manufactured under the supervision of a single enterprise to which responsibility for their quality may be attributed.
    14. Consequently, as the Court has stated on many occasions, the specific subject-matter of a trademark right is to grant the owner the right to use the mark for the first marketing of the product and, in this way to protect against competitors who would like to abuse the position and reputation of the mark by selling products to which the mark has been improperly fixed. To determine the exact effect of this exclusive right which is granted to the owner of the mark, it is necessary to take account of the essential function of the mark, which is to give the consumer or final user a guarantee of the identity of the origin of the product by enabling him to distinguish, without any possible confusion, that product from others of a different provenance. (citations omitted).
  39. In Hag II the Hag trade marks for decaffeinated coffee had originally been in common ownership in Germany and Belgium, but as a result of the sequestration of enemy property, the marks in those two countries had become independent. The action before the national court, which resulted in the questions referred to the CJEU, concerned an attempt by the German company to use the mark to oppose imports of coffee made by the Belgian company into Germany. The court explained that, when dealing with a situation where the marks were in separate ownership of independent companies, it was necessary to examine whether there was any element of consent by the owner of the national right to the marketing of the product in the exporting state:
  40. 15. In assessing in the light of the foregoing considerations a situation such as that described by the national court, the decisive factor is the absence of any element of consent, on the part of the owner of the right protected by national legislation, to the marketing in another member-State, under a mark which is identical or may cause confusion, of a similar product manufactured and marketed by an enterprise which has no tie of legal or economic dependence with that owner."
  41. If there was no consent, and no legal or economic link between the companies, the essential function of the mark would be compromised if the owner could not exercise his trade mark rights to prevent the importation of products likely to be confused with his mark. This was because consumers would no longer be able to identify with certainty the origin of the goods "and the bad quality of a product for which he is in no way responsible could be attributed to the owner of the right."
  42. The relevance of economic links between companies in the exporting and importing states was considered further by the CJEU in Ideal Standard. In that case the trade mark Ideal Standard for heating equipment was originally under the control of a group of companies. The mark in Germany was owned by the German subsidiary but the mark for France had been assigned to a company outside the group who themselves manufactured the equipment in France. The German company sought to oppose the importation into Germany of the French-manufactured equipment. The court explained, at paragraph 34, that a national law which would give the trade mark owner in the importing state the right to oppose the marketing of products which have been put into circulation in the exporting state by the trade mark owner or with his consent would be contrary to Articles 30 (now 34) and 36. This would be so even where the owner of the trade mark in the importing state and the owner of the trade mark in the exporting state are not the same person but are economically linked. The court continued:
  43. "34. …A number of situations are covered: products put into circulation by the same undertaking, by a licensee, by parent company, by a subsidiary of the same group, or an exclusive distributor.
    35. There are numerous instances in national case law and Community case law where the trademark had been assigned to a subsidiary or to an exclusive distributor in order to enable those undertakings to protect their national markets against parallel imports by taking advantage of restrictive approaches to the exhaustion of rights in the national laws of some States.
    36. Articles 30 and 36 defeat such manipulation of trade marks rights since they preclude national laws which enable the holder of the right to oppose imports.
    37. In the situations described above (paragraph [34]) the function of the trademark is in no way called in question by freedom to import. As was held in Hag II: "for the trademark to be able to fulfil [its] role, it must offer a guarantee that all goods bearing it have been produced under the control of a single undertaking which is accountable for their quality" (paragraph [13]). In all the cases mentioned, control was in the hands of a single body; the group of companies in the case of products put into circulation by the subsidiary: the manufacturer in the case of products marketed by the distributor; the licensor in the case of products marketed by licensee. In the case of a licence, the licensor can control the quality of the licensee's products by including in the contract clauses requiring the licensee to comply with his instructions giving him the possibility of verifying such compliance. The origin which the trademark is intended to guarantee is the same: it is not defined by reference to the manufacturer but by reference to the point of control of manufacture (see the statement of grounds for the Benelux Convention and the Uniform Act).
    38. It must further be stressed that the decisive factor is the possibility of control over the quality of goods, not the actual exercise of their control. Accordingly, a national law allowing the licensor to oppose importation of the licensee's products on grounds of poor quality would be precluded as contrary to Articles 30 and 36; if the licensor tolerates the manufacturer of poor quality products, despite having contractual means of preventing it, he must bear the responsibility. Similarly if the manufacture of products is decentralised within a group of companies and their subsidiaries in each of the Member States manufacture product whose quality is geared to the particularities of each national market, a national law which enabled one subsidiary of the group to oppose the marketing in the territory of that State products manufactured by an affiliated company on grounds of those quality differences would also be precluded. Articles 30 and 36 require the group to bear the consequences of its choice.
    39. Articles 30 and 36 thus debar the application of national laws which allow recourse to trademark rights in order to prevent the free movement of a product bearing a trademark whose use is under unitary control.
  44. An attempt was made by the European Commission in Ideal Standard to argue that, by assigning the trade mark to a company outside the group, the group had given its implied consent for the assignee to put heating equipment into circulation in France bearing that trade mark. The court rejected that argument. For the necessary consent to be present:
