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UNITARY PATENT

In 2012 Member States and the European Parliament agreed on the "patent package" - a legislative initiative consisting of two...

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Brand Owners, Take Notice:New Guidance on Suing Repackagers

Parallel importers have long plagued brand owners across the EU, and the practice will continue as long as importers can profit from price differentials across the common market. Although the courts have laid down detailed requirements for legitimate parallel imports, however, repackagers can still fall short of full compliance in circumstances which can threaten public safety or the image of the brand. Ensuring that repackaging is done only in circumstances that do not threaten these consequences is therefore vital.

In this context, the Patents County Court recently gave useful guidance on the financial remedies brand owners can claim against repackagers who fail to give advance notice of intention to market repackaged goods, which may help brand owners find the toehold they need to stop potentially damaging repackaging from reaching the market, and to recoup some of the losses arising from price differentials with grey marketeers (Hollister Incorporated and Dansac A/S v Medik Ostomy Supplies Limited, [2011] EWPCC 40).

It’s a Fair Cop, Guv

The claimants, Hollister and Dansac, were part of a group of medical device manufacturers. The defendant was a parallel importer who bought genuine Hollister and Dansac products from elsewhere in the EU and imported them into the UK in order to exploit the price differential for profit. As part of this, the defendant repackaged those goods.

It was common ground that the defendant had not given advance notice to the claimants of its intention to sell repackaged products, nor had it supplied the claimants with a specimen of the repackaged products for prior inspection. The provision of such advance notice and of a specimen on request by the brand owner was an express requirement under Bristol-Myers Squibb v Paranova (Joined Cases C-427, 429 and 463/93). Failure to comply meant that the repackaged goods could be treated, essentially, as infringing the registered trademark rights of the brand owners.

The defendant admitted that its activities constituted trademark infringement because of its failure to comply with the notice requirement, and the claimants sought an account of the defendant’s profits by way of relief. The defendant argued, however, that the failure to give notice was a trivial breach and that the size of any financial remedy ought therefore to be tailored accordingly.

Not So Fast

The questions before the Court were therefore whether a financial remedy was appropriate in a case where the only breach was a failure to give notice, and, if so, the factors the Court needed to consider in deciding on the size and scope of the remedy.

The Court began by noting that failure to comply with the notice requirement for repackaged goods meant that a parallel importer was essentially infringing registered trademark rights. Each act of importation would infringe until the proper notice had been given by the parallel importer, even if the brand owner could be shown to have learned about the import of the repackaged goods from some other source. Only notice from the parallel importer itself would do.

In the case law relating to parallel imports, the ECJ had been at pains to stress that national authorities must provide for remedies against any infringing parallel imports, whatever the reason for infringement may be, in a way that is both proportionate and an effective and sufficient deterrent against future such breaches. In the case of failure to give notice, therefore, any remedy must not only be proportionate to the facts and circumstances of the case and the extent of any damage to the trademark proprietor, but should also function as an effective and sufficient deterrent against such future omissions.

In the judge’s view, it was not, therefore, open to a court to award no financial remedy at all in cases where the breach took the form solely of a failure to give notice, since the ECJ had already found in the case law that awarding a financial remedy in such cases was not “in itself” disproportionate. Nor was it proper for a court automatically to award only a trivial remedy, since that would not fulfil the requirement that the sanction act as a deterrent to future such breaches. To determine what remedy is in fact both proportionate and an effective and substantial deterrent, a court was bound to take all circumstances of the case into Brand Owners Take Notice...continued account, including, for example, whether the failure to give notice had harmed the trademark owner in efforts to combat counterfeiting, or a parallel importer had evaded the notice requirements in order to avoid drawing attention to counterfeit goods that it was itself importing. The amount of profit lost to a claimant through sales of the infringing products was also a relevant factor, as was the “knowledge of the trade mark owner” (although knowledge about what, specifically, was arguably unclear).

In summary, when all the strands were pulled together, it was possible that the financial remedy, whether it be damages or an account of profits, might be awarded at exactly the same level as if the repackaged genuine goods had in fact been spurious, or might alternatively be awarded at some other, lower level. However, the mere fact that the only breach had been a failure to give notice would not avoid the sanction, as to do otherwise would be to undermine the effectiveness of the notice requirement.

After undertaking a detailed assessment the judge awarded the claimants half of the defendant’s profits from the sale of the infringing goods, which he described as “an effective deterrent to dissuade those engaged in repackaging and relabelling from not giving notice which accords with being proportionate to the reality of this case as a breach of a procedural requirement and nothing more.”

Comment

Although much of this judgment is a detailed assessment of the defendant’s costs and profits specific to this case, the substantive guidance at its heart is worth a read.

The outcome shows that parallel importers who repackage or relabel branded goods cannot shrug off the court-prescribed requirement for giving advance notice to the trademark proprietor as a mere formality. Moreover, although the issue did not arise here, it is clear that the court has a wide discretion as to factors that it may take into account, and parallel importers who flout the notice requirement flagrantly or repeatedly are likely to find that these are factors a court will consider, and which could result in a substantially heavier financial penalty than that imposed on the defendant in this case, who was fortunate in being able to retain half of its profits.

The real value of this case, though, is arguably in assuring brand owners that the rules are there to protect brands and ultimately also the public. The notice requirement aids brand owners in the fight against counterfeits as well as in the maintenance of required standards of public safety. It also helps brand owners to protect valuable brands against the damage that can be done by shoddy repackaging.

So, the notice requirement is not just a procedural requirement, even if that is how the judge in this case characterised it. It is an important and essential safeguard for brand owners, brands and consumers. That the courts take this seriously is now beyond doubt. Brand owners concerned about repackaged goods should, too.