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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
MRS JUSTICE ASPLIN DBE
 EWHC 3624 (Ch)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||6th February 2015
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE FLOYD
LORD JUSTICE BEAN
|| SPECIALITY EUROPEAN PHARMA LTD
||- and -
||(1) DONCASTER PHARMACEUTICALS GROUP LTD
||- and -
||(2) MADAUS GMBH
(Transcript of the Handed Down Judgment of
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Martin Howe QC and Iona Berkeley (instructed by Maitland Walker LLP) for the Defendant/Appellant
Mark Brealey QC and Nicholas Saunders (instructed by Devonshires) for the Claimant/Respondent
Hearing dates: 9-10 December 2014
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Floyd:
- The issue which arises on this appeal is the following. 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 second defendant, Madaus GmbH ("Madaus") manufactures trospium chloride, an anti-muscarinic agent for the treatment of over-active bladder symptoms. Madaus sells its trospium chloride in a number of EU countries through a distribution network. Thus Madaus' trospium chloride is marketed in France under the trade mark CÉRIS, in Germany under the mark URIVESC and in this country under the mark REGURIN. Madaus has appointed the claimant, Speciality European Pharma Limited ("SEP"), as its exclusive licensee of the REGURIN mark in this country, and SEP distributes the product here. SEP took over that role from Galen Limited in 2009.
- The first defendant, Doncaster Pharmaceuticals Group ("Doncaster"), is a well known parallel importer of pharmaceuticals. For many years it imported CÉRIS manufactured by Madaus into the UK from France by placing stickers over the box bearing the name of the active ingredient, trospium chloride, but without using the REGURIN mark ("over-stickering"). Subsequently it started over-stickering the boxes with the mark REGURIN ("re-branding"). It has also started to import URIVESC from Germany and to re-brand that with REGURIN as well. Doncaster's re-branding is the subject of the complaint in this action which is brought by SEP as exclusive licensee under the REGURIN trade mark by virtue of section 31 of the Trade Marks Act 1994. Madaus has taken no part in the proceedings, but is joined as a defendant, as required by that section, and so will be bound by the outcome.
- The judge held that Doncaster's re-branding infringed the REGURIN trade mark. Doncaster appeal with the permission of Patten LJ granted on the papers.
- The basic free movement provision of the Treaty on the Functioning of the European Union ("TFEU") is Article 34. It provides that:
"Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States."
- Free movement of goods and services within the EU is of course a fundamental objective of the single market. The enforcement of a trade mark which has territorial effect in one member state could, in principle, be a measure having the effect of a prohibition on imports. This brings one to the first sentence of Article 36 TFEU, which provides that:
"The provisions of Articles 34 … shall not preclude prohibitions or restrictions on imports … justified on grounds of … the protection of industrial and commercial property…"
- Industrial or commercial property includes trade marks. Thus, subject to what follows, 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. If that were not so, the trade mark owner could not even assert the mark against pirate or counterfeit goods, or against rival traders using confusingly similar marks, when they wish to bring them across national boundaries.
- However, the final sentence of Article 36 qualifies the dispensation in favour of intellectual property rights granted in the first sentence. It states:
"Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States."
- The focus in this case is on the phrase "disguised restriction on trade between Member States", sometimes referred to in the cases as "artificial partitioning of the market". The rights of the trade mark owner to enforce the trade mark have to give way, where this condition is established, to the more important principle of free movement. The determination of where the tipping point lies has proven to be a matter of some difficulty and given rise to a body of learning in the CJEU. At one stage (but no longer) the CJEU interpreted the phrase "disguised restriction on trade between member states" as requiring the court to investigate the intention of the trade mark owner in asserting his rights against parallel imports. If it was the owner's intention to partition the market, then his enforcement would be a disguised restriction. On the other hand, if such a result was not intended, he could lawfully enforce his mark pursuant to the first sentence of Article 36: see case C-3/78 Centrafarm v American Home Products  FSR 189 at  to . Determining what subjective intentions lay behind the use of different trade marks in different member states presented obvious practical problems, and so later cases have abandoned the need to show a subjective intention on the part of the trade mark owner, in favour of an objective test. The first step was taken in Joined Cases C-427-93, C-429/93 and C-436/93 Bristol-Myers Squibb v Paranova  FSR 102 ("BMS"), a repackaging case, where the court said at :
"Finally, contrary to the argument of the plaintiffs in the main actions, the Court's use of the words 'artificial partitioning of the markets' does not imply that the importer must demonstrate that, by putting an identical product on the market in varying forms of packaging in different Member States, the trade mark owner deliberately sought to partition the markets between Member States. By stating that the partitioning in question must be artificial, the Court's intention was to stress that the owner of a trade mark may always rely on his rights as owner to oppose the marketing of repackaged products when such action is justified by the need to safeguard the essential function of the trade mark, in which case the resultant partitioning could not be regarded as artificial."