  45. "… the owner of the right in the importing State must, directly or indirectly, be able to determine the products to which the trademark may be affixed in the exporting State and to control the quality. That power is lost if, by assignment, control over the trademark is surrendered to a third party having no economic link with the assignor."
  46. So even if, in one sense, by assigning the mark, the trade mark owner has given his consent to the future marketing of the goods in question, he may still enforce his trade mark rights against those goods provided that he has no continuing control over the goods to which the mark is to be affixed.
  47. The CJEU has explained in a series of cases the principles to be applied where a parallel importer has to remove or alter existing packaging (and in the process re-affix the trade mark to the goods) in order to gain effective access to the market for the imported product. These cases start from the premise that (subject to the problems which repackaging gives rise to) there is a right to import the goods, because the decisive elements of consent to marketing in the exporting state and control over their quality are both present. The repackaging cases arise because it has been held that the mere repackaging and re-affixing of a trade mark to the trade mark owner's goods can affect the essential function of the trade mark. Repackaging affects the guarantee that the goods have not been changed or interfered with since leaving their point of origin. Thus if the trade marks were to be enforced to their full extent, repackaging would not be possible. In these circumstances the court has held that it is the free movement principle which prevails, subject to compliance by the importer with certain conditions. In Joined Cases C-427/93, C-429/93 and C-436/93 Bristol-Myers Squibb v Paranova [1997] 1 CMLR 1151; [1997] FSR 102 the court explained these conditions. They have become known as the BMS conditions. Rather than set them out in full from that case, I will quote Jacob LJ's summary of them from a later national case Boehringer Ingelheim v Swingward [2004] EWCA Civ 129; [2004] ETMR 65 at [28]:
  48. "So the importer who repackages and re-applies the mark will infringe unless he satisfies all five of the BMS conditions. I summarise these:
    (1) Necessary to repackage to market the product;
    (2) No effect on original condition and proper instructions;
    (3) Clear identification of manufacturer and importer;
    (4) Non-damaging presentation;
    (5) Notice."
  49. In the same case, at paragraph 74 Jacob LJ said this:
  50. "If one looks at the BMS conditions one can see that they are all about protecting the reputation of the mark. A fair summary of the position may be that (1) re-affixing creates a risk of jeopardising the reputation (2) but if the conditions are satisfied that risk is removed."
  51. In the later case, Case C-379/97 Pharmacia & Upjohn SA v Paranova A/S [2000] 1 CMLR 51, the court has gone further and explained that a parallel importer might not merely repackage, but also replace the trade mark which the trade mark owner uses in the country of export with that which he uses in the country of importation. Upjohn marketed an antibiotic using the trade mark "Dalacin" in Denmark, Germany and Spain, "Dalacine" in France and "Dalacin C" in other member state of the European Union. Paranova, the parallel importer, purchased "Dalacine" and "Dalacin C" in France and Greece respectively and imported them both into Denmark where it marketed them under the trade mark "Dalacin". The court confirmed that if the circumstances prevailing at the time of marketing in the member state of import make it objectively necessary to replace the original trade mark by that used in the member state of import in order that the product in question may be marketed in that state by the parallel importer, then the condition of artificial partitioning was met. Although the court does not expressly say so, the parallel importer must also comply with the remaining BMS conditions, to ensure that the specific subject matter of the mark is not put at risk. The court reasoned the extension from repackaging to rebranding in the following way:
  52. "37. … there is no objective difference between re-affixing a trademark after repackaging and replacing the original trademark by another which is capable of justifying the condition of artificial partitioning being applied differently in each of those cases.
    38. In the first place, the practice of using different packaging and that using different trademarks for the same product, in contributing similarly to the partitioning of the single market, and adversely affect intra-Community trade in the same way; secondly the re-affixing of the original trademark on the repackaged product and its replacement by another trademark both represent a use by the parallel importer of a trademark which does not belong to him.
    39. Consequently where the trademark rights in the importing Member State allow the proprietor of the trademark to prevent it being re-affixed after repackaging of the product or being replaced, and where the repackaging with re-affixing or the replacement of the trademark are necessary to enable products to be marketed by the parallel importer in the importing Member State, there are obstacles to intra-Community trade giving rise to artificial partitioning of the markets between Member States within the meaning of the case law cited, whether or not the proprietor intended such partitioning."
  53. In all the repackaging and rebranding cases the trade marks in question were in the hands of the same entity as was seeking to prevent the parallel imports.
  54. These legal principles are, to some extent, reflected in the Trade Marks Directive (Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to approximate the laws of Member States relating to trade marks). The provision has been transposed into national law by Section 12 of the Trade Marks Act 1994. It is sufficient to refer to Article 7, which provides:
  55. "Exhaustion of the rights conferred by a trademark
    1. The trademark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trademark by the proprietor or with his consent.
    2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialisation of the goods especially where the condition of the goods is changed or impaired after they have been put on the market."
  56. Article 7 only applies where the mark sought to be enforced is the same as the one under which the goods were placed on the market in the Community by the proprietor or with his consent. The rule it creates has both intra-state and interstate effect. It is a principle of Community exhaustion of rights. Nevertheless, Article 7(1) shows that what is destructive of the trade mark owner's prima facie right to enforce his mark is the consent which he has given to the placing of the goods on the market. Where he has done so, as Ideal Standard explains, he will have had at least the opportunity to control the quality of the goods. Article 7(2) then provides the trade mark owner with a more limited right, which is to complain about further commercialisation only where there are "legitimate reasons", such as changes to quality after the goods have left the trade mark owner's hands.
  57. The appellants' submissions

