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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Flynn Pharma Ltd v Drugsrus Ltd & Anor [2017] EWCA Civ 226 (06 April 2017) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/226.html Cite as: [2017] Bus LR 1874, [2017] 3 CMLR 11, (2017) 156 BMLR 124, [2017] RPC 18, [2017] EWCA Civ 226, [2017] ETMR 25 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY
THE HON MRS JUSTICE ROSE DBE
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE KITCHIN
and
LORD JUSTICE FLOYD
____________________
FLYNN PHARMA LIMITED |
Claimant/ Respondent |
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- and - |
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(1) DRUGSRUS LIMITED (2) TENOLOL LIMITED |
Defendants/ Appellants |
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Guy Burkill QC and Nicholas Saunders (instructed by Pinsent Masons LLP) for the Respondent
Hearing dates: 28 February and 1 March 2017
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Crown Copyright ©
Lord Justice Floyd:
Introduction and factual background
Phenytoin sodium
Flynn's launch of Phenytoin Sodium Flynn in the UK
The appellants' business
The market for phenytoin sodium
The issues in the appeal
The judgment of Rose J
i) An asset sale agreement which provided for the sale by Pfizer to Flynn of the marketing authorisations for the various strengths of phenytoin sodium capsules together with sales and marketing know-how for the products, technical product data and key regulatory and other product-related data. The information transferred excluded manufacturing know-how. Clause 9.1 of the asset sale agreement provided, originally, that if the parties failed to enter into the exclusive supply agreement, or if the agreement expired or was terminated for any reason, the asset sale agreement also terminated and the assets, including the marketing authorisations, had to be returned to Pfizer. By a subsequent agreement entered into on 27 August 2014 Pfizer and Flynn agreed, amongst other things, that clause 9 be deleted.ii) An exclusive supply agreement which set out the arrangements for Pfizer to manufacture and supply Flynn with its requirements for phenytoin sodium capsules for 3 years from 17 April 2012. The agreement has been extended on an interim basis since it expired in April 2015. The exclusive supply agreement contained terms as follows: (i) a requirement that Pfizer must manufacture the product in accordance with the Specification (i.e. the quality agreement: see below) and good manufacturing practices. Thus, where the source of an ingredient in the product is specified in the marketing authorisation, Pfizer must not change that source or the source of any active ingredient without the prior written consent of Flynn. Pfizer is required to ensure that each batch of product is manufactured in compliance with the requirements of the marketing authorisation and must produce a certificate of compliance by Pfizer's Qualified Person. Pfizer was required to inform Flynn in the event of any change in the manufacturing process or in the analytical specification and of any noted incident occurring during the manufacture of the product.
iii) A quality agreement which sets out and allocates the responsibilities for the manufacture and testing of the products between Pfizer and Flynn. The agreement includes quality responsibility tables which allocate responsibility for different aspects of the production process to Flynn, Pfizer or Pfizer Manufacturing Deutschland GmbH ("Pfizer Germany"). Pfizer Germany was the actual manufacturer of the product and therefore shouldered the great majority of responsibilities. Many responsibilities were shared between all three signatories. Flynn was allocated sole responsibility for handling recalls of the product and making submissions to the MHRA.
iv) A pharmacovigilance agreement provided for the exchange of drug safety information.
v) A trade mark licence which granted Flynn the right to use the name Epanutin in the identity code on the capsule shell itself, but not otherwise.
