England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
INTELLECTUAL PROPERTY
MR TERENCE MOWSCHENSON QC
HC 05 COO736 & HC 05 COO97

		Royal Courts of Justice Strand, London, WC2A 2LL
		26 /05/2006

Lord Justice Mummery :

Introduction

1. These are appeals against summary judgments granted in two sets of similar proceedings brought by the same claimants against different defendants. The judgments were for infringements of the claimant's trade mark in connection with re-packaged and re-labelled pharmaceutical products imported by the defendants from Spain and marketed in the United Kingdom.
2. The legal setting is the interface between EU competition law and UK trade mark law. Parallel imports of branded products from one member state into another member state generate tensions between the fundamental freedom of movement of goods under EU law and the protection of trade marks and other intellectual property rights under national law. The tensions are apparent from the developing jurisprudence of the European Court of Justice on the interpretation of the EC Treaty provisions touching on this topic.
3. The main question raised by the appeals is whether it is appropriate to grant final judgment without a trial on liability and remedies in respect of imports of branded pharmaceutical products. This question involves consideration of (a) the practice and procedure for obtaining summary judgment and of (b) substantive EU competition law, the EU doctrine of the exhaustion of rights and UK trade mark law, as applied to the particular facts, some of which are disputed.

Summary judgment: general

4. Summary judgment procedures, which are designed for the swift disposal of straight forward cases without trial, are only available where the applicant demonstrates that the defence (or the claim, as the case may be) has no "real" prospect of success and if there is no other compelling reason why the case or issue should be disposed of at a trial: CPR Part 24.2. Thus, without the assistance of pre-trial procedures, such as disclosure of documents, and without the benefit of trial procedures, such as cross examination, the court's function is to decide whether the defendant's prospect of successfully establishing the facts relied on by him is "real", that is more than "fanciful" or "merely arguable." The test to be applied was summarised by Sir Andrew Morritt V-C. in Celador Productions Ltd v. Melville [2004] EWHC 2362 (CH) at paragraphs 6 and 7.
5. Although the test can be stated simply, its application in practice can be difficult. In my experience there can be more difficulties in applying the "no real prospect of success" test on an application for summary judgment (or on an application for permission to appeal, where a similar test is applicable) than in trying the case in its entirety (or, in the case of an appeal, hearing the substantive appeal). The decision-maker at trial will usually have a better grasp of the case as a whole, because of the added benefits of hearing the evidence tested, of receiving more developed submissions and of having more time in which to digest and reflect on the materials.
6. The outcome of a summary judgment application is more unpredictable than a trial. The result of the application can be influenced more than that of the trial by the degree of professional skill with which it is presented to the court and by the instinctive reaction of the tribunal to the pressured circumstances in which such applications are often made.
7. I doubt, however, whether the decision to have or not to have a trial of the action is much affected by the fact that it is heard by a specialist judge. I see no objection, for example, to the use of judges or deputy judges, who are not intellectual property specialists, to hear and decide applications for summary judgment in this field. I mention this topic and wish to say a little more about it for two reasons. First, as a result of hearing some recent appeals against the grant of summary judgments in a variety of areas of law, I have some general concerns about the use of the summary judgment procedure. Secondly, I am aware of views recently aired in the profession questioning the "efficiency" of using non-specialist judges for summary judgment applications in intellectual property cases.
8. In my opinion, the decision whether or not an action should go to trial is more a matter of general procedural law than of knowledge and experience of a specialised area of substantive law. All judges, specialist and non-specialist, are experienced in procedure and practice. Procedural justice is the judicial specialisation par excellence. It may take a little longer for the application to be opened to a non-specialist judge, but that may be no bad thing. I am confident that all judges to whom such applications are likely to be made will have the necessary procedural expertise to sort out those cases that can properly be disposed of without a trial. (I add that the leading practitioners' text book on trade mark law (Kerly 14^th edition 2005) contains no discussion of summary judgment procedure in infringement actions. That is an indication that the decision whether or not to grant summary judgment is more one of general procedure and practice than specialist expertise in substantive trade mark law.)