  58. Mr Martin Howe QC, who appeared on behalf of the appellants with Mr Henry Ward, accepted that the present case was one where the enforcement of the trade mark right was justified within the first sentence of Article 36, because the mark Flynn had not been applied to the parallel imported goods by the trade mark owner or with his consent. He contended, however, that the authorities did not support the judge's restrictive view, which he described as the "same entity rule", of the circumstances in which the attempt to invoke trade mark rights can be regarded as artificially partitioning the market. The whole purpose of the second sentence of Article 36 was to prevent reliance on rules which as a matter of formality appear to justify restrictions on the import of goods, but which as a matter of substance are being used to restrict trade rather than truly to protect a legitimate interest. To restrict the scope of the second sentence of Article 36 TFEU by a rigid rule of the kind formulated by the judge was inconsistent with Article 36 as a whole.
  59. Mr Howe submitted that whether the enforcement of a trade mark right amounts to a disguised restriction on trade between Member States requires a balance to be struck between the ability of a trade mark owner to enforce his rights and the free movement rules. He relied on a phrase I used in SEP at paragraph 12:
  60. "… The BMS case struck a balance between the ability of a trademark owner to enforce his right, and the free movement rules."
  61. That statement reflected what the Advocate General said in BMS at paragraph 77:
  62. "In order to determine what restrictions on trade are permitted by Article 36 on grounds of trademark protection it is necessary to bear in mind at all times the interests defined above in paragraph 72. It is necessary to balance those interests against the fundamental concern of article 30, which is to ensure that goods can circulate freely within the community and the trade between Member States is not hindered any more than necessary. That is what the Court means when it emphasises, as it has on numerous occasions, that Article 36, as an exception to a fundamental principle, must be construed narrowly and can only be invoked in favour of restrictions which are necessary in order to safeguard the specific subject matter of an industrial property right."
  63. Mr Howe submitted that the factors on each side of the balance would differ widely from case to case, but it was fundamental to the balancing exercise to consider both the nature of the right to be protected, and the extent to which the proposed use impinges on the interest protected by that right. In the present case, the use of the trade mark Flynn as part of the regulatory name together with the INN, phenytoin sodium, had a highly unusual function, namely to indicate that the goods sold under that mark can be taken by the patient to be products which are precisely the same as the products which they have previously been used to using. The primary purpose of the use of the name Flynn was to guarantee patient safety by providing this indication. If, and to the extent that, the word also has an origin function, any such function is wholly secondary to the principal function. Accordingly, the enforcement of the mark against the appellant's proposed imports does not protect the guarantee of patient safety, since the patient's safety is equally guaranteed by the use of the word Flynn on the parallel imported product. The enforcement only protects the secondary and incidental origin function which is, in any event, protected to a degree by BMS condition 3, the requirement to identify the manufacturer and importer. The limited, if any, protection of the origin function through enforcement is outweighed by the demonstrable harm to free movement of goods.
  64. Mr Howe submitted that Flynn's use of the trade mark Flynn was also unusual in another sense, because the use which Flynn could make of it was highly constrained. He submitted that there was no practical way that Flynn could alter the composition of the product supplied by Pfizer, or go to another source of supply. The evidence showed that to source the product elsewhere to a standard where it could be sold under the same mark would require 18 months' work and would cost some £2-4 million.
  65. Mr Howe also relied on Doncaster Pharmaceuticals Group Limited v The Bolton Pharmaceutical Company 100 Limited [2006] EWCA Civ 661. [2007] FSR 3 in which the Court of Appeal had set aside a summary judgment for trade mark infringement where the defendant had sought to rely on a defence under Article 36. The trade mark in question had been assigned by Astra Zeneca, along with manufacturing rights, to independent entities in different member states. Mummery LJ, with whom Longmore and Lewison LJJ agreed, explained that the judgment of the CJEU in Ideal Standard did not support the proposition that a voluntary assignment of a mark in a particular territory was a surrender of control in that territory and therefore did not constitute a consent to the circulation of the goods. At that stage of the proceedings it was not clear that the assignment was not part of a planned process of deliberately and artificially partitioning and manipulating the EU market for the drug so as to amount to a disguised restriction on trade between member states. Further, the assignments in question were accompanied by other transactions which "kept AZ in the frame". A trial was necessary to determine whether, in all the circumstances that were also economic links or the possibility of control between AZ and its assignees which might prevent the enforcement of the mark from being justified on the essential function principle.
  66. In the present case there was a common point of control of the product, namely Pfizer, who manufactured both the product sold by Flynn and the proposed parallel import. To have a strict rule that that control had to coincide with the party enforcing the mark, as that which the judge had formulated, was too narrow. There could be cases of artificial division of the market where control remained vested in one party but the trade mark was in other hands.
  67. Mr Howe submitted that the judge had failed to analyse the substance of the agreements. She had been excessively impressed by the fact that regulatory responsibility for the product in the UK lay with Flynn, when that was simply a consequence of the assignment of the marketing authorisation. Mr Howe relied on the fact that the agreements did not confer a right to use the technical information for the purposes of manufacturing. The judge had been wrong to say that Flynn could manufacture the product in-house if by that she meant that Flynn could use the technical information for that purpose. He characterised Flynn's evidence about the timing and costs of going to an alternative source as "pie in the sky". He also relied on the fact that the assignment of the marketing authorisations was, at least initially, dependent on the continuation of the exclusive supply agreement. He submitted that the arrangements were more in the nature of a lease of the marketing authorisations than a true assignment. Flynn's responsibilities under the quality agreement were comparatively limited.
  68. Finally Mr Howe relied on Case C-201/94 R v The Medicines Control Agency, ex parte Smith & Nephew Pharmaceuticals Ltd and Primecrown Ltd v The Medicines Control Agency [1997] 1 CMLR 812 ("the MCA case"), a case about data exclusivity rights, but which he submitted provided a useful analogy. One of the questions which the court was asked was whether the licensing authority in member state A was entitled to grant a marketing authorisation to product Y which was sought to be imported from member state B in circumstances where product Y was not made by or under the control of the person holding the marketing authorisation in member state A or a member of the same group of companies. The court concluded on the basis of its earlier case law that it was not necessary that the product was manufactured by the same group of companies. Where independent companies produced medicinal products which have a common origin by virtue of the fact that they were manufactured pursuant to agreements concluded with the same licensor, that was sufficient. The court's reasoning was that it should not be necessary for the licensing authority to require all the pharmaceutical data to be produced independently by the parallel importer, where it was already in possession of all that data in relation to an identical product for the purposes of granting the original marketing authorisation. If it were not so, such licensing agreements could lead to partitioning the national markets of the member states.
  69. Mr Howe summarised his submissions in seven points:
  70. i) Enforcement of the trade mark right in this case would, in fact, create a barrier to interstate trade.