"77. I do not accept, however, that the fact that Flynn Pharma is obliged to or chooses to acquire its supplies of Phenytoin Sodium Flynn for the UK from the same manufacturer as makes Epanutin for other Member States means that the same entity is responsible for the quality of the two products for the purposes of applying the free movement provisions. What is more important is whether responsibility for the quality of both products lies with the same entity so that it is not misleading for the parallel importer to attach the Flynn name to the Epanutin. When considering responsibility here, I am referring to responsibility to the ultimate consumer for the quality of the product. Of course Pfizer is responsible to Flynn Pharma for the quality of the product it supplies under the agreements and the specification of that product is set by Flynn Pharma and monitored by them. What matters is whether there is anything in the suite of agreements which gives Flynn Pharma power to control the quality of the Epanutin supplied by Pfizer in other Member States or anything that entitles Pfizer to control the specification of the Phenytoin Sodium Flynn supplied in the UK if, for example, Flynn Pharma decided to change it. I do not see any such control granted to either company over the other's product. Pfizer can sell Epanutin anywhere else it likes - Flynn Pharma has no control over Pfizer's other products and no control over the trade mark that Pfizer uses elsewhere. Flynn Pharma can put its own trade mark on the products made for it, and Pfizer has no control over that. Only the products Pfizer manufactures for Flynn Pharma at its direction can be packaged as Phenytoin Sodium Flynn. As the holder of the marketing authorisation it is Flynn Pharma that takes the responsibility for those products. Legal responsibility for manufacture at all levels (API, product formulation & packaging) to ensure compliance with authorisation lies with Flynn Pharma for the Phenytoin Sodium Flynn product. It could manufacture in-house if it chose and where, as here the manufacture is contracted out, it must have a supply agreement, technical agreement and quality agreement in place.
78. Having considered the agreements between Pfizer and Flynn Pharma, it would not be right to say that the owner of the right in the importing State is, directly or indirectly, able to determine the products to which the trade mark may be affixed in the exporting State and to control their quality. I therefore hold that Flynn Pharma's trade mark rights in the name Phenytoin Sodium Flynn are not exhausted in respect of packages of Epanutin placed on the market in other Member States. Flynn Pharma is therefore entitled to prevent the relabelling of the parallel imported product by the Defendants."
Legal principles
"Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States."
"The provisions of Articles 34 … shall not preclude prohibitions or restrictions on imports … justified on grounds of … the protection of industrial and commercial property…. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States."
"to guarantee to the proprietor of the trade mark that he has the exclusive right to use the trade mark for the purpose of putting a product into circulation for the first time and therefore to protect him against competitors wishing to take advantage of the status and reputation of the trade mark by selling products illegally bearing that trade mark." Hoffmann La Roche paragraph 7.
"12. According to settled case law, Article 36 allows exceptions to the fundamental principle of freedom of movement of goods in the Common Market only in so far as such exceptions are justified for safeguarding the rights which are the specific subject matter of the property and, consequently, an owner of an industrial and commercial right protected by the law of a State cannot rely on that law in order to prevent the importation or marketing of a product which was lawfully sold in the market of another member-State by the owner of the right himself or with his consent, or by a person connected with him by ties of legal or economic dependence. (citations omitted)
13. With regard to trademark rights, it should be observed that such rights constitute an essential element of the system of undistorted competition which the Treaty aims to establish and maintain. In such a system enterprises must be able to gain customers by the quality of their products or services, which can be done only by virtue of the existence of distinctive signs permitting identification of those products and services. For a trademark to be able to play this part, it must constitute a guarantee that all the products bearing it have been manufactured under the supervision of a single enterprise to which responsibility for their quality may be attributed.
14. Consequently, as the Court has stated on many occasions, the specific subject-matter of a trademark right is to grant the owner the right to use the mark for the first marketing of the product and, in this way to protect against competitors who would like to abuse the position and reputation of the mark by selling products to which the mark has been improperly fixed. To determine the exact effect of this exclusive right which is granted to the owner of the mark, it is necessary to take account of the essential function of the mark, which is to give the consumer or final user a guarantee of the identity of the origin of the product by enabling him to distinguish, without any possible confusion, that product from others of a different provenance. (citations omitted).
15. In assessing in the light of the foregoing considerations a situation such as that described by the national court, the decisive factor is the absence of any element of consent, on the part of the owner of the right protected by national legislation, to the marketing in another member-State, under a mark which is identical or may cause confusion, of a similar product manufactured and marketed by an enterprise which has no tie of legal or economic dependence with that owner."
