Trademark Rights Used To Prevent Parallel Imports
In a recent judgment, the Court of Appeal has determined that drug company Flynn Pharma can prevent parallel imports from making use of its trademark.
Background
The pharmaceutical giant Pfizer supplied to the UK an anti-epileptic drug under the brand name Epanutin until 2012. Drugs also have international non-proprietary names (“INN”) or generic names and Epanutin was Phenytoin Sodium which has been prescribed for decades. The nature of the drug is that even slight variations in the active ingredients could render it ineffective or even toxic to patients. Mindful of this, the Medicines and Healthcare Products Regulatory Agency (“MHRA”) advised doctors to prescribe medication from the same manufacturer to ensure consistency.
The pharmaceutical price regulation scheme (PPRS) controlled the price at which Pfizer could sell Epanutin. The evidence suggests that as a result of the price control the drug was not very profitable and as a result Pfizer transferred the UK marketing authorisations to a separate and unrelated company, Flynn. The arrangement was that Flynn would sell the drug by reference to the INN, Phenytoin Sodium, rather than a brand name. The MHRA objected but agreed to the use of Phenytoin Sodium Flynn to ensure that sources of the drug could be distinguished to ensure that its concerns were satisfied. Flynn agreed on the assurance that the inclusion of its name would not cause the product to be regarded as a brand for the purpose of the PPRS. Flynn duly obtained UK and Community trade mark registrations for FLYNN in respect of pharmaceuticals and Phenytoin Sodium Flynn was launched on 24 September 2012.
It was important to Flynn that the inclusion of its name did not place it under the control of the PPRS. The scheme only regulates branded drugs and has no control over generic products which are regulated by market forces. Whilst one may assume that the process of genericising the drug would make it cheaper it actually allowed Flynn to increase the price as it was free from PPRS control and there were few competitors in the market. In the period between 2012 and 2015 the cost of a bottle of 84 capsules of 100mg rose 20-fold.
Flynn embarked on what it referred to as “the information campaign” and sought to educate healthcare professionals and patients that Phenytoin Sodium Flynn and Epantin were the same and it spent a great deal of money on this educational programme. Flynn’s competitors, DrugsRus and Tenolol, were parallel importers. They had been purchasing Epanutin in Spain and importing it for sale in the UK. These parallel importers now had a problem. Pharmacists would not be able to use their products to fill a prescription for Phenytoin Sodium Flynn so if they wanted to continue to sell their products in the UK they would need to do it under the name Phenytoin Sodium Flynn. Unsurprisingly Flynn, the registered proprietor of the trade mark FLYNN covering pharmaceuticals, objected to it its competitors using its trade marks. The battle lines were drawn.
What is the law on Parallel Imports?
DrugsRus and Tenolol argued that Flynn’s actions amounted to a disguised restriction of trade between member states contrary to Article 36 of the Treaty on the Functioning of the European Union (“TFEU”) which prohibits disguised restrictions on trade between member states.
Flynn argued that to succeed the importers had to show that the Epanutin which they were importing to the UK was placed on the market in the exporting member state (in this case Spain) by or under the control of the same entity that was now trying to prevent its import into the UK (namely Flynn).
What does this all mean?
The UK is (for now at least) part of the European Economic Area (“EEA”). The EU has introduced laws e.g. TFEU to try to ensure that companies “play nicely” and act fairly when dealing within the member states. A company cannot supply a product to Spain and then prevent a third party from seeking to import that product into another state (eg the UK) under the same name. In certain circumstances the “play nicely” rule can trump trade mark law. DrugsRus and Tenolol claimed that Flynn was, amongst other things, in breach of the TFEU. There was however a problem for DrugsRus and Tenolol. Pfizer and Flynn are different companies and Flynn was not supplying the product to other member states and seeking to prevent the importers from selling it in the UK under the same name, which is what Article 36 of TFEU is designed to prevent. Flynn had no control over the product being supplied to Spain (as Epanutin) by Pfizer.
Judgment
The Court of Appeal agreed with the High Court that Flynn could legitimately prevent parallel importers such as DrugsRus and Tenolol from importing and selling a product using its registered trade mark. It had the right to safeguard the “origin function” of the mark. This simply means that a consumer should be able to identity the origin of a product by reference to the trade mark. This is a fundamental reason for obtaining a trade mark. The Court found that it would be unfair for Flynn’s mark to be used for goods which it did not control and which did not safeguard the origin function.
Comment
Provided a number of conditions are fulfilled, the current position remains that a trademark owner cannot legitimately enforce its trademark to prevent parallel imports of packaged products from elsewhere in the EEA. Those conditions were not fulfilled in this case.
As a result of Brexit, the UK may leave the EEA and this may result in trademark rights holders being in a position to restrict parallel imports into the UK from the EEA in a way that is not currently possible. This may have serious adverse consequences for parallel importers but could be a potentially positive development for UK trademark owners.
If you require further information or advice on the implications of this case or on trademarks generally, please contact us.
Tidman Legal is an Edinburgh-based firm of specialist intellectual property lawyers who can advise on all aspects of trademark law.