- That last sentence might lead one to believe that there were some types of repackaging (which for this purpose includes the re-affixing of the original trade mark) which do not affect the essential function of the mark. If the very fact of re-packaging affects the essential function, then the consequence would appear to be, on one reading, that the trade mark owner can always oppose re-packaging. But this is not what the court meant, as later cases show.
- The court went on to explain in BMS that the trade mark owner could not legitimately enforce a trade mark against re-packaged or re-labelled parallel imports if five conditions were established. Rather than set them out I will quote Jacob LJ's summary of them from a later case Boehringer Ingelheim v Swingward  EWCA Civ 129;  ETMR 65 at :
"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;
- It will be seen that the BMS case struck a balance between the ability of a trade mark owner to enforce his right, and the free movement rules. Condition (1) is the important one for this case. It must be shown that the use of the mark by the importer is objectively necessary in order to market the product. These conditions are not designed to ensure that the re-packaging has no impact whatsoever on the essential function of the mark, but to ensure that the impact is kept to the minimum given that it is necessary to re-affix the mark in order to market the product.
- In BMS the court was concerned with the re-affixing of the same mark to the goods when complying with the requirements of national laws about labelling in the state of importation. The court's judgment gives some further assistance on what is meant by "necessary" in the first BMS condition. It said this at  to :
"52. Reliance on trade mark rights by their owner in order to oppose marketing under that trade mark of products repackaged by a third party would contribute to the partitioning of markets between Member States in particular where the owner has placed an identical pharmaceutical product on the market in several Member States in various forms of packaging, and the product may not, in the condition in which it has been marketed by the trade mark owner in one Member State, be imported and put on the market in another Member State by a parallel importer.
53 The trade mark owner cannot therefore oppose the repackaging of the product in new external packaging when the size of packet used by the owner in the Member State where the importer purchased the product cannot be marketed in the Member State of importation by reason, in particular, of a rule authorizing packaging only of a certain size or a national practice to the same effect, sickness insurance rules making the reimbursement of medical expenses depend on the size of the packaging, or well-established medical prescription practices based, inter alia, on standard sizes recommended by professional groups and sickness insurance institutions.
54 Where, in accordance with the rules and practices in force in the Member State of importation, the trade mark owner uses many different sizes of packaging in that State, the finding that one of those sizes is also marketed in the Member State of exportation is not enough to justify the conclusion that repackaging is unnecessary. Partitioning of the markets would exist if the importer were able to sell the product in only part of his market.
55. The owner may, on the other hand, oppose the repackaging of the product in new external packaging where the importer is able to achieve packaging which may be marketed in the Member State of importation by, for example, affixing to the original external or inner packaging new labels in the language of the Member State of importation, or by adding new user instructions or information in the language of the Member State of importation, or by replacing an additional article not capable of gaining approval in the Member State of importation with a similar article that has obtained such approval.
56 The power of the owner of trade mark rights protected in a Member State to oppose the marketing of repackaged products under the trade mark should be limited only in so far as the repackaging undertaken by the importer is necessary in order to market the product in the Member State of importation."
- Accordingly, it is no answer to a claim to be entitled to use the trade mark of the brand owner that the importer could make do with the one size available in the country of exportation. He may repackage across all the sizes sold in the country of importation even though he would be able to secure part of the market by simply importing unaltered the one size used in the country of export. If it were not so, the combination of the packaging practices and the enforcement of the trade mark rights would amount to a disguised restriction on trade between member states. As the last sentence of that extract demonstrates, the court considers that such action by the importer will still satisfy the requirement of "necessity".
- In Case C-379/97 Pharmacia & Upjohn SA v Paranova A/S  1 CMLR 51 the court was concerned with the conditions under which a trade mark owner might replace the trade mark used in the country of export with that used by the brand owner in the country of importation. It is therefore the case of principal relevance to the issues before us. Upjohn marketed an antibiotic using the trade mark 'Dalacin' in Denmark, Germany and Spain, 'Dalacine' in France and 'Dalacin C' in other Member States 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 Danish court referred questions to the CJEU.
- The court concluded, by way of its ruling or dispositif:
"The condition of artificial partitioning of the markets between Member States … means that it is necessary, in order to determine whether the proprietor of a trade mark may, under national law, prevent a parallel importer of pharmaceutical products from replacing the trade mark used in the Member State of export by that which the proprietor uses in the Member State of import, to assess whether 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."
