A&L Goodbody LLP
  May 18, 2006 - Ireland

The Continuing Battle Between Pharmaceutical Companies and Parallel Importers

There have been fresh developments in the continuing battle between pharmaceutical manufacturers and parallel importers. National and European courts have been attempting to strike a balance between the principle of the free movement of goods within the EU and the legitimate protection of intellectual property rights. The most recent contribution has come from Advocate General Sharpston (AG) in her opinion in the ongoing case of Boehringer and others v Swingward and Dowelhurst (C-348/04). The AG’s opinion was given in response to a reference for a preliminary ruling from the English Court of Appeal to the European Court of Justice (ECJ). Boehringer and other pharmaceutical manufacturers sued two parallel importers (Swingward and Dowelhurst) who had repackaged their pharmaceutical products. The manufacturers objected to the repackaging, arguing that it was not "necessary" in order for the products to be marketed in the UK. BACKGROUND The case revolves around the conditions developed by the ECJ in the Bristol Myers Squibb (BMS) case (Case C-427/93 and C-436/93). These conditions set out what changes a parallel importer can make to branded products and in what circumstances. An importer who repackages and re-applies a trade mark will infringe that trade mark unless he satisfies the following conditions: (i) it must be necessary to repackage in order to market the product; (ii) the re-packaging must have no impact on the original condition of the packaging and proper instructions must be enclosed; (iii) the manufacturer and importer must be clearly identified on the packaging; (iv) the presentation of the packaging must not be damaging to the trade mark; and (v) the trade mark owner must be given proper notice. AG SHARPSTON’S OPINION In her Opinion, Advocate General Sharpston clarifies the application of the BMS conditions in a number of important respects: 1. Overstickering Perhaps most importantly, the AG concluded that the BMS conditions on the re-packaging of branded products do not apply where the parallel importer merely relabels a product by applying a sticker in the language of the Member State of importation. In this case, the original packaging remains intact. If this view is upheld by the ECJ, it is a significant development, as pharmaceutical manufactureres can no longer demand to receive notice of such overstickering. It would therefore be harder for pharmaceutical companies to keep track of the extent of parallel imports taking place. 2. The "Necessity" Requirement Secondly, the AG held that the requirement of "necessity" (i.e. it must be necessary to repackage the parallel imported product in order to market it) only applies to the fact of reboxing and not the way in which it is done. In other words, once it has been established that it is necessary to repackage the product in order to market it, the importer does not need to show that it is necessary to repackage the product in a particular way (e.g. relating to patterns or colours on the packaging). Again, this clarification significantly lessens the burden on parallel importers. 3. Damage Thirdly, the AG clarified that the reputation of the trade mark may be damaged in other ways than by the use of defective, poor quality or untidy packaging. She made it clear that an inappropriate presentation of the trade mark and an incorrect suggestion of a commercial link with the trade mark owner are also capable of damaging the trade mark's reputation. However, it is for the national court to decide whether repackaging actually causes such damage and whether the damage is sufficiently serious to amount to a "legitimate reason" within the meaning of Article 7(2) of the Trade Marks Directive. 4. Notice Fourthly, the AG stated that, while the notice requirement is procedural (as opposed to the other BMS conditions, which are substantive), it is nonetheless an important safeguard for the trade mark owner. She emphasised that failure to give notice is not trivial and that any sanction should be effective, dissuasive and proportionate. However, it is for the national court to set an appropriate sanction. 5. Burden of Proof Finally, AG Sharpston stated that the parallel importer bears the burden of proving compliance with the first, second, third and fifth BMS conditions, while the trade mark owner bears the burden of proving serious risk of damage to the reputation of the trade mark (the fourth BMS condition). COMMENT The AG’s opinion clarifies a number of questions relating to the conflicting rights of trade mark owners and parallel importers. In doing so, it seems that the pendulum is, at least for now, swinging slightly in favour of the free movement of goods and therefore parallel importers. Perhaps most significantly, the AG concludes that the BMS conditions do not apply to relabelled products. The large majority of parallel imports tend to concern stickered packages. If the BMS conditions do not apply to these products, the parallel import of these products will become significantly less burdensome. This could lead to a dramatic increase in the number and volume of imports. The lack of a notice requirement for the import of stickered packages is also likely to make it much more difficult, if not impossible, for pharmaceutical companies to track the movement of their products. In addition, the clarification that the necessity requirement is limited to the fact of repackaging, and not the way in which it is done, will ease the burden on parallel importers. It provides parallel importers with more freedom in relation to the design of the repackaging. The next step is the decision of the ECJ and the implementation of the ECJ’s decision by the English courts. The ECJ often, though not always, adopts the views of the AG. It will be interesting to see whether the ECJ will do so in this case. This is particularly so as the AG appears to lessen the burden on the parallel importer in a number of respects. However, further questions remain open and it is unlikely to be the last time the ECJ will have to consider issues relating to the relabelling and repackaging of pharmaceutical products. For example, the AG leaves open the question as to what is an appropriate sanction for failure to give proper notice entirely to national courts. It can only be a matter of time until this, and other issues, resurface before the ECJ (and an Advocate General).