    ii) The case involved an unusual use of the trade mark Flynn, even assuming against the appellants that it was trade mark use. The use was highly constrained compared with normal trade mark use.

    iii) The information campaign had alerted doctors, pharmacists and patients to the fact that Phenytoin Sodium Flynn means that particular quality of phenytoin that was previously sold as Epanutin and from the same factory.

    iv) Flynn is not free, as a practical matter, to vary that characteristic.

    v) The use of the designation Phenytoin Sodium Flynn is agreeable to regulatory authorities because in their view it does correctly describe the characteristics of the imported parallel product.

    vi) The product that Flynn sells and the parallel imported product both have Epanutin printed on the capsules, reassuring patients that they are taking the right product.

    vii) The source of supplies is the same.

  71. In the circumstances there was no lie being told about the origin of the product by the appellants' proposed use of the sign Phenytoin Sodium Flynn, or the trade mark considerations were so subordinate to the barrier which the trade mark creates that the barrier should be treated as artificial.
  72. Mr Howe touched only very lightly on the appellants' secondary case which raises the logically prior question as to whether Flynn's use was trade mark use at all or whether it was use of an indication of a characteristic of the goods protected by section 11(2)(b) of the Trade Marks Act 1994 (and the corresponding provision in the Trade Marks Regulation) which provides so far as material:
  73. "11. (1)
    (2) A registered trademark is not infringed by –
    (a) …
    (b) the use of indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of services, or other characteristics of goods or services,…
    (c) …
    provided the use is in accordance with honest practices in industrial or commercial matters."
  74. Mr Howe submitted that the public had been educated to understand that Phenytoin Sodium Flynn meant a product which was the same as Epanutin and which could safely be taken in substitution therefore. This was a characteristic of the goods indicated by the use which the appellants proposed to make.
  75. The respondent's submissions

  76. Broadly speaking, the submission of Mr Guy Burkill QC, who appeared on behalf of the respondents with Mr Nicholas Saunders, was that the judge's order should be upheld for the reasons she gave. Alternatively, if the judge was wrong then her order should still be upheld on the grounds set out in their cross-appeal, namely that it was not necessary for the appellants to re-brand to Phenytoin Sodium Flynn in order to gain effective access to the market for phenytoin sodium in the United Kingdom.
  77. On the main appeal Mr Burkill relied on the CJEU's jurisprudence on the specific subject matter of the mark, and its essential function. In relation to the parallel imported goods, the trade mark owner had not consented to the first (or any) placing into circulation of the relevant goods, and had therefore not enjoyed the specific subject matter of the rights. Moreover, if the appellants were permitted to apply the trade mark to goods which the trade mark owner has never consented to being placed on the market, responsibility for their quality cannot be attributed to the trade mark owner. The use complained of would therefore jeopardise the essential function of the mark. In circumstances such as those, enforcement of the mark cannot constitute a disguised restriction on trade between member states.
  78. Mr Burkill recognised that this analysis did not fully explain the rebranding cases, because in those cases it is the parallel importer who is applying the trade mark to the goods for the first time. He submitted, however, that these cases were a form of "extended exhaustion of rights", where, because the trade marks were owned by the same entity, the trade mark owner can be regarded as having exhausted his trade mark rights as a whole by placing the goods on the market under one of his marks. He cannot then assert another mark in his portfolio, the one he uses in the member state of import, to interfere with their free circulation.
  79. Mr Burkill submitted that the judge was right to say that the second sentence of Article 36, and the BMS conditions, were not engaged in a case where the goods had not been placed on the market by the trade mark owner or under his control. However, if a balancing of interests was required, he submitted that the fact that the goods had not been placed on the market by or under the control of the trade mark owner was a decisive factor.
  80. Mr Burkill illustrated his arguments with the homely example, canvassed before the judge, where the same hay fever medicine, from the identical source in another EU member state, is sold under a brand name and also under the own brand of a well-known high street pharmacist. He asks forensically whether the common origin of the goods allows a third party importer who has obtained goods from the same source to label them either under the brand name or the pharmacist's own brand.
  81. Mr Burkill stressed the absence of any connection between Pfizer and Flynn beyond the suite of agreements. He also submitted that Flynn was effectively sub-contracting manufacture of its product to Pfizer, given the expiry of the exclusive supply agreement, and was free, subject to obtaining MHRA consent, to source the goods which it chose to sell under the Flynn name elsewhere. He also stressed the obligations which Flynn has as the MAH for the product. In essence Flynn stands fully behind the product which it sells under its mark.
  82. On the cross-appeal Mr Burkill submitted that the judge had been wrong to hold that it was necessary for the appellants to rebrand in order to gain effective access to the market in phenytoin sodium. The appellants had a realistic alternative name and could ensure reasonable continuity of supply. The judge had been unduly influenced by a comparison with the facts of SEP where there was no such realistic alternative.
  83. Discussion

    Trade mark use and section 11(2)(b)