- That ruling might at first sight be thought to impose a requirement of objective necessity to replace the mark in order to market the product at all. In other words it might be thought to suggest that if the parallel importer can sell at least some of the product in the member state of importation, then no objective necessity to replace the mark arises. However, the court's ruling needs to be interpreted in the light of earlier parts of the judgment, where the question for the national court is explained at  to  in the following way:
" It follows that it is for the national courts to examine whether the circumstances prevailing at the time of marketing made it objectively necessary to replace the original trade mark by that of the importing Member State in order that the product in question could be placed on the market in that State by the parallel importer. This condition of necessity is satisfied if, in a specific case, the prohibition imposed on the importer against replacing the trade mark hinders effective access to the market of the importing Member State. That would be the case if the rules or practices in the importing Members State prevent the product in question from being marketed in that State under its trade mark in the exporting Member State. This is so where a rule for the protection of consumers prohibits the use, in the importing Member State, of the trade mark used in the exporting Member State on the ground that it is liable to mislead consumers.
 In contrast, the condition of necessity will not be satisfied if replacement of the trade mark is explicable solely by the parallel importer's attempt to secure a commercial advantage.
 It is for the national courts to determine, in each specific case, whether it was objectively necessary for the parallel importer to use the trade mark used in the Member State of import in order to enable the imported products to be marketed."
- The court's illustrative example in  of a case where it is necessary to replace the trade mark with that of the importing member state (use of exporting state mark forbidden in importing state) is difficult to follow as a general proposition. The fact that the use of the trade mark from the exporting member state is prohibited in the importing member state is of course a valid reason for removing that trade mark when the goods are marketed in the importing member state. But it is not in general the case that it will be necessary to affix the mark used by the brand owner in the importing member state. Mr Brealey explained to us that on the facts of the particular case before the CJEU, there was a law in force in Denmark, the member state of importation, which required identical pharmaceuticals to be marketed under the same brand. On that basis, the use of any trade mark apart from that used by the brand owner would be unlawful. In this way it became necessary both to remove the original mark and replace it with the mark used in the state of importation.
- Further, as was pointed out by Jacob LJ in Boehringer Ingelheim KG and others v Swingward Limited (above) the countervailing example of a case where the condition of necessity will not be satisfied (solely an attempt to secure a commercial advantage) is also not free from difficulty of interpretation. At  he said:
"Quite what the Court had in mind by a "commercial advantage" I am afraid I do not understand. The Advocate-General discussed the point at paragraph 54 but he did not think it helpful to "postulate a category of 'purely commercial reasons.'" He was clearly of the view that necessity to replace the trade mark was the overriding test, which had to be determined on a case-by-case basis by the national court. And it seems clear that a "commercial advantage" could not consist of merely access to the market for the parallel imported goods, though out of context most people would call such access "a commercial advantage"."
- However the overall message is clear: the condition of necessity is satisfied if, in a specific case, the prohibition imposed on the importer against replacing the trade mark hinders effective access to the market of the importing member state.
- In the Boehringer case in the CJEU, Case C-143/00 Boehringer Ingelheim v Swingward  FSR 61, the court expanded further on what was meant by "hindering effective access" in the context of its test of necessity. At  the court said:
"Such an impediment exists, for example, where pharmaceutical products purchased by the parallel importer cannot be placed on the market in the Member State of importation in their original packaging by reason of national rules or practices relating to packaging, or where sickness insurance rules make reimbursement of medical expenses depend on a certain packaging or where well-established medical prescription practices are based, inter alia, on standard sizes recommended by professional groups and sickness insurance institutions. In that regard, it is sufficient for there to be an impediment in respect of one type of packaging used by the trade mark proprietor in the Member State of importation (see Bristol-Myers Squibb and Others, paragraphs 53 and 54)."
- The court thus re-affirmed its jurisprudence that a relevant impediment to access may exist where the barrier to entry is only partial. A specific question raised by the reference in that case was the existence amongst consumers of a resistance to re-labelled as opposed to re-packaged goods. The court dealt with whether this would be an impediment to effective access at :
"The answer to the third question must therefore be that replacement packaging of pharmaceutical products is objectively necessary within the meaning of the Court's case-law if, without such repackaging, effective access to the market concerned, or to a substantial part of that market, must be considered to be hindered as the result of strong resistance from a significant proportion of consumers to relabelled pharmaceutical products."
