Contributions from Intellectual Property Consultant Anna McKay

Anna McKay specialises in IP Law and Strategy for Pharma companies. As an English solicitor,  she won many leading patent cases before the Patents Court, Court of Appeal, EPO, and House of Lords for generic companies. She now works independently, advising companies worldwide on IP exploitation and strategy.

You can contact Anna on: anna@annamckay.com or through her website: www.annamckay.com

In 1999, Boehringer Ingleheim, GSK (as Glaxo and Beecham Smith Klein) and Lilly sued parallel importers Swingward and Dowelhurst for trademark infringement. Shortly before then, the ECJ had given judgment is BMS –v- Paranova[2], in which it was established that repackaging of parallel imports could take place where the following conditions were satisfied:

• It was necessary to repackage goods in order to access the market.

• Repackaging had no effect on the original condition of the goods, and there were proper instructions.

• There was clear identification of the manufacturer and importer.

• The presentation was not damaging to the reputation of the mark or the trademark owner.

• The importer had given notice to the trademark owner before putting the product on the market, and, if demanded, supplied a specimen of the repackaged product.

The main argument of the Boehringer v Swingward case concerned the ability of parallel importers to re-box.  Were they allowed to re-box a product, and if so, what were they entitled to do?  Could they de-brand, co-brand?  Did the requirement of necessity apply to each and every element of the re-packaging, or merely to the fact of repackaging itself?  How should notice be given, in an environment in which brand owners were made aware of the application for a parallel import product licence by the regulatory authorities, and so on.

Parallel importers had begun to repackage seriously following the BMS –v- Paranova decision, but this was somewhat tentative.  In 1999, many parallel importers were still over-stickering, although those that had taken the step of re-boxing were finding that their market share expanded dramatically.  Pharmacists had an incentive to dispense parallel imports in any event, since this was financially beneficial to them (they are reimbursed by the Government on the basis of the brand price, less a “claw back”), but the poor appearance of over-stickered PI’s made it harder for them to dispense as many as they would otherwise have wished. Sometimes, a box might be overstickered with as many as six different labels, and it looked messy.

Parallel importers, for their part, experienced many objections from brand owners – objections to over-stickering on grounds that it looked messy, and objections to re-boxing the same product, on the basis that re-boxing was not necessary, and that over-stickering was sufficient, as well as all sorts of objections relating to font size, the use of capitals and lower case letters for names, the provision of samples, the amount of notice, etc. etc.  It was very hard for them to know exactly what they could and could not do.

The Boehringer v Swingward cases, on which I had the pleasure of acting until I decided to pursue independent life, established that parallel importers could re-box if this was:

“objectively necessary…if without such repackaging, effective access to the market concerned, or to a substantial part of the market, must be considered to be hindered as a result of strong resistance from a significant proportion of consumers to re-labelled pharmaceutical products”. 

Evidence in the UK showed conclusively that it was necessary to re-box in order to access the market.  Around 1,300 pharmacies responded to a survey - all but about 30 had a strong preference for re-boxed products.  PI companies consolidated the hold on the market, and the number of PI’s dispensed in the UK and in Europe as a whole, increased.

But not everything was clear, and the English Court of Appeal referred further questions back to the ECJ.  The second ECJ judgment established that “the issue of necessity is limited to the fact of repackaging and not to its form”.  It had been argued that even if it was necessary to re-box, anything other than a black and white box was unnecessary.  This argument now falls away.  This confirms a matter of major importance.  PI companies are not infringing trademarks because they re-box, whether they use colour, put logos on the product, use particular designs, provided of course that they satisfy the other conditions. Re-boxing cannot be subjected to minute examination by brand owners.  Re-boxing, in the form in which we have seen it for the last decade or so, remains.   Had it not, it is questionable whether the industry would have survived.  The potential for actions for damages against PI companies (remembering that damages can be claimed back for six years) could have been catastrophic.

Second, the ECJ decided that the five BMS conditions related to over-stickering as well as re-boxing.  Practically, that is not a big issue for the PI industry.  It is useful to have the right to re-sticker, where markets are small and it is not cost effective to set up machinery to re-box and PI companies should be complying with conditions as to the effect on condition, proper instructions, clear identification of the manufacturer and importer, presentation and notice in any event.  Clearly, it is necessary for parallel importers to either over-sticker or re-box, given that products can not be sold in their original packs, and a brand owner would be unlikely to succeed if he argued that over-stickering was not necessary, because the product could be re-boxed.  In any event, brand owners tend to prefer parallel importers to over-sticker rather than re-box, since this tends to mean that there is less market penetration.

The ECJ decided that the issue of harm to reputation is not limited to defective, poor quality or shoddy packaging. Other matters could, in principal, harm reputations.  There is no practical import in the Boehringer v Swingward case, since the court has already established that as a matter of fact, there was no damage to reputation by de-branding or co-branding, and one can imagine situations in which a parallel importer packages in such a way which damages the reputation of the trademark.  However, any prudent parallel importer should be able to avoid such risk.