  84. It is convenient to consider this point first, even though Mr Howe took it second. If the point were a good one, then the trade marks would simply not be enforceable against the appellants' proposed use of Phenytoin Sodium Flynn, and no question of a disguised restriction on trade could arise.
  85. The judge dealt with this point in paragraphs 33 to 40 of her judgment. Having referred to the CJEU judgments in case C-48/05 Adam Opel v Autec [2007] ECR I-1034 and Case C-206/01 Arsenal Football Club v Matthew Reed [2002] ECR I-10299, she said at paragraph 36:
  86. "The use of the word "FLYNN" is not a description of the goods. It is not a word associated with medicines or ingredients or otherwise denoting the qualities or characteristics of the medicine. It will be perceived by consumers as a mark of origin because there is no evidence that consumers would interpret the sign in the way the Defendants suggest, namely as an indication of the source of the API or the site of the manufacture of the product. They were interpreted as being an indication of the holder of the marketing authorisation of the product and therefore is indicating that the product originates with Flynn Pharma as being the entity responsible for the quality of the goods. That is clearly a trademark use of the sign."
  87. Mr Howe submitted that the judge had not taken account of the evidence of the information campaign. He also relied on the fact that very few new patients are put onto this drug, so that the great majority of patients currently taking it would have done so since before the date of the information campaign. The average consumer would interpret the word Flynn, when presented as part of the product name Phenytoin Sodium Flynn, as indicating what he or she was taught by the information campaign, that is a characteristic of the goods.
  88. I cannot accept these submissions. I suspect that Mr Howe simply takes the points in order to emphasise what he says about the nature of, and reasons for, his clients' intended use of the mark in order to support his main point on Article 36. As to trade mark use, Mr Burkill showed us the cross examination of Mr Shah, in which he accepted that if he called his product Phenytoin Sodium Tenolol, as he at one stage was seriously contemplating, this would indicate that it came from his group and not from anybody else. Likewise Phenytoin Sodium NRIM indicated products supplied by NRIM, and Phenytoin Sodium Flynn meant products supplied by Flynn. That evidence was doing really no more than stating the obvious. The fact that a trade mark owner educates the public as to the properties of the goods he sells under his trade mark does not mean that use of his mark loses trade mark significance. I would reject the "not trade mark use" defence.
  89. I do not think it is fair to suggest that the judge, in reaching her conclusion in paragraph 36, disregarded the evidence of the information campaign. She was plainly aware of it and it is summarised elsewhere in her judgment. Her conclusion that the mark Flynn had not come to signify a characteristic of the goods accordingly took this evidence into account. There is a world of difference between educating the public as to a characteristic of the marked goods and causing the trade mark to become an indication of that characteristic. The judge was entirely justified in concluding that the evidence came nowhere near meeting that standard. So I would reject the section 11(2)(b) defence as well.
  90. Disguised restriction

  91. I start by stating the obvious, namely that the court is seeking to apply the provisions of Article 36 of the TFEU to the facts of this case. In doing that it is right to take account of and apply the jurisprudence of the CJEU. There is, however, a danger in attempting to create bright-line rules or sub-rules which will be used in this and other cases as a substitute for the treaty language itself. In each case the task for the court is to distinguish between a justified enforcement of a trade mark right on the one hand, and a disguised restriction on interstate trade on the other.
  92. Thus, I would be unable to accept without qualification the general proposition advanced by the respondents that the trade mark will be enforceable wherever the trade mark owner has not yet enjoyed the specific subject matter of the mark by placing the goods on the market under that mark for the first time. One can test that by reference to the rebranding cases, which expressly authorise the importer to apply a trade mark not previously applied to those goods, subject to complying with the BMS conditions.