- It is very important to understand what the court is saying here about "substantial part of the market". It is not saying that it is enough if the importer has access to a part of the market: it is saying that he must not be hindered from access to a substantial part of the market. Thus it was no answer for the brand owner to say that there were sales which could be made to some part of the market – those who did not object to over-stickered products. As Jacob LJ put it, at , when the case returned to the Court of Appeal  EWCA Civ 129:
"This is important – "a strong resistance from a significant proportion of consumers" is enough to count as a "hindrance." The parallel importers are entitled to do more than just render the packaging lawful for UK marketing – they are entitled to replace the packaging if that is what is necessary to overcome a strong resistance in the market to relabelled boxes."
- Mr Brealey referred us to some remarks of the Advocate General in his opinion in that case at paragraph 110, in response to the suggestion that a right to repackage only existed where there was some absolute prohibition on marketing, for example a ban on over-stickering. The AG rejected that notion:
"In my view however repackaging may correctly be regarded as objectively necessary in other, less black and white situations. If the national court finds as a fact – as did the referring court in Boehringer Ingelheim – that there is 'widespread and substantial resistance' to overstickered boxes by the relevant consumers, and if the effect of such resistance is that the parallel importer would be effectively excluded from the market unless permitted to repackage, repackaging would to my mind be certainly be regarded as objectively necessary for effective market access in the sense that it is reasonably required for such access. Although it is clear that 'rules [and] practices' cannot embrace mere patterns of consumer preference, none the less if such patterns are sufficiently strongly held, widespread and widely recognised that, for example, doctors' prescription practices or pharmacists' purchasing practices are affected and 'effective access' denied, then repackaging may correctly be regarded as objectively necessary."
- Mr Brealey relies on this for the Advocate General's reference to "strongly held, widespread and widely recognised" and "effectively excluded from the market". Nevertheless the Advocate General went on to express the view at  that if it is established that some pharmacists will not purchase overstickered products, because of a perception that some of their customers will not accept them, there will be a part of the market from which the product is excluded completely. The AG would accept in those circumstances that re-packaging was necessary.
- The courts have not been receptive to suggestions that hindrances to effective market access could be overcome by efforts of the parallel importer and others to change practices. Thus in Boehringer (in the Court of Appeal) at  it was argued that the pharmacists could overcome the animosity to over-stickered products:
"[counsel] suggested that none of this mattered – that pharmacists could overcome the patient hostility by more explanation to patients. This is not the real world – poorly people want their pills, not explanations (adapting Lord Macnaghten's aphorism "thirsty folk want beer not explanations" in Montgomery v Thompson  AC 217). Moreover pharmacists have better things to do than to explain things to concerned patients. They have to ask themselves whether the cost in time of explaining a stickered box is worth the extra profit to be made by buying parallel imports."
- In addition to Upjohn we were referred to three national decisions where re-branding as opposed to re-packaging had been considered. In Aventis Pharma AB v Paranova Läkemćdel AB  ETMR 60 (a decision of 5 October 2000 of the City Court of Stockholm) Aventis sold its drug in Sweden under the name IMOVANE but in Spain under the name LIMOVAN. Swedish prescribing practice, apart from rare exceptions, appears to have been exclusively by brand (see paragraph 22). The court did not however regard this as "an absolute obstacle as is demanded for objective necessity to be at hand". The existence of other non-patented drugs which were marketed under different names supported the conclusion that a marketing campaign might enable sales to be made under a different name. In Boehringer Ingelheim Danmark A/S and others v Orifarm A/S  ETMR 20 (a decision of the Court of Odense, Denmark, of 21 August 2000) the claimants used the mark Laxoberal for their drug in Denmark and Gutalax in Portugal. It appears that it was a non-prescription drug, although doctors often recommended their patients to buy it by reference to the brand. The court found that there was no necessity to sell under the same name. At paragraph 13 the court said that:
"the fact that LAXOBERAL is most frequently sold at the recommendation of a doctor or other health service personnel is not found to be comparable to the existence of a prescription practice that necessitates the products being sold under the same name."
- The final national case was the Topinasal case, a decision of the Bundesgerichtshof in Germany. The drug in question was marketed abroad under the mark PULMICOURT NASAL-AQUA, but in Germany as PULMICOURT TOPINASAL. The Court relied on the fact that parallel importers had succeeded in obtaining 11% of the market using the PULMICOURT NASAL-AQUA brand. We were told that this was decided at a time when pharmacists in Germany could lawfully substitute an identical drug for the prescribed brand. The court considered that German consumers would readily accept an explanation that they were being sold an identical product in substitution for the prescribed brand.
