• Importer's Roundabout Route Avoids Infringement

    Against the big guns of Eli Lilly & Co., parallel importer 8PM Chemist Ltd. narrowly avoided an infringement finding in the U.K. recently because of the circuitous route its products took to the U.S. market (Eli Lilly & Co. & Anr. v 8PM Chemist Ltd. [2008] EWCA Civ 24). The Court of Appeal overturned the High Court’s injunction on the grounds that Lilly had no arguable claim for trade mark infringement against 8PM.

    To Market, To Market

    The claimant, pharmaceutical giant Eli Lilly, owned U.K. and Community trade marks for a range of well-known pharmaceutical products, for which there was a large U.S. market.

    A non-party Canadian company supplied grey-market Lilly products over the Internet at cut-rate prices to U.S. patients. It obtained its supplies from a Turkish company, who packed genuine Lilly Turkish products still in the original boxes, bearing Lilly trade marks, into plain brown boxes bearing only the intended recipient’s name and address in the U.S. About 700 such boxes were then sent, at a time, in a larger box to 8PM Chemist in the U.K. 8PM put postage and a U.K. return address label on each of the brown individual boxes and sent them directly to the U.S. recipients. The boxes were never opened in the U.K.
    In carrying out these activities, 8PM complied with an authorised E.U. Customs procedure known as “inward processing,” whereby the goods were intended for re-export and no VAT or duty was payable.
    Lilly sued 8PM for trade mark infringement in the U.K., claiming that in importing the products for export under the inward processing procedure, the products bearing the Lilly trade marks were being placed on the E.U. market for the first time without their consent. At first instance, Mann J. found for Lilly and ordered an interim injunction. 8PM appealed.

    High Court Reversed

    The Court of Appeal reversed the High Court decision, holding that Lilly had no arguable case of trade mark infringement after all.

    In the Court’s view, the matter was clear: “no placing on the market, no infringement.” In this case, the Court was satisfied that 8PM was not releasing the goods for free circulation in the U.K., and its mere import and export of the goods under the inward processing rules could not be regarded as such, either. “Importing” for the purpose of infringement, required “use in the course of trade,” which in turn required “introduction of those goods into the Community for the purposes of putting them on the market therein” (Class International v Colgate Palmolive, C-405/03). That clearly was not happening in this case, in which the goods were never removed from the plain exterior packaging and were simply shipped onward to the U.S.

    Consequently, 8PM’s activities were not capable of affecting the essential function of Lilly’s trade marks as indicators of origin, since Lilly’s trade marks never even saw the light of day in the E.U. 8PM’s activities by no means interfered with Lilly’s right of first marketing there.

    Comment

    The result in this case seems right, and the reasoning sound.

    Still, the circuitous route employed by the Canadian company to get products to the U.S. market had shades of impropriety about it. Taking orders in one country, obtaining the products from another, then shipping to still another for final shipment to customers in a fourth country, is so tortured a process as to suggest something odd was afoot. Lilly argued at the hearing that the use of a British “postbox” and return address lent an aura of credibility to the products that they would not have carried had the products clearly been shipped from Turkey, their country of origin. However, deception of U.S. customers in this way was irrelevant in a case concerned with the infringement of U.K. and Community trade marks.

    In any event, the outcome of this case is a warning that not all parallel imports are truly “imports” in the sense of being intended for release for free circulation in an E.U. member state. The specific facts of the case and any relevant Customs rules can be critical to determining the result. A similar outcome was reached in Montex v Diesel (Case C-281/05), reported in the Spring 2007 issue of Make Your Mark, in which goods handled under the external transit procedure were also deemed not to have entered the Community until they reached their final destination.
    Those contemplating action against parallel importers who are merely holding or re-exporting genuine goods, therefore, should review the facts carefully with their legal advisors before initiating proceedings. If action in the E.U. is not possible, then action in the ultimate destination country, or the next transit country, should be investigated. The unavailability of action in the U.K. may not necessarily mean the end of the matter, and considering the wider options may open up alternatives in cases where importers take the roundabout route in an effort to avoid proceedings.