Finally, the court held that failure to give prior notice to a trademark owner would infringe trademark owners’ rights, and that each subsequent occasion of importation was an infringement until notice was given.  The sanction for that infringement must be proportionate.

“It is for the national court to determine the amount of the financial remedies according to the circumstances of the case, in the light of, in particular, the extent of damage to the trademark proprietor caused by the parallel importer’s infringement and in accordance with the principal of proportionality”. 

In this particular case, damages for failing to give notice will be limited, but as a matter of principal, this is interesting.  In its first judgment, the ECJ determined that the amount of notice which should be given was a matter for the national court, and the English Court of Appeal stated that fifteen days was sufficient.  During this period, should damages be assessed as if the product was sold by an infringer, or merely on the basis of the loss caused by the failure to give notice (which seems negligible)?  Probably the former.  In practice, this should not greatly affect the PI industry – prudent parallel importers will have been giving notice to brand owners since, at least, 1999.

Costs of litigation are high, and these cases have been expensive with four, (later three) claimants, and matters going up to the Court of Appeal (twice) and to the ECJ twice.  How will these be assessed?  The parallel importers won on all of the main points, lost on notice, and, those who fail to give notice are regarded as infringing.  Will costs be on issue by issue basis?  This would be in keeping with the current philosophy of the English Courts, but is likely to be hard fought.  In this case, it seems clear that parallel importers benefited enormously by this litigation, and costs can be sufficient to deter many parties from litigating at all.

I mentioned above that the level of parallel imports had dropped, notwithstanding PI importers’ ability to re-package.  That is because of supply issues.  Originators have taken steps to ensure that stock does not get into the hands of parallel importers, either by stock allocations systems, or differential pricing.  Those issues have been considered by the Court of First Instance of the European Community[3] and by the Advocate General, but not, yet, by the EJC itself.  Many argue that the pharmaceutical industry is a special industry, in which normal principles of competition law do not apply.  In other industries, it would clearly be a breach of Article 81 if there was an agreement between a supplier and wholesaler to limit supplies, and it would clearly be a breach of Article 82 if a supplier in a dominant position was to apply stock allocation or price differentially.  But not, so say Advocate General Jacobs and the Court of First Instance:

“A pharmaceutical undertaking holding a dominant position does not necessarily abuse that position by refusing to meet in full the orders sent to it by pharmaceutical wholesalers only by reason of the fact that it aims thereby to limit parallel trade…     Such a refusal is capable of objective justification, and thus of not constituting an abuse, where the price differential giving rise to the parallel trade is the result of State intervention”[4].

 “it is not open to doubt that the Spanish wholesalers are GW’s trading partners and that GW imposes unequal conditions on them according to whether they resell those medicines in Spain or in other Member States of the Community. On the other hand, it is not demonstrated that those sales constitute equivalent transactions and that the constituent elements of Article 81(1)(d) EC are therefore satisfied”[5].

And, recently, Parallel Importers have found themselves criticised in relation to counterfeit products. There have been four cases of counterfeit products making their way into the UK supply chain – parts of two batches of Plavix, one batch of Zyprexa and a batch of Casodex.  The facts are not yet fully in the public domain, but it seems that each product was originally packed in French packaging, that at least in some cases, proper batch numbers were applied, that two of the cases of infringement were identified by parallel importers, and that there were no counterfeits in the French supply chain.  What happened? 

These are the first cases of a counterfeit product within the parallel import chain in the UK.  Until then “no documented cases of counterfeit drugs by [in the EU] could be attributed to this type of trade”[6].  I am very interested to see what comes out of these cases, and the PI industry must be wringing its hands, since this has given rise to a great deal of PR to the effect that “Parallel imports present a way for fake life-saving medicines reaching UK patients with the obvious risks and consequences for life threatening condition”[7]. 

Watch out for the decision of the ECJ.  If pharmaceuticals are decided to be a special case, I have an inkling that somehow, this will effect generic producers as well as PI companies.  If you would like to know more, please ask me.

Footnotes:

[1] C-143/004, relating to questions referred to it by the Court of Appeal, in cases brought by Boehringer Ingelheim, GSK and Eli Lilly against  Swingward and Dowelhurst, Court of Appeal [2004] EWCA (Civ) 129 05/03/04,
[2] Joined cases C-427/193, C-429/93 and 436/93
[3] Case T-168/01
[4] Opinion of A-G Jacobs SYFAIT v GSK Case C-53/03
[5] Case T-168/01P 176 Court of First Instance
[6] Professor Panos Kanavos, LSE reports.
[7] Jim Thompson, Chief Executive of The Centre for Mental Health and European Liaison, The Partnership for Safe Medicines, reported in Pharma Times June 12 2007.

 Anna McKay
 June 2007
 anna@annamckay.com
 +44 (0)20 8347 8734