- I derive limited assistance from these cases. They turn very heavily on the national rules and practices about the prescribing and marketing of drugs, and the evidence before the courts deciding those cases. In any event, whilst entitled as decisions to great respect, they are not binding on us.
- For completeness I should mention Article 7 of the Trade Marks Directive, which plainly has its origins in Articles 34-36 TFEU. It provides as follows:
"1. The trade mark 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 trade mark 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."
- Article 7 thus only applies where the brand owner is trying to stop use of the mark under which it (or its licensee) originally placed the goods on the market. That is not the case here. However Article 7 reflects the provisions of Articles 34-36, and the case law in relation to Article 7 remains informative.
- So I would conclude:
i) Subject to compliance by the importer with all the BMS conditions, 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.
ii) Effective access to the market is not achieved by being able to place some goods on the market.
iii) It may be necessary to re-brand where the parallel importer is not excluded from the whole of the market, but is merely excluded from a substantial part of it or from a significant proportion of consumers (like the alternate local sizes in BMS, and the label-resistant group in Boehringer);
iv) In determining whether it is necessary to re-brand, the court must consider what alternatives exist for the parallel importer, and whether they are realistic (e.g. trying to eliminate label-resistance amongst pharmacists or consumers).
v) Whether it is necessary for a parallel importer to re-brand in order to gain effective access to the market in a particular case is a question for the national court to decide, applying these principles.
- Trospium chloride is sold in two forms: ordinary release 20mg tablets and 60mg delayed release capsules. It is convenient to set out the position in relation to the two formulations separately.
20 mg product
- In 2005 Doncaster gave notice to Galen (who were then the UK trade mark owner and distributor of REGURIN) that they intended to begin parallel importing and selling over-stickered CÉRIS trospium chloride purchased in Spain as "trospium chloride 20mg". At this stage, as the judge found, Doncaster were happy to compete in the United Kingdom with Galen and then with SEP (when the REGURIN mark was assigned back to Madaus in 2009), both of whom marketed trospium chloride as REGURIN, without re-branding.
- Parallel imports of CÉRIS labelled as trospium chloride 20mg were very successful. By 2009 parallel imports accounted for approximately 60% of sales of trospium chloride 20mg as a whole and approximately 70% of the prescriptions written generically. Doncaster's parallel imported, over-stickered product was sold at a considerable discount to the price of the branded REGURIN and competed directly with it.
- In 2009 the patent for trospium chloride expired. As a result, trospium chloride became "generic". Doncaster, having discovered that the REGURIN mark was now back in Madaus' ownership, notified Madaus of its intention to begin marketing parallel imported CÉRIS relabelled as REGURIN in the UK. Madaus objected, but Doncaster indicated that it would proceed with its plans and commenced importation in August 2009. There is a dispute, which it is not necessary to resolve, as to whether Doncaster were motivated to commence re-branding by the change in ownership of the trade mark or the impending generic competition.
- In 2010 Galen (which no longer held rights to REGURIN) began to market its own generic trospium chloride 20mg under the brand name FLOTROS in the United Kingdom.
- Doncaster's witness, Mr Wilson, gave evidence that the wholesale demand for generic trospium chloride as a parallel import disappeared because, following expiry of the patent, he could not source it at a price which would match the available generics. However he accepted that he could compete "at a level" with FLOTROS.
- 88.65% of prescriptions written for 20mg trospium chloride in the United Kingdom are written generically and only 8.61% are written by reference to the REGURIN branded name. Approximately 2.74% are written by reference to other brands, for example, FLOTROS. A prescription written generically can be satisfied either by a branded product or by a non-branded generic. Prescriptions written for REGURIN or FLOTROS must be satisfied by dispensing the respective branded product.
- The judge found that there was a strong incentive for pharmacists to buy the generic form of the product because they are reimbursed by the National Health Service at the same rate whether they purchase a branded version from the wholesaler or the cheaper generic. Nevertheless, somewhat surprisingly, there was a significant proportion of prescriptions written generically which were filled with the more expensive branded product.
(ii) 60mg product
- In 2010, Landmark Pharma Ltd, a related company to Doncaster, applied for a parallel import licence to import slow release trospium chloride 60mg from Germany where it was marketed as URIVESC. On 15 June 2011 the regulator, the Medicines and Healthcare Products Regulatory Authority ("MHRA"), refused the application on the basis that the British Pharmacopoeia Commission had objected to the name URIVESC because a third party used a similar name in the UK. The MHRA apparently requires extended release products to be marketed under a brand name, so that they can be distinguished one from another, as, for example, they may have different release properties.