9. I also wish to say a few words about the litigation expectations and tactics of claimants and defendants. Claimants start civil proceedings (including intellectual property actions) in the expectation that they will win and often in the belief that the defendant has no real prospect of success. So the defence put forward may be seen as a misconceived, costly and time-wasting ploy designed to dodge an inevitable judgment for as long as possible. There is also a natural inclination on the part of optimistic claimants to go for a quick judgment, if possible, thereby avoiding the trouble, expense and delay involved in preparing for and having a trial.
10. Everyone would agree that the summary disposal of rubbishy defences is in the interests of justice. The court has to be alert to the defendant, who seeks to avoid summary judgment by making a case look more complicated or difficult than it really is.
11. The court also has to guard against the cocky claimant, who, having decided to go for summary judgment, confidently presents the factual and legal issues as simpler and easier than they really are and urges the court to be "efficient" ie produce a rapid result in the claimant's favour.
12. In handling all applications for summary judgment the court's duty is to keep considerations of procedural justice in proper perspective. Appropriate procedures must be used for the disposal of cases. Otherwise there is a serious risk of injustice.
13. Take this case. Although it was described by the claimant's counsel as an open and shut case in which a "smoke screen" defence was being raised, it was rightly accepted in the court below that the evidence "looks quite lengthy." It certainly is lengthy for a Part 24 application. The papers look to me more like a set of trial bundles rather than interlocutory application bundles. There are four files of witness statements, exhibits and associated legal documents and two lever arch files of authorities, many of them on EU competition law.
14. The claimant's counsel supported the application for summary judgment by a 22 page skeleton argument, accusing the defendants of "diversionary tactics designed to try to avoid summary judgment," of introducing "red herrings" and of having used their "best efforts to make the matter appear to be complicated." It was submitted that the case nevertheless "remains a matter appropriate for summary disposal." But already the seeds of doubt have been sown about how open and shut the case really is and whether the court should set out along summary judgment road at all.
15. On the appeal counsel for the claimant repeated that the defendants' arguments in this court "are further designed to try to make matters look complicated and unsuitable for summary determination" and so attempt to avoid liability. As explained later, the case may turn out at trial not to be really "complicated", but it does not follow it should be decided without a fuller investigation into the facts at trial than is possible or permissible on summary judgment.
16. In this case there are, as we shall see, two particular fact-sensitive areas: (a) the alleged presence of "economic links" or "the possibility of control" connecting entities which have been or have become proprietors of the relevant trade mark; and (b) whether the circumstances have made it inequitable to enforce the trade mark against the alleged infringers.
17. It is well settled by the authorities that the court should exercise caution in granting summary judgment in certain kinds of case. The classic instance is where there are conflicts of fact on relevant issues, which have to be resolved before a judgment can be given (see Civil Procedure Vol 1 24.2.5). A mini-trial on the facts conducted under CPR Part 24 without having gone through normal pre-trial procedures must be avoided, as it runs a real risk of producing summary injustice.
18. In my judgment, the court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.

Trade mark enforcement and parallel imports

19. The claim is for a permanent injunction to restrain infringement of trade mark, coupled with declarations of infringement, delivery up, disclosure of details of suppliers and an inquiry as to damages or an account of profits. Relief of this kind would normally be available by way of summary judgment in a routine trade mark infringement case.
20. Although the problem of parallel imports is familiar to trade mark and EU law specialists, I would not describe this as a straightforward or routine infringement case. Reference to the EC Treaty and decisions of the Court of Justice is required, as the defendants rely on the Articles in the EU Treaty, which prohibit quantitative restrictions on imports and all measures having equivalent effect (Article 28, formerly Article 30) and on the concluding sentence in Article 30 (ex-Article 36). The claimant relies on its trade mark as "industrial property," which it is entitled to protect.

"30. The provisions of Articles 28 and 29 shall not preclude prohibitions 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."

