Parallel importing in the European Union – buying goods in a low-price country in order to ship and sell them in a high-price country – is a perfectly legal activity under Articles 28 to 30 E. The pharmaceutical market in Europe is heavily characterised by national regulations that lead to significant price differentials between member states. This incites the activity of parallel traders, who act as arbitrageurs. Since their operations have the effect of counteracting the partitioning of national markets, they are favoured by the European Community as a means of market integration. However, though parallel importing amplifies the internal market it at the same time continues to raise legal questions as to the circumstances under which parallel importing and repackaging is legitimate. Due to the relatively high number of cases referred to the European Court of Justice (ECJ) on the subject, case law has progressed but the battle for clarification continues as questions are often left entirely open by the ECJ for the national courts to decide, which leads to conflicting decisions across Europe and further references back to the ECJ. This article will take a closer look at important ECJ case law to determine whether any further clarification has been made on the subject.

In general the referred questions to the ECJ concern clarification of the interpretation of Articles 28 and 30 of the Treaty of Rome (free movement of goods), Article 7 of the Trade Marks Directive (exhaustion of rights), the effect of national trade mark rights on free movement of goods and the question of necessity and notice in relation to repackaging. As can be seen from the wording of Articles 28 and 30 of the EC Treaty compared to Article 7 of the Trade Marks Directive, there has always been a tension between the principles of free movement of goods and that of protection of IP rights: on the one hand the EC Treaty provides that enforcement of IP rights is justified unless they are an arbitrary discrimination or disguised restriction on trade. On the other hand the Trade Marks Directive provides that enforcement of IP rights is forbidden against parallel goods unless there is a legitimate reason.

The BMS conditions

The first case dealing with this issue was Hoffmann-La Roche v Centrafarm (C-102-77). Later the ECJ confirmed and clarified the cumulative conditions for repackaging and relabelling in Bristol-Myers Squibb v Paranova (joined cases C-427/93, C-429/93 and C-436/93) and both cases are the foundation when assessing the requirement for repackaging and relabelling trade marked products. The ECJ ruling in Bristol-Myers Squipp v Paranova (BMS) clarified that, under Article 7(2) of the Directive, a trade mark owner may legitimately oppose the further marketing of a repackaged pharmaceutical product unless:

1. to do so would contribute to the artificial partitioning of the markets between member states; such is the case, in particular, where the owner has put an identical pharmaceutical product on the market in several member states in various forms of packaging and the repackaging is necessary in order to market the product in the member state of importation, and is carried out in such conditions that the original condition of the product cannot be affected by it;
2. the repackaging cannot affect the original condition of the product inside the packaging;
3. the new packaging clearly states who repackaged the product and the name of the manufacturer;
4. the presentation of the repackaged product is not liable to damage the reputation of the trade mark and of its owner; thus, the packaging must not be defective, of poor quality, or untidy; and
5. the importer gives notice to the trade mark owner before the repackaged product is put on sale, and, on demand, supplies him with a specimen of the repackaged product.

While the ruling confirmed the Hoffman-La Roche test that the trade mark owner could rely on its rights to prevent the importer from marketing a repackaged product, if it did not contribute to the artificial partitioning of the internal market, it opened up the necessity and notice doctrine without providing any guidance on how it should be construed.

The interpretation of Article 7(2) of the Directive and "necessary" and "notice" in the first and fifth BMS conditions was given in the ECJ case C-143/00 Boehringer Ingelheim and Others (Boehringer I) where the ECJ ruled that:

• pursuant to Article 7(2) of the Trade Marks Directive, a trade mark owner is entitled to rely on its trade mark rights in order to prevent a parallel importer from repackaging pharmaceutical products unless the exercise of those rights contributes to artificial partitioning of the market;
• replacement packaging of pharmaceutical products will be "necessary" if, taking into account the circumstances in an importing member state, without such repackaging, effective access to the market, or a substantial part of the market, in that member state is considered to be hindered due to strong resistance from a significant proportion of consumers to relabelled pharmaceutical products, and
• in order to be entitled to repackage and market a trade marked pharmaceutical product, a parallel importer must give prior notice to the trade mark owner that it intends to do so.

After being referred back to the English High Court, decided and appealed to the Court of Appeal, the Court of Appeal referred a series of further questions to the ECJ concerning reboxed products and relabelled products and the proper interpretation of the BMS conditions in relation to these products, notably the meaning of "necessary", the burden of proof and the consequences of failure to give "notice" (Case C-348/04 2007, Boehringer II). The ECJ found that:

• Relabelling poses the same risks to the mark owner as reboxing in the term of potentially undermining the guarantee of origin and thereby confirming that all the five BMS conditions also apply not only to reboxing but also to relabelling.
• The condition that the repackaging of the pharmaceutical product be necessary for its further commercialisation in the importing member state is directed solely at the fact of repackaging and not at the manner and style of the repackaging.
• The condition that the presentation of the pharmaceutical product must not be such as to be liable to damage the reputation of the trade mark and of its owner is not limited to cases where the repackaging is defective, of poor quality, or untidy.
• It is a question of fact for the national court to decide in the light of the circumstances of each case whether the fact that a parallel importer fails to affix the trade mark to the new exterior carton ("de-branding"), or applies either his own logo or house-style or get-up or a get-up used for a number of different products ("co-branding"), or positions the additional label so as wholly or partially to obscure the owner's trade mark, or fails to state on the additional label that the trade mark in question belongs to the owner, or prints the name of the parallel importer in capital letters, is liable to damage the trade mark's reputation.
• Where it is established that the pharmaceutical products have been repackaged, it is for the parallel importer to prove the existence of the BMS conditions which, if fulfilled, will prevent the trade mark owner from opposing further commercialisation of the trade marked pharmaceutical products.
• A parallel importer who fails to give prior notice to the trade mark owner will infringe the rights of those owners by subsequently importing repackaged products, so long as the owner has not received notice from that parallel importer.