  93. I appreciate that Mr Burkill rationalises these cases as a form of "extended exhaustion": but the fact remains that they are inconsistent with his general proposition, and show that his principle is too narrow. The reason that it is too narrow is that it fails to deal with the cases, considered in Ideal Standard, where the trade mark rights are organised within economically linked undertakings. Where use of the trade mark rights is under unitary control, as in BMS for example, it does not matter that the goods have not been placed on the market under the trade mark which is asserted in the importing state. By organising the trade mark rights so that different marks are used in different member states, the barrier will still be artificial.
  94. The CJEU's jurisprudence also shows that the free movement principles do not have to give way whenever there is some risk, however slight, to the specific subject matter or essential function of the mark. Thus the repackaging cases recognise that there remains some risk, both before and even after the BMS conditions are complied with, but that risk is deemed insufficient to allow the creation of a barrier to interstate trade. It follows therefore that one cannot elicit a bright line rule from the fact that the appellant is in some way trespassing on the specific subject matter of the right, or affecting in some way its essential function.
  95. I am also not persuaded that the judge's "single entity" rule is a rule of completely general application. The trade mark owner and manufacturer in the exporting member state may be orchestrating the marks under which its distributors in the importing states market the product, an example of the sort of manipulation which the CJEU deemed incompatible with Articles 34 and 36 in the passage from Ideal Standard I have cited above. Enforcement of the mark by one of the distributors (as assignee or exclusive licensee of the mark for that territory) may be barred by the free movement rules, even though the distributor did not place the goods on the market in the exporting state. That is because the trade mark owner and his exclusive distributor or assignee are economically linked, and the trade mark owner retains control over the goods which the distributor/licensee can sell under the mark. The judge was plainly using the term "entity" in its competition law sense of economic entity, and went on to examine whether either Pfizer or Flynn could control the quality of the other's goods. However a literal application of her single entity rule in the case I have postulated might obscure the fact that more than one enquiry needs to be undertaken.
  96. I am also not persuaded by Mr Howe's broad "balance of interests" test. Of course, when one asks whether enforcement of the rights is justified, one is striking a balance between the importance of the free movement principle and the safeguarding of the essential function, but I would not accept that the enquiry is as broad as Mr Howe suggests. Some of the factors on which he relies do not, as I will explain, properly fall to be taken into account.
  97. In my judgment the resolution of a case such as this involves a dual enquiry. Firstly, are the goods which the alleged infringer wishes to import goods which have been placed on the market by the trade mark owner or with his consent? Secondly, even if the answer to the first question is "no", is the party who did place the goods on the market under a trade mark also in effective ("unitary" to use the Ideal Standard terminology) control of the trade mark which is sought to be enforced? If the answer to that question is also in the negative, whilst I would not entirely rule out the possibility in some extreme case, it is difficult to see how the enforcement of the trade mark can be anything other than one designed to protect the origin function of the mark.
  98. Translated into the facts of this case, it is necessary, in my judgment, to ask, firstly, whether the goods which Flynn seeks to oppose, by the enforcement of its trade mark, are goods over which it had the ability to exercise control before they were placed on the market in the exporting state. Secondly, it is necessary to ask whether the links which exist between Flynn and Pfizer are such that use of the trade mark Flynn should be regarded as being under the (unitary) control of Pfizer. If the answer to both these questions is in the negative, it seems to me that the case for there being an artificial barrier to trade falls away. The trade mark is being enforced, in a justified manner, to safeguard its origin function.
  99. Flynn's consent to the marketing of, or Flynn's control over, Pfizer's goods