- In 2011 Doncaster notified Madaus of its intention to begin marketing parallel imported URIVESC rebranded as REGURIN XL in the UK. Madaus again objected, but Doncaster again proceeded with its plans and began marketing in July 2011.
- The extended release version of trospium chloride is the subject of patent protection until 2024. Assuming that the patent remains in force there will accordingly be no generic competition to REGURIN XL until 2024.
- At present, all of the 60mg product is dispensed under the brand REGURIN because it is the only product on the 60mg market in the United Kingdom. According to IMS data before the judge, 68% of prescriptions are written by reference to the generic name, trospium chloride 60mg. Mr Howe QC contended that there was other, preferable data which showed the percentages to be different, but I do not consider that it is necessary for us to resolve that issue.
- Doncaster has access to all prescriptions written generically for the 60 mg product provided that it markets the product under some brand name.
The judgment of Asplin J
- The judge first considered the definition of the relevant market to which the parallel importer must have effective access. She rejected the suggestion that the relevant market was that for branded REGURIN. If that were the relevant market the parallel importer would simply have to show that a part of the market was satisfied by the brand in order to gain access not only to that market, but the whole of the market for the product.
- The judge posed the question she had to decide in the following terms::
"In all the circumstances prevailing at the time of marketing, was it objectively necessary to replace the original trade mark, in this case Céris and/or uriVesc, with that used in the importing Member State, namely Regurin, in order to gain effective access to the trospium chloride market in the United Kingdom?"
- At  the judge concluded that an affirmative answer to that question was not warranted by the evidence, whether the products were taken together or considered separately. The key considerations on which she relied were:
i) Doncaster has immediate access to that part of the market (90% by number of prescriptions for the 20mg and 68% for the 60mg) where trospium chloride is prescribed generically.
ii) There was no significant resistance on the part of consumers or pharmacists to accepting a product other than REGURIN (or an over-stickered poduct).
iii) The fact that only 8.62% of prescriptions specified REGURIN 20mg by brand was an objective indicator that effective access to the market was not hindered, whether as to the whole or a substantial part, by a prohibition on the use of the mark. Further, determining a share of the market by value as opposed to % prescriptions was artificial.
iv) Accordingly, exclusive use of the mark REGURIN by SEP in the UK did not contribute to the artificial partitioning of the market; this was so even if one took into account the number of prescriptions written generically which were filled by the branded product.
v) The existence on the market of FLOTROS militated against the argument that effective access to the market was hindered unless use was made of REGURIN;
vi) There was no evidence of "rules or structures" in the market which create a hindrance to effective access unless the mark is used; quite the opposite as NHS policy was strongly in favour of generic prescribing.
vii) Accordingly there was no objective necessity to re-brand the 20mg product; Doncaster were seeking to achieve greater margins and piggy back commercially on SEP's investment and marketing strategy.
viii) The judge applied similar reasoning to the 60mg product. It was open to Doncaster to adopt a brand of its own and compete directly with REGURIN XL. This would allow Doncaster to contest the entire market because it would allow it to undercut the price at which REGURIN XL is sold.
ix) 70% of prescriptions were written generically and this allowed Doncaster to compete to that extent. Even if the use of another brand would allow Doncaster access to only 70% of the market, this would still be effective access to the trospium chloride market in the UK.
x) There were again no structural or other factors in the market which constituted a hindrance to effective access.
The submissions on the appeal
- Mr Howe submitted that the judge had misdirected herself by approaching the case on the basis that it was enough for Doncaster to have access to part of the market. To have effective access to the market Doncaster should not be hindered from entering any substantial part of the market. If enforcement of the REGURIN trade mark had the effect that a substantial part of the market for trospium chloride in the UK was not accessible to parallel imports, there was an artificial barrier to trade between member states entitling Doncaster to re-brand. Further the judge was wrong to reject the 8.61% by prescription numbers as insubstantial, particularly when the proportion by value was much higher. Yet further, because some pharmacists filled generic prescriptions with branded product, the part of the market which Doncaster could not reach for the 20mg product was much bigger – perhaps 40% by prescription numbers. Accordingly, to the extent that the judge rested her decision on Doncaster's access to the generically prescribed part of the market, she fell into an error of principle.
- Mr Howe submitted that the judge also fell into error insofar as she rested her decision on Doncaster's ability to contest the entirety of the market. At the level of the pharmacist Doncaster has no ability to compete for sales prescribed as REGURIN, because in the UK (unlike in some other countries) the pharmacist is not allowed to substitute another product, even if identical, once the prescription is written for a brand. At the level of the prescribing doctor, he submitted that it is unrealistic to expect a parallel importer to brand its product and market it to doctors. In effect it was to require Doncaster to convert itself into a totally different type of business from that of the normal parallel importer. It was unrealistic to expect Doncaster to do so, in order to present Madaus' XL product to the market as a different and competing product when in fact it is exactly the same as REGURIN XL.