As pointed out in a previous article in Managing IP ("ECJ fails to resolve repackaging question", June 2007), the Boehringer II decision was criticised for not being clear enough and leaving essential questions open: "The question as to what constitutes damage to the reputation of a trade mark or its owner ... has been left entirely open by the ECJ for the national courts to decide ... There are an enormous number of factors which contribute to the 'image of reliability and quality' and 'confidence in a product' which extend far beyond the realms of trade mark law." The omission of "relevant practical criteria for establishing damage to a mark" will only lead to an "endless scope of disputes ... and lead to conflicting decision across Europe and further references back to the ECJ". Furthermore "it remains to be seen how the national courts will deal with breaches of the prior notice condition".

The Zovirax case

The latest episode in the long-running saga involving parallel importation and repackaging of pharmaceutical products is The Wellcome Foundation Ltd v Paranova Pharmazeutika handels GMBH, December 22 2008 (C 276/05). The case concerns the parallel importation of Zovirax pharmaceutical products into Austria by Paranova. Wellcome owns trade marks in Austria for Zovirax in relation to pharmaceutical products. Paranova markets pharmaceutical products bearing the trademark Zovirax in Austria. Paranova's parent company purchases the products in Greece, where they are sold by or with the consent of Wellcome in packs of 70 tablets. In Austria, they must be in packs of 60 tablets. Printed prominently on the front of the package was "Repackaged and imported by Paranova", while references to the manufacturer were on the sides of the box in less prominent print. The repackaging bore a blue band, which is regularly used on Paranova's products.

The ECJ held that the requirement of necessity to market the product meant that a trade mark owner was entitled to information from the parallel importer which is "necessary and sufficient" to enable it to determine whether the repackaging of the product was necessary for the purpose of marketing it in the member state of importation. The ECJ was aware of the fact that the trade mark owner could use such details to detect weaknesses in his sales organsation and combat parallel trade but held, following Loendersloot v Ballantine (Case C-349-95), that in such circumstances, it was necessary to look to the provisions of the EC Treaty on competition. In this regard see the ECJ's decision in Sot Lélos v GlaxoSmithKline (Joined Cases C 468/06 to C 478/06), where the ECJ interpreted Article 82 EC as meaning that an undertaking occupying a dominant position on the relevant market for medicinal products which, in order to put a stop to parallel exports carried out by certain wholesalers from one member state to other member states, refuses to meet ordinary orders from those wholesalers, is abusing its dominant position.

The ECJ also followed the decision in Boehringer II by affirming that the requirement of necessity did not extend to the type of packaging. Accordingly, the ECJ ruled that the presentation of the packaging is only to be assessed against the condition that it should not be such as to be liable to damage the reputation of the trade mark or that of its owner. In practical terms, proving that this is a likely consequence of the re-packaging imposes a severe evidential burden on the trade mark owner, and is unlikely to be successfully demonstrated in most cases. Also, although this part of the judgment confirms Boehringer II, it now seems clear that "as little prejudice as possible to the specific subject-matter of the trade mark right" does not take trade mark owners any further than the fourth BMS condition.

As stated above, the ECJ held that a trade mark owner was entitled to information from the parallel importer which is "necessary and sufficient" to enable it to determine whether the repackaging of the product was necessary for the purpose of marketing it in the member state of importation. However, it is not clear whether a failure to provide such information would mean that proper advance notice of repackaging has not been given as well as it provides little further guidance as to the information that should be provided to trade mark owners to demonstrate necessity. It may well be that the focus in relation to the circumstances in which trade mark owners may prevent a parallel importer from marketing repackaged products will now shift to the notification requirement.

The battle continues

It will be interesting to see how this decision is applied in the English case BoehringerII, which the Court of Appeal stayed in August 2008 (following the ECJ's judgment in that case), pending the outcome of the ECJ referral. Will we see a third reference to the ECJ? Given the size of the potential market and the commercial advantage which parallel importers can obtain from selling not only re-packaged, parallel imported pharmaceuticals in other EU member states but also other products, we can be sure to expect more cases in the future. Whether the ECJ will be prepared to take more referrals on these issues remains to be seen as they have a residual power to simply refuse to hear such referrals where they consider that the issues have already been fully explained in previous case law. Sadly for those who prefer legal certainty the battle for clarification continues.

Niels Lagerkvist Lehmann

Niels Lagerkvist Lehmann is an IP attorney with Valea and works in all fields of IP law, specialising in protecting IP rights online. Niels provides advice to clients on trade marks, company name and domain name strategies and policies. He handles questions related to design rights, such as investigations, agreements and infringement queries. He also works with commercialisation of IP rights, structuring and negotiating licensing agreements and other contracts for commercial use of distinctive marks. Niels has worked in the IP field since 1997.