21. Article 30 contains an exception to the fundamental freedom of movement of goods in the EU enshrined in Article 28. The EU doctrine of exhaustion of rights, in cases where the intellectual property owner has consented to the relevant products bearing the mark being circulated in the market, and of the "specific subject matter" or "essential function" of the intellectual property right in question, which is entitled to protection, have to be considered in assessing the defence of parallel imports. How do those principles apply when the case has not passed through the normal stages of establishing the full facts by disclosure of documents, exchange of witness statements, the testing of oral evidence by cross examination and in-depth legal arguments? Was it right to treat this as an open and shut case, not needing an adversarial trial at which the claims of trade mark infringement in an EU competition setting would be subjected to the challenges of the defendant and to the scrutiny of the court?
22. The pharmaceutical products in question were lawfully made and marketed in the form of capsules in one EU state (Spain) under the trade mark KALTEN. The products were then imported into, re-packaged, re-labelled and marketed in another member state (United Kingdom) under the same trade mark. The proprietor of the trade mark in the United Kingdom objected that this was being done without his consent.
23. The overall result is that the same pharmaceutical products are manufactured by two different companies in two different EU member states and are sold to the public in each state under the mark KALTEN. But it has not always been so with KALTEN branded products. For some years before the present parties were on the KALTEN scene, KALTEN pharmaceutical products were circulated in both the United Kingdom and Spain under the same mark. Those products were made by the same manufacturer, who was the proprietor of, or had control of, the trade mark in both countries. That proprietor later decided to split the ownership of the mark by assigning the rights in KALTEN in Spain to a Spanish company in 2001 and the rights in KALTEN in the UK to a UK company in 2004.
24. In brief the position in the litigation is that the current proprietor of the mark KALTEN in the United Kingdom, as assignee of the original proprietor, objects to the use of the mark KALTEN on the capsules imported from Spain by the defendants. It alleges trade mark infringement by the defendant importers, who raise the EU defence of exhaustion of rights and parallel imports, which was recognised in Article 7 of the Council Directive 89/104/EC and is stated in the Trade Marks Act 1994 in the following terms-

"12 (1) A registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market in the European Economic Area under the trade mark by the proprietor or with his consent."

25. The claimant, who is now the proprietor of the UK mark, says forcefully to the defendant importers: I own the trade mark for the pharmaceutical product KALTEN in the UK; you are marketing in the UK similar products imported from Spain bearing the mark KALTEN; I am not connected in any way with the manufacture of the imported products in Spain and I have no control over or link with them; I did not consent to the products first being put into circulation in the EU; I do not consent to your use of my mark in the UK; you are therefore infringing my trade mark, affecting its specific subject matter and eroding its essential function; you have no defence to my claim; and I am entitled to summary judgment.
26. The response of the defendants to the UK proprietor is essentially as follows: although you are the owner of the mark in the UK, the imported products are parallel imports and the doctrine of exhaustion of rights applies; this is a case of artificial market division of trade mark rights in the single EU market; there is a continuing economic link with and/or a possibility of control over the branded products via the assignor, who previously owned the mark both in the UK and in Spain and who first put the products bearing the mark into circulation in the EU; you are not entitled to use your trade mark rights to stop me importing the products into the UK and marketing them under the mark, because the trade mark rights in respect of the products have been exhausted; and in all the circumstances you are estopped from bringing an infringement claim against me.

The appeals

27. Having set the general legal scene I now turn the particular facts of these appeals.
28. The defendant importers, for whom Mr Martin Howe QC appears, appeal from summary judgments granted by Mr Terence Mowschenson QC (sitting as a deputy judge of the Chancery Division) on 15 July 2005 under CPR Part 24. Final judgment, including an inquiry as to damages, was given for the claimant Bolton Pharmaceutical Company Limited (Bolton), for whom Mr Andrew Lykierdopoulos appears. Bolton's lead action is against Doncaster Pharmaceuticals Group Ltd (Doncaster) and others.
29. In consequence of an assignment on 23 September 2004 Bolton is the current proprietor in the United Kingdom of a valid trade mark KALTEN registered under No 1184481 in respect of goods in class 5. KALTEN capsules fall within class 5. They are branded pharmaceuticals used in the treatment of hypertension in adults.
30. Doncaster imports the products from Spain, re-packages and re-labels the capsules to make them suitable for the UK and markets them under the KALTEN trade mark. It wishes to carry on this activity in the future, as it lawfully did in the past before Bolton acquired the UK mark.
31. Jacob LJ granted permission to appeal, saying that the

"ambit of the Ideal-Standard case itself raises important questions about market division within the EU. Here it is apparently arguable that a major purpose of the arrangements was market division and is outside the Ideal-Standard principle."