- There were further reasons why the suggestion that Doncaster could contest the entire market was unrealistic on the facts. Firstly, as SEP's REGURIN marketing materials showed, marketing pharmaceuticals to doctors involved access to a research base, and the hiring of teams of trained specialist sales representatives. This involved heavy investment. Secondly, a parallel importer's supply line is necessarily precarious. In his fourth witness statement Mr Wilson drew attention to the fact that his company can never be sure that the brand owner will not limit supply in the source country so as to restrict parallel imports. Moreover parallel trade is impeded whenever the brand owner changes the presentation of the product in the source country. Thus in Germany URIVESC was first supplied to the market as 4x7 tablets, then 3x10 blister packs and now in an unblistered plastic pot containing 30 tablets. It was impossible to justify investment in promoting a new brand when you are at risk of interruption in this way. Mr Wilson explained in cross-examination:
"I think it would be very difficult to convince a doctor to prescribe a brand when they know that quite frequently, due to matters beyond our control, that the supply will be interrupted. I think it would be a very difficult proposition to present to a doctor."
- Later he said:
"the issue is one of investment in time and energy when the product could disappear at a moment's notice"
- In re-examination he said that it would be "a fool's errand" to seek to generate demand associated with a brand when you are selling parallel imports.
- Mr Howe submitted that the only basis on which Doncaster could approach doctors to buy a branded parallel import was on price, with the suggestion that if they prescribe it and it could not be supplied (due to interruption of supply) the pharmacist could return to the doctor for a branded prescription of REGURIN. He submitted that was not the real world. Accordingly he submitted that there was no basis for the judge to hold that Doncaster could contest the whole market for REGURIN XL with their own brand.
- Mr Brealey supported the judge's reasoning. He emphasised that the first sentence of Article 36 meant that it was an infringement to apply the brand owner's mark in the country of importation. Doncaster had no right to do so unless they could bring themselves within the second sentence. There is no overarching defence that the importer is applying the mark to the genuine goods. Thus Madaus and its exclusive licensee retain the right to object to the affixing by Doncaster of the mark REGURIN to the genuine Madaus product. Just as with re-packaging, the right to object in this way, and thus to control the presentation of the goods upon which the mark is placed, is part of the specific subject matter of the trade mark.
- Mr Brealey went on to stress the percentage of the market which Doncaster is able to contest. There were in effect two "points of sale", the pharmacist and the prescribing doctor. At the level of the pharmacist, Doncaster's product could lawfully be used to fill all the prescriptions written generically, and so was only excluded when the prescription was written specifically for REGURIN (or FLOTROS). Before the generic competition emerged on expiry of the patent Doncaster had not had the right to re-brand the 20mg product and yet had managed to market their product successfully under a generic descriptor.
- At the level of the doctor, Mr Brealey submitted that the evidence before the judge justified her conclusion that the entire market was contestable. It was Doncaster's choice not to seek to create demand for its product by marketing it to doctors. Companies within the Doncaster group did market drugs directly to doctors. The existence of the FLOTROS brand, and the fact that doctors had been persuaded to prescribe it by name, showed that it was possible to market REGURIN to doctors under a brand other than REGURIN and obtain some market share.
- I have found it helpful to consider the market for trospium chloride in the UK, as Mr Brealey invited us to do, as having two potential points of sale for the drug importer: pharmacists and doctors. If the only point of sale were pharmacists, then I would accept Mr Howe's submission that the UK rule or practice that a branded prescription can only be filled with the branded product, means that it is necessary to re-brand in order to get access to that part of the market. I do not accept that access to the remaining part of the market is an answer in law to exclusion from a part of it unless that part can be dismissed as insignificant. I think that whether one looks at the 20 mg product or the 60mg product the effect is that Doncaster is hindered from reaching a substantial part of the market.
- I reach that conclusion without reliance on Mr Howe's argument based on increased percentage by value of the prescription market. I agree with the judge that the CJEU's jurisprudence is largely directed at percentages by volume. That approach is consistent with the objective: to avoid any barriers to trade in goods between member states, not to ensure access to a particular part of the market where profits may be higher. However there is force in Mr Howe's further argument that the percentages are underestimates given the persistent practice of filling generic prescriptions with REGURIN. I think this can properly be described as a barrier in the relevant sense. The fact that pharmacists forego very significantly increased profits in this way suggests that there is strong resistance to brands other than REGURIN, and that Doncaster would also be hindered to some degree in attacking this corner of the market.
- The crucial question, as it seems to me, is whether the judge was entitled to hold that, by adopting its own brand (or in the case of the 20mg product using CÉRIS, Doncaster could realistically compete for the whole of the market by seeking to persuade doctors to prescribe by reference to this brand. I agree with Mr Brealey that if that finding of the judge can be supported then the appeal must necessarily fail. There will be no artificial barrier created by the enforcement of the mark.
- I have to remind myself that the circumstances in which we could set to one side the judge's conclusion on an essentially factual issue are very limited. There must, in effect, have been no evidence before her which entitled her to come to the contested conclusion. I have set out above the evidence on which Mr Howe relies as leading to the conclusion that it was unrealistic for Doncaster to adopt its own brand for its parallel imports and market them directly to doctors. To do so would have asked the doctor to place reliance on an inherently unreliable source of supply, something the doctor does not do if he or she prescribes REGURIN, FLOTROS or prescribes by reference to the generic name.
- However Mr Brealey relied on other aspects of Mr Wilson's cross-examination. Thus, Mr Wilson accepted that companies within the Doncaster group also offered trospium chloride to dispensing doctors, i.e. doctors' surgeries primarily in rural areas where the doctor's surgery takes on the role of dispensing the drug as well. The Doncaster Group of companies, was at one stage excluded by agreements with Mawdsley made pursuant to a management buy out not to market to dispensing doctors, but was free to do so once that restriction was lifted. Further, Mr Wilson accepted that Mawdsley probably did mailshot prescribing doctors, because they were customers, and, given that they visited pharmacies and dispensing doctors with their offering of trospium chloride there was no reason why they could not mailshot prescribing doctors with offers of that product as well.
- To my mind this evidence is beside the point. It is of course open to companies within the Doncaster group to draw the existence of their parallel imported Madaus product to the attention of prescribing doctors, with a view, presumably, to encouraging those doctors to prescribe generically. However that is not the basis on which the judge held that Doncaster had the ability to contest the whole market, and it would have been wrong for her to do so. The evidence established that, despite generic competition, there remained a proportion of the prescription market which was resistant to it, and which demanded REGURIN.
- What the cross-examination of Mr Wilson did not show was that it was realistic for Doncaster to adopt its own brand in order to compete in that part of the market where REGURIN continued to be prescribed by brand. The judge referred at  to Mr Wilson's evidence about the lack of control of the supply chain, which she described at , as "the lot of the parallel importer". That, as it seems to me, is an acceptance of Mr Wilson's evidence that a parallel importer is unable to guarantee a continuous source of supply.
- I do not accept that it is right to deduce from the existence of FLOTROS on the market that it is possible for Doncaster to adopt its own brand and market directly to doctors. Galen are not purchasing trospium chloride in the EU from Madaus, but are marketing their own product. They can control their own sources of supply. In short, they are not a parallel importer.
- In my judgment, if the judge was going to reject Mr Wilson's evidence that "it would be a very difficult proposition to present to a doctor," and that it would be "a fool's errand" to seek to generate demand associated with a brand when you are selling parallel imports, it was necessary to give some reason for doing so. This was not a solely commercial decision taken by Doncaster as a matter of their own commercial choice: it was an aspect of the interstate trade which the free movement rules are there to protect. On the basis of the regular interruptions of supply which are the lot of the parallel importer, it would be verging on the irresponsible to encourage a doctor to prescribe a Doncaster brand. If Mr Wilson says it is not realistic for a trader in his position to adopt an own brand, he should in principle be believed.
- I do not think that these conclusions are displaced by the fact that re-branding allows Doncaster to use the mark across the whole of the market, and not just in relation to those cases where REGURIN is prescribed by name or dispensed against a generic prescription. Doncaster's parallel imported product will not be able to compete on price with generic product, so there is no benefit to Doncaster in that regard. Re-branding goes no further than is necessary to overcome artificial barriers to effective market access by Doncaster.
- The position remains therefore that a significant portion of the market at both prescribing doctor and pharmacist level remains inaccessible to Doncaster: the adoption of an own brand is not a real world alternative. It follows, overall, that the enforcement of the trade mark against the background of the national practices in this case does create an artificial partition in the market in a way which makes it unlawful, pursuant to the second sentence of Article 36, to enforce the trade mark.
- I would therefore, for my part, allow the appeal.
Lord Justice Bean
- I agree.
Lady Justice Arden
- I also agree.
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