  100. As to the first issue, can it be said that the goods which Flynn seeks to oppose, namely the Epanutin which the appellants wish to import, have been placed on the market by Flynn or with its consent, or that Flynn had the opportunity to control their quality? Plainly, Flynn had not placed those goods on the market. The judge considered that Flynn had no control over the quality of the Epanutin sold by Pfizer. She said at paragraph 73:
  101. "Having regard to the responsibilities of Pfizer and Flynn Pharma under the agreements and the way they have been operated, I consider that it is … Pfizer which is responsible for the quality of Epanutin placed on the market in the other Member States."
  102. Later she said at paragraph 77:
  103. "What matters is whether there is anything in the suite of agreements which gives Flynn power to control the quality of the Epanutin supplied by Pfizer in other member states… Pfizer can sell Epanutin anywhere else it likes – Flynn Pharma has no control over Pfizer's other products and no control over the trademark that Pfizer uses elsewhere."
  104. Finally at paragraph 78 she said:
  105. "Having considered the agreements between Pfizer and Flynn Pharma, it would not be right to say that the owner of the right in the importing state is, directly or indirectly able to determine the products to which the trademark may be affixed in the exporting state and control their quality."
  106. For my part, I can see no error in the judge's conclusion that Flynn had no power to control the quality of those products which were put on the market by Pfizer in other member states, and which the appellants wished to import. Flynn Pharma and Pfizer were entirely separate companies, with no corporate links that would enable Flynn to have a say in what product Pfizer put on the market in other member states. It is, in any event, inherently unlikely that a UK importer of a product would have any control over the quality of the product of a foreign manufacturer other than that which is actually sold to him. Flynn certainly has control of the product which Pfizer sells to Flynn, but that is another question.
  107. The fact that the goods which the appellants seek to import are from the same source as Flynn's own product is not equivalent to Flynn giving consent to their marketing or Flynn having control over their quality. Pfizer places those goods on the market and controls their quality quite independently of Flynn. I do not think the appellants' case is materially assisted by the MCA case (cited in paragraph 45 above). It is true that common origin was, in that context, viewed as an important reason for cutting down the reach of a claim based on the data exclusivity right. It is a fallacy, however, to suggest that wherever there is common origin, intellectual property rights will be struck down, whatever their nature. I am unable to identify any factor equivalent to the guarantee inherent in the essential function of a trade mark in the rights at stake in the MCA case.
  108. Is Flynn's use of the mark Phenytoin Sodium Flynn under Pfizer's control?

