EU - Trademarks - Infringement - Defendant company importing claimant’s goods into UK without consent
Oracle America Inc (formerly Sun Microsystems Inc) v M-Tech Data Ltd: SC (Justices of the Supreme Court, Lords Walker, Clarke, Sumption, Reed, Carnwath): 27 June 2012
The claimant company was a manufacturer of computer systems, workstations and related goods. It was also the proprietor of five relevant community trademarks and two relevant UK trademarks registered for use in connection with computer hardware. The claimant distributed its products through a network of authorised dealers. The defendant company was a supplier of computer hardware. In 2009, the defendant fulfilled a trap order from a purchaser in the UK for 64 of the claimant’s new disk drives.
The disk drives had originally been supplied by the claimant to purchasers in China, Chile and the US. The defendant had bought them through a broker in the US and imported them into the UK. The claimant had not consented to their being put on the market in the European Economic Area (EEA). The claimant applied for summary judgment for, inter alia, damages for infringement, and an injunction restraining any further infringements of the same kind. Although on the face of it the defendant had infringed the marks contrary to article 5.1(a) of Parliament and Council Directive (EC) 2008/95 (to approximate the laws of the member states relating to trademarks) (the directive) by using them in circumstances where the claimant’s exclusive rights had not been exhausted under article 7.1 of the directive, it contended that the claimant’s trademarks were not enforceable as: (i) the object and effect of enforcement would be to partition the EEA market in the claimant’s hardware contrary to the treaty provisions relating to the free movement of goods, namely articles 34 to 36 of the treaty on the Functioning of the European Union (the treaty); and (ii) the exercise of the claimant’s trademark rights was connected with its distribution agreements which were said to contain restrictive provisions inconsistent with article 101 of the treaty.
It was alleged that since 2007 the claimant had deliberately set out to secure the market in its second-hand hardware for itself and its authorised dealers by declining to supply information which would enable independent resellers to discover whether any particular equipment had been first put on the EEA market by or with the claimant’s consent and thereby exposing them to the risk of enforcement action by the claimant. The judge gave summary judgment for the claimant and granted an injunction.
The injunction restrained only the marketing by the defendant within the EEA of the claimant’s trade-marked goods which had not previously been marketed there by the claimant or with its consent. The defendant subsequently added a third defence to the effect that enforcement of the claimant’s trademarks would constitute an abuse of rights as that concept was understood in EU law. The Court of Appeal allowed the defendant’s appeal. The claimant appealed.
The principal issue which fell to be determined was whether a person who had imported goods bearing a trademark into the EEA and offered them for sale there without the consent of the trademark proprietor was entitled to defend an action for infringement on the ground that the proprietor of the mark was engaged in conduct calculated to obstruct the free movement of such goods between member states or to distort competition in the EEA market. Further consideration was given to each of the defendant’s original defences. The defendant further contended that the claimant had no enforceable rights under article 5 of the directive in the circumstances of the instant case, because that article was subject to an implied limitation to be derived as a matter of construction from articles 34 to 36 of the treaty, the effect being to preclude any exercise of EU trademark right which would have the object or effect of partitioning the EU internal market. Furthermore, it was contended that the restriction in the distribution agreements served to reinforce the ‘chilling effect’ of withholding information about the provenance of the goods. The court was invited to order a reference to the Court of Justice of the European Union (CJEU). The appeal would be allowed.
(1) The case law of the CJEU differentiated between: (i) cases where the goods had not previously been marketed in the EEA by the proprietor, or with his consent, and the proprietor was seeking to exercise his rights under article 5 of the directive in circumstances where his rights were not yet exhausted under article 7.1; and (ii) cases governed by article 7.2, where the goods were legitimately in circulation within the EEA but the proprietor nevertheless claimed to have ‘legitimate reasons’ to oppose their ‘further commercialisation’.
In contrast to the position in relation to the exercise of the proprietor’s extended right under article 7.2, which might, depending on the facts, engage the principle of free movement of goods, the court considered that that principle was incapable of restricting the right of a trademark proprietor to prevent the first marketing within the EEA of goods imported from outside the EEA. Where it was established that the goods had not previously been on the market in the EEA, the proprietor was only exercising his right to control the first marketing of his branded goods in the EEA. That right was conferred on him by EU law and did not engage the Treaty provisions concerning the free movement of goods (see , , , ,  of the judgment).
Applying principles of EU law, the facts alleged by the defendant, if they could be proved, would not give them a defence. It was clear that the unlawful conduct alleged by the defendant was collateral to the particular right which the claimant was seeking to enforce. On the facts, the goods were never marketed in the EEA until they were imported and marketed there without the claimant’s consent. The only right derived from its trademark which the claimant was seeking to enforce was its right to control the first marketing of the goods in the EEA.
That was an exercise of rights which did not engage the principles of free movement of goods embodied in articles 34 to 36 of the treaty. It affected only the entry of the goods onto the EEA market, not the movement of the goods within it. It was specifically authorised by articles 5 and 7.1 of the directive, which were part of an exhaustive code that itself fully reflected the requirements of articles 34 to 36 of the treaty. Further, what produced the impediment to the free movement of goods was not the enforcement of the claimant’s right to control the first marketing of its products in the EEA. The claimant could not be prevented from doing something which was in itself entirely lawful and consistent with the principle of the free movement of goods, simply because it proposed to do something else as well which was unlawful and inconsistent with that principle.
Furthermore, the argument that article 5 of the directive was impliedly limited in the manner suggested by the defendant necessarily operated to suspend the claimant’s trademark rights indiscriminately as against the entire EEA market, including traders who were entirely unaffected by the withholding of information about provenance because, for example, they were knowingly importing the claimant’s goods without their consent (see , ,  of the judgment).
(2) In the instant case, there was no relevant connection between the policy of withholding information about provenance and the prevention, restriction and distortion of competition by means of distribution agreements. Further, there was no relevant connection between the policy of withholding information about provenance and the enforcement of the claimant’s right to control the first marketing of its trademarked products in the EEA, for the same reasons that that was no such connection in the context of articles 34 to 36 of the treaty. Finally, neither the trademarks nor the rights conferred on their proprietor by the directive could be characterised as the subject, the means or the result of an agreement or concerted practice contravening article 101 of the treaty (see  of the judgment).
(3) In the instant case, the exercise by the claimant of the right to control the first marketing of trademarked goods in the EEA not only satisfied the formal requisites of articles 5 and 7.1 of the directive, but was entirely consonant with their purpose. Even if the defendant had been correct to say that, by achieving that purpose, the claimant was enabled to do other things which tended to eliminate independent retailers from the secondary market, that would not make it an abuse of rights (see  of the judgment). In the circumstances, a reference to the CJEU was not required. The judge’s order would be restored (see ,  of the judgment). Decision of Court of Appeal  All ER (D) 106 (Aug) reversed.
Geoffrey Hobbs QC and Guy Hollingworth (instructed by Nabarro) for the claimant; Christopher Vajda QC and Guy Tritton (instructed by Hill Dickinson) for the defendant.