"34. …A number of situations are covered: products put into circulation by the same undertaking, by a licensee, by parent company, by a subsidiary of the same group, or an exclusive distributor.
35. There are numerous instances in national case law and Community case law where the trademark had been assigned to a subsidiary or to an exclusive distributor in order to enable those undertakings to protect their national markets against parallel imports by taking advantage of restrictive approaches to the exhaustion of rights in the national laws of some States.
36. Articles 30 and 36 defeat such manipulation of trade marks rights since they preclude national laws which enable the holder of the right to oppose imports.
37. In the situations described above (paragraph [34]) the function of the trademark is in no way called in question by freedom to import. As was held in Hag II: "for the trademark to be able to fulfil [its] role, it must offer a guarantee that all goods bearing it have been produced under the control of a single undertaking which is accountable for their quality" (paragraph [13]). In all the cases mentioned, control was in the hands of a single body; the group of companies in the case of products put into circulation by the subsidiary: the manufacturer in the case of products marketed by the distributor; the licensor in the case of products marketed by licensee. In the case of a licence, the licensor can control the quality of the licensee's products by including in the contract clauses requiring the licensee to comply with his instructions giving him the possibility of verifying such compliance. The origin which the trademark is intended to guarantee is the same: it is not defined by reference to the manufacturer but by reference to the point of control of manufacture (see the statement of grounds for the Benelux Convention and the Uniform Act).
38. It must further be stressed that the decisive factor is the possibility of control over the quality of goods, not the actual exercise of their control. Accordingly, a national law allowing the licensor to oppose importation of the licensee's products on grounds of poor quality would be precluded as contrary to Articles 30 and 36; if the licensor tolerates the manufacturer of poor quality products, despite having contractual means of preventing it, he must bear the responsibility. Similarly if the manufacture of products is decentralised within a group of companies and their subsidiaries in each of the Member States manufacture product whose quality is geared to the particularities of each national market, a national law which enabled one subsidiary of the group to oppose the marketing in the territory of that State products manufactured by an affiliated company on grounds of those quality differences would also be precluded. Articles 30 and 36 require the group to bear the consequences of its choice.
39. Articles 30 and 36 thus debar the application of national laws which allow recourse to trademark rights in order to prevent the free movement of a product bearing a trademark whose use is under unitary control.
"… the owner of the right in the importing State must, directly or indirectly, be able to determine the products to which the trademark may be affixed in the exporting State and to control the quality. That power is lost if, by assignment, control over the trademark is surrendered to a third party having no economic link with the assignor."
"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;
(5) Notice."
"If one looks at the BMS conditions one can see that they are all about protecting the reputation of the mark. A fair summary of the position may be that (1) re-affixing creates a risk of jeopardising the reputation (2) but if the conditions are satisfied that risk is removed."
"37. … there is no objective difference between re-affixing a trademark after repackaging and replacing the original trademark by another which is capable of justifying the condition of artificial partitioning being applied differently in each of those cases.
38. In the first place, the practice of using different packaging and that using different trademarks for the same product, in contributing similarly to the partitioning of the single market, and adversely affect intra-Community trade in the same way; secondly the re-affixing of the original trademark on the repackaged product and its replacement by another trademark both represent a use by the parallel importer of a trademark which does not belong to him.
39. Consequently where the trademark rights in the importing Member State allow the proprietor of the trademark to prevent it being re-affixed after repackaging of the product or being replaced, and where the repackaging with re-affixing or the replacement of the trademark are necessary to enable products to be marketed by the parallel importer in the importing Member State, there are obstacles to intra-Community trade giving rise to artificial partitioning of the markets between Member States within the meaning of the case law cited, whether or not the proprietor intended such partitioning."
"Exhaustion of the rights conferred by a trademark
1. The trademark 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 trademark 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."
The appellants' submissions
"… The BMS case struck a balance between the ability of a trademark owner to enforce his right, and the free movement rules."
"In order to determine what restrictions on trade are permitted by Article 36 on grounds of trademark protection it is necessary to bear in mind at all times the interests defined above in paragraph 72. It is necessary to balance those interests against the fundamental concern of article 30, which is to ensure that goods can circulate freely within the community and the trade between Member States is not hindered any more than necessary. That is what the Court means when it emphasises, as it has on numerous occasions, that Article 36, as an exception to a fundamental principle, must be construed narrowly and can only be invoked in favour of restrictions which are necessary in order to safeguard the specific subject matter of an industrial property right."
i) Enforcement of the trade mark right in this case would, in fact, create a barrier to interstate trade.ii) The case involved an unusual use of the trade mark Flynn, even assuming against the appellants that it was trade mark use. The use was highly constrained compared with normal trade mark use.
iii) The information campaign had alerted doctors, pharmacists and patients to the fact that Phenytoin Sodium Flynn means that particular quality of phenytoin that was previously sold as Epanutin and from the same factory.
iv) Flynn is not free, as a practical matter, to vary that characteristic.
v) The use of the designation Phenytoin Sodium Flynn is agreeable to regulatory authorities because in their view it does correctly describe the characteristics of the imported parallel product.
vi) The product that Flynn sells and the parallel imported product both have Epanutin printed on the capsules, reassuring patients that they are taking the right product.
vii) The source of supplies is the same.
"11. (1)
(2) A registered trademark is not infringed by –
(a) …
(b) the use of indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of services, or other characteristics of goods or services,…
(c) …
provided the use is in accordance with honest practices in industrial or commercial matters."
The respondent's submissions
Discussion
Trade mark use and section 11(2)(b)
"The use of the word "FLYNN" is not a description of the goods. It is not a word associated with medicines or ingredients or otherwise denoting the qualities or characteristics of the medicine. It will be perceived by consumers as a mark of origin because there is no evidence that consumers would interpret the sign in the way the Defendants suggest, namely as an indication of the source of the API or the site of the manufacture of the product. They were interpreted as being an indication of the holder of the marketing authorisation of the product and therefore is indicating that the product originates with Flynn Pharma as being the entity responsible for the quality of the goods. That is clearly a trademark use of the sign."
Disguised restriction
Flynn's consent to the marketing of, or Flynn's control over, Pfizer's goods
"Having regard to the responsibilities of Pfizer and Flynn Pharma under the agreements and the way they have been operated, I consider that it is … Pfizer which is responsible for the quality of Epanutin placed on the market in the other Member States."
"What matters is whether there is anything in the suite of agreements which gives Flynn power to control the quality of the Epanutin supplied by Pfizer in other member states… Pfizer can sell Epanutin anywhere else it likes – Flynn Pharma has no control over Pfizer's other products and no control over the trademark that Pfizer uses elsewhere."
"Having considered the agreements between Pfizer and Flynn Pharma, it would not be right to say that the owner of the right in the importing state is, directly or indirectly able to determine the products to which the trademark may be affixed in the exporting state and control their quality."
Is Flynn's use of the mark Phenytoin Sodium Flynn under Pfizer's control?
"What matters is whether there is anything in the suite of agreements which … entitles Pfizer to control the specification of the Phenytoin Sodium Flynn supplied in the UK if, for example, Flynn Pharma decided to change it. I do not see any such control… Flynn Pharma can put its own trademark on the product made it, and Pfizer has no control over that. Only the products Pfizer manufactures for Flynn Pharma at its direction can be packaged as phenytoin sodium Flynn.… It could manufacture in-house if it chose and where, as here the manufacturer is contracted out, in must have a supply agreement, technical agreement and quality agreement in place."
"the trademark [is] applied to the goods as an indicator of the origin of control has no connection with Pfizer; Pfizer is not able to use that mark in respect of any goods other than those it makes under these agreements for Flynn Pharma."
The medical factors
Pricing
Conclusion
Lord Justice Kitchin:
The Chancellor of the High Court