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How the latest rulings on repackaging will affect branded pharmaceutical products?

How the latest rulings on repackaging will affect branded pharmaceutical products?

Q: Is relabelling of products by parallel importers subject to the same restrictions as repackaging?
A: There have been a number of decisions recently regarding the application of parallel import principles to pharmaceutical products, including repackaging, within the European Economic Area (EEA), and exhaustion of rights for products imported from outside the EEA. These cases entail potential challenges for both trademark owners and parallel importers.

On April 6, 2006, the Advocate General of the European Court of Justice (ECJ), Eleanor Sharpston, gave her opinion in the long-running case of Boehringer Ingelheim & others versus Swingward & others. The case concerned the pharma companies Boehringer Ingelheim, Eli Lilly & Co and GlaxoSmithKline against the parallel importers, Swingward Limited and Dowelhurst Limited, in a series of actions involving repackaging branded pharmaceuticals within the EEA. Under consideration were the rules applicable to relabelling and rebranding, including `de-branding' (the removal by the importer of the manufacturer's trademark), as well as `co-branding' (the addition of the importer's own branding on packaging, in addition to that of the manufacturer).

Most controversially, the Advocate General's opinion departed from existing European Court of Justice (ECJ) jurisprudence regarding relabelling. She expressed the view that mere relabelling or re-stickering of products should not be subject to the same restrictions as repackaging. While Advocate General opinions are not binding, they are often indicative of the final decision of the ECJ. If this part of the opinion is followed by the ECJ, importers will have greater latitude in their repackaging options, with less protection being afforded to trademark owners.

The Background
The law relating to parallel imports is based on balancing the opposing principles of free movement of goods within the EEA and the protection of industrial and intellectual property.

This is reflected in Article 7 of the Trade Marks Directive (`the Directive'), which provides that a trademark does not entitle the proprietor to prohibit the use of the trademark in relation to goods which have been placed on the EEA market with their consent unless there is a `legitimate reason' for the proprietor to oppose further commercialisation of the goods.

The meaning of `legitimate reason' under Article 7(2) has been considered in a number of cases, most notably that of Bristol-Myers Squibb versus Paranova, in which the ECJ formulated certain conditions (`BMS conditions') with which importers are required to comply when repackaging goods within the EEA.

Accordingly, repackaging will only be allowed if:

(a) the repackaging is necessary for market access;
(b) the repackaging does not affect the original condition of the product;
(c) the new packaging clearly shows who repackaged the product and the name of the original manufacturer;
(d) the presentation is not such as to be liable to damage the reputation of the trademark or its owner; and
(e) the importer gives notice to the trademark owner before marketing the repackaged goods.

Founding principles
The opinion of the Advocate General prioritises the free movement of goods over the protection of intellectual property rights and expresses the view that, since Article 7(2) of the Directive is an exception to the principle of the free movement of goods, the meaning of `legitimate reason' should be narrowly construed so that is doesn't undermine one of the founding principles of the European Union (EU).

Q: In what circumstances is relabelling permitted?
A: The Advocate General approached the issue of relabelling by assessing whether it interfered with the fundamental principle of trademark law, given that trademarks operate as a guarantee of origin.

The Advocate General stated that in her opinion the affixation of stickers to the original external packaging of goods did not impair the guarantee of origin of the goods as the trademark remained unaltered. Together with reference to several cases that the Advocate General considered supported her position, she therefore concluded that the BMS conditions should not apply to relabelling.

However, the Advocate General did state that if, in a particular case, the trademark owner could demonstrate that relabelling risked interfering with the guarantee of origin, then such relabelling may not be permitted. If the ECJ upholds this part of the opinion, the implications for trademark owners would be significant. Not only would this departure from the current jurisprudence allow parallel importers to import branded products more freely, but without notification under the fifth BMS condition, trademark owners would not necessarily even be aware that their products were being parallel imported.

This is likely to make it more difficult for trademark owners to monitor the manner in which their goods are being imported and, therefore, to enforce their rights.

Q: What level of repackaging is deemed to damage a trademark's reputation?
A: In relation to the practice of repackaging, the Advocate General considered that the necessity test set out in the first BMS condition went only as far as the need for repackaging, and not to the manner in which the product was repackaged. If this part of the decision is followed by the ECJ, parallel importers will be able to alter the packaging of products to a greater extent than that required for market access.

However, the Advocate General did support the claimants' submissions that the fourth BMS condition (the repacked product must not damage the reputation of the mark), should not be limited to defective, poor quality or untidy packaging (these were given as examples in the BMS case). The Advocate General stated that other repackaging methods, such as de-branding and co-branding, could also damage a trademark's reputation, for example by incorrectly suggesting a commercial relationship between the owner and importer.

Q: How much notice is required before an importer can market the repackaged goods?
A: The ECJ determined in its first judgment in this case that, under the fifth BMS condition, a notice period of at least 15 working days should be given to the trademark owner to avoid infringement. The Advocate General supported this part of the decision stating that a failure to give notice would constitute an infringement on every subsequent importation.

She stressed that the giving of notice, as required under the fifth BMS condition, was an essential procedural requirement and that non-compliance should be sanctioned accordingly.

However, the Advocate General stated that in her view the sanctions for non-compliance of the fifth BMS condition alone should attract a lesser sanction than if there were also other breaches of the BMS conditions.

Q: In terms of compliance, who should bear the burden of proof?
A: The Advocate General considered which party should bear the burden of proving compliance with the BMS conditions In her opinion:

(a) the trademark owner should bear the burden of proving serious risk to reputation as the trademark owner is in the best position to assess the risk and produce supporting evidence; and

(b) the burden of proof for all of the other BMS conditions should fall on the parallel importer, as parallel importers are best placed to establish their compliance with these conditions.

Fewer rights
It is yet to be seen whether the ECJ will follow the Advocate General's opinion in this case. If the opinion is followed, it will have a significant impact on the rights of trademark owners in relation to the parallel importation of their goods within the EEA, and in several respects will result in a reduction of their current rights.

Q: What degree of consent is required for first import of goods into the EEA?
A: A well established principle is that the first import of goods from outside the EEA into the region and the placement of those goods on the EEA market must be with the consent of the trademark owner. Yet, there has been ongoing judicial consideration of what degree of consent is required.

In the case of Davidoff/Levi versus Tesco/Costc the ECJ held that the trademark owner's consent to its branded products being placed on the market in the EEA must be unequivocal, and could not be inferred from surrounding circumstances.

This principle was applied in Roche Products versus Kent Pharmaceuticals, in which Roche won summary judgment in connection with the importation into the EU of its glucose testing strips sold under the Accu-Chek trademark. These products were originally marketed in the Dominican Republic but were imported into the UK by an importer who had innocently purchased them in France.

The strips bore a CE marking which the importer argued indicated Roche's consent to sell the goods within the EEA. The Court disagreed and reaffirmed that the express consent of the trademark owner is required and that such consent could not be assumed. The court found that CE marking was often used as an indication of quality in countries outside the EEA and it therefore did not indicate consent for the importation of the goods into the EEA.

This decision confirms the high threshold faced by parallel importers in establishing consent of trademark owners, and is consistent with previous cases where owners are not deemed to have given consent if they oversupply to particular markets or do not fully police their rights.

The author
Sarah Hanson is a partner in CMS Cameron McKenna's international lifesciences practice

2nd September 2008

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