  109. Here again, the judge made findings which would be wrong for this court to upset in the absence of some clear error. As to control over the product sold under the mark Flynn, at paragraph 74 the judge noted that "… the specification of the product is determined by Flynn Pharma, Pfizer is obliged to make the product in compliance with that and cannot change any aspect of the manufacture without the consent of Flynn Pharma."
  110. Again, in paragraph 77 she said:
  111. "What matters is whether there is anything in the suite of agreements which … entitles Pfizer to control the specification of the Phenytoin Sodium Flynn supplied in the UK if, for example, Flynn Pharma decided to change it. I do not see any such control… Flynn Pharma can put its own trademark on the product made it, and Pfizer has no control over that. Only the products Pfizer manufactures for Flynn Pharma at its direction can be packaged as phenytoin sodium Flynn.… It could manufacture in-house if it chose and where, as here the manufacturer is contracted out, in must have a supply agreement, technical agreement and quality agreement in place."
  112. As to the trade mark Flynn, the judge said at paragraph 75:
  113. "the trademark [is] applied to the goods as an indicator of the origin of control has no connection with Pfizer; Pfizer is not able to use that mark in respect of any goods other than those it makes under these agreements for Flynn Pharma."
  114. I would accept that Flynn's use of the designation Phenytoin Sodium Flynn is constrained, in the sense that Pfizer's product is by far the most convenient product to which to apply this designation. Changing to another product which the MHRA would accept as equivalent to Epanutin would be a large and time-consuming project, and during the period of the exclusive supply agreement, it was not something that Flynn could do. I do not think, however, that this de facto constraint is significant. It arises whenever a brand owner has an established source of supply. The fact remains that the brand owner is free to obtain his supplies from elsewhere, or manufacture them in-house, if he should so choose.
  115. The judge's conclusions were reached after a full trial, including cross examination of Flynn's witnesses. Against that background, the arrangements between Pfizer and Flynn fall to be treated as real, arm's length transactions between independent companies. For this reason, Mr Howe's reliance on Doncaster Pharmaceuticals Group Limited v The Bolton Pharmaceutical Company 100 Limited [2006] EWCA Civ 661; [2207] FSR 3, a summary judgment case in which the relevant facts remained at large, is misplaced.
  116. The medical factors

  117. The case is unusual because the name Flynn is part of the regulatory name agreed between Flynn and the MHRA and because at least part of the purpose of Flynn, and of the appellants, in using or seeking to use the mark/sign Phenytoin Sodium Flynn is to indicate to doctors, pharmacists and patients that their products are in all material respects the same as Epanutin ("the Epanutin connection").
  118. I do not think that the desire or need to make the Epanutin connection assists the appellants. Its relevance might come at a later stage, but only if the appellants had shown (a) that the goods which they sought to import were those marketed by Flynn or under its control or (b) that Pfizer effectively controlled the use being made of the Flynn mark. Then it might be said that the appellants had a prima facie right to undertake interstate trade in the goods, and the ability to make the Epanutin connection formed a part of what was necessary in order for the appellants to gain effective access to the market. To rely on this factor in order to establish a right to import the goods in the first place is, in my judgment, to put the cart before the horse.
  119. Pricing

  120. Hovering above this case is the suggestion that the price increase which Flynn was able to achieve by moving phenytoin sodium from the price-regulated, branded market to the price-unregulated generic market is excessive, and the suggestion that it would be desirable to break down barriers created by trade mark rights in order to increase competition. To do so would not, however, be a principled application of the CJEU's jurisprudence on Articles 34 and 36 unless it can first be established that the trade mark is being used to create an artificial barrier. If it can be shown that Flynn is abusing a dominant position by charging excessive prices, or that the price level is as a result of an agreement or practice, contrary to other provisions of the Treaty, that would be another matter. But those allegations do not arise on this appeal.
  121. Conclusion

  122. Standing back, as one should, from the detail of the argument it is clear that Flynn have a legitimate interest in the enforcement of their mark against goods which have never been placed on the market by them under that mark and over which they have no control. Equally, Pfizer is not able to control the use which Flynn makes of its trade mark rights. Sales of the imported product affect the guarantee of origin with Flynn which the Flynn mark entails. The harm caused by a defective batch of Epanutin sold by the appellants would rebound on Flynn. The appellants would, further, be taking advantage of the reputation of the Flynn mark in selling their products.
  123. I would also observe that the harm which Flynn is able to point to here is different in character to that which the trade mark owners are able to point to in the repackaging and rebranding cases, and which was deemed capable of limitation through the BMS conditions. In all those cases the goods concerned were the trade mark owner's goods.
  124. It follows, in my judgment, that enforcement of the trade mark by Flynn against parallel imported phenytoin sodium does not amount to a disguised restriction on trade between member states. I have arrived at the same conclusion as the judge, although by a slightly different route, and would therefore dismiss the appeal.
  125. Lord Justice Kitchin:

  126. I agree.
  127. The Chancellor of the High Court

  128. I also agree.


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