32. Jacob LJ also stayed an order against Doncaster for the disclosure of names. There is an application by Doncaster for permission to adduce further evidence on the appeal in a witness statement of Mr Maitland-Walker. I would grant permission, this matter not yet having been tried.
33. As indicated earlier, the main issue on this appeal is whether the action against Doncaster should be tried in the normal way or whether it should be disposed of summarily at this stage. The same point arises in another set of proceedings bought by Bolton against Swinghope Limited (Swinghope), for whom Mr Howe also appears, and heard together with the application for summary judgment against Doncaster. In this judgment I shall confine myself to the facts in the case against Doncaster. There is no material difference for present purposes between the two cases.
34. The legal arguments concentrated on the ruling of the European Court of Justice on Article 30 of the Treaty in IHT Internationale Heiztechnik GmbH v. Ideal-Standard GmbH [1994] ECR 1-2789 ( the Ideal-Standard case) referred to by Jacob LJ in granting permission to appeal . The essential issue is whether, on the particular facts of this case, the enforcement of the trade mark by Bolton against the Doncaster is prohibited as a quantitative restriction on the free movement of goods in the European Union or whether it is justifiable for the protection of industrial property under Article 30.
35. Before considering the scope of the rulings in Ideal-Standard I need to say more about the evidence, bearing in mind that, as there has been no trial, it has not been amplified or tested by disclosure of documents or by cross examination.

Trade mark ownership

36. Both sides trace their respective claims to lawful use of the mark KALTEN to a common source. AstraZeneca (UK) Limited (AZ) is a well-known international pharmaceutical company. In 1994 it acquired the mark, which had been registered since 1982. KALTEN was launched by AZ on the UK market in about 1995. At that time it manufactured and marketed KALTEN in Spain, the United Kingdom and other countries. AZ did not stop manufacturing KALTEN in Spain until April 2001.
37. As a result of a number of transactions Bolton claims that AZ divested itself of the mark KALTEN in the relevant markets and that the Spanish and United Kingdom markets for KALTEN, which were both previously operated by AZ, are now independently operated by different proprietors in each country.

Spanish transactions: AZ and Teofarma

38. First, on 18 May 2001 AZ entered into transactions with a Spanish enterprise, Teofarma Iberica SA of Barcelona (Teofarma), the current Spanish manufacturer of the KALTEN products imported into the United Kingdom by Doncaster. By notarial deed there was transferred to Teofarma the Spanish Pharmaceutical Speciality Registrations relating to KALTEN, by virtue of which it was entitled to manufacture, sell and distribute in Spain the products consisting of the pharmaceutical substance covered by the Health Registrations.
39. On 29 June 2001 the KALTEN product licence in Spain was transferred to Teofarma, so that AZ no longer held the marketing authorisation for KALTEN in Spain .
40. On 6 September 2001 AZ entered into a trade mark transfer agreement with Teofarma, assigning its Spanish registered trade mark KALTEN to it. The terms of this agreement are considered by the parties to be confidential. The relevant terms referred to by the court are set out in a separate confidential annexe.

UK Transactions: AZ and Bolton

41. Secondly, in September 2004 AZ entered into transactions with Bolton relating to ownership of the mark KALTEN in the United Kingdom. On 23 September 2004 AZ entered into a Product Agreement with Bolton, agreeing to assign to Bolton the UK trade mark KALTEN

" 4.1 … for use solely in connection with the marketing, promotion, sales and distribution of the Product in such Country …"

42. "Product" was defined in clause 1.19 of the Product Agreement as the pharmaceutical product having certain contents and in accordance with the product specification in Schedule C, which is wholly redacted in the exhibited copy put in evidence.
43. There were also provisions for the transfer to Bolton of appropriate technical information to "provide a basis for manufacture (including quality control) of the Product."(See Part B of Schedule A relating to general transfer arrangements referred to in clause 1.11 and clause 8. Other parts of the Product Agreement have been redacted).
44. On 23 September 2004 AZ executed an assignment to Bolton of the UK registered mark KALTEN.
45. On 21 January 2005 the UK product licence was granted by AZ to Bolton. The assignment was registered on 21 February 2005 at the UK Trade Mark Registry.

Legal proceedings

46. On 22 February 2005 Doncaster was notified of the claim by Bolton and was asked to enter into undertakings. As none were given, proceedings commenced.
47. By a claim form dated 19 April 2005 Bolton sued Doncaster for infringement of its trade mark. A similar claim had been made by Bolton against Swinghope Limited in proceedings begun on 30 March 2005.
48. Bolton asserted that it had not consented to the use of the mark KALTEN on products imported by Doncaster from Spain; that the imports from Spain affect the "specific subject matter" of the UK mark KALTEN and erode its "essential function"; that it is not estopped from enforcing its rights in the mark by reason of the passage of time between when Bolton acquired the rights and when it notified Doncaster (which claims that it had no prior knowledge of the transaction between Bolton and AZ), that its parallel imports of KALTEN into the United Kingdom were no longer lawful and that it has no economic links with AZ or Teofarma.
49. Bolton's case for summary judgment is that Doncaster has no real prospect of successfully defending the infringement claim under either EU law or domestic law, a view shared by the deputy judge. The incontestable fact is that Doncaster is using the mark KALTEN on pharmaceutical products in the United Kingdom without Bolton's consent.
50. Neither the validity of the mark KALTEN nor Bolton's claims to be proprietor of the mark KALTEN in the UK are in dispute. Nor is Teofarma's proprietorship of the mark KALTEN in Spain challenged. Teofarma manufactures in Spain the products imported by Doncaster and sold by it under the mark KALTEN in the United Kingdom.
51. According to Bolton there is no disguised restriction on trade, which would infringe the principle of the free movement of goods within the EU, as modified by Article 30 of the EU Treaty. Bolton emphasises that it is not economically linked with Teofarma or with AZ or controlled by them. The imported products sold in the United Kingdom do not come from AZ.
52. Bolton accordingly submits that this is not a case of artificial or unlawful partitioning of the EU into national markets and differently priced zones, thereby restricting trade between member states. It is, Bolton contends, a case of a permissible severing of AZ's unitary control of the mark by assignments to different proprietors in two of the member states of the EU. Bolton has not marketed the products in Spain under the mark KALTEN nor has it given its consent for that to be done. In enforcing its trade mark Bolton is merely protecting in the United Kingdom its exclusive property right flowing from ownership of the trade mark.
53. It follows that, according to Bolton, there is no exhaustion of rights in the mark and that it is entitled to enforce its national trade mark rights in KALTEN against Doncaster's imports of KALTEN. Indeed, the case law is said to be so clear on the point that there is no need for a reference to the Court of Justice for an interpretative ruling or for a trial to take place in order to establish the relevant facts.

Article 30 defence: Ideal Standard.

54. As I have already explained Article 30 contains exceptions to the fundamental principle of the free movement of goods in the EU and the prohibition of quantitative restrictions on imports and all measures having equivalent effect. The relevant exception is that prohibitions and restrictions on imports are not precluded if justified on grounds (inter alia) of "the protection of industrial and commercial property." Such prohibitions or restrictions must not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between member states.
55. The industrial property exception is governed by the principle of "essential function." Derogation from the free movement of goods is justified in order to safeguard the rights which constitute the "specific subject-matter" of the industrial property right in question. In the case of a trade mark its "essential function", so far as the relevant section of the public is concerned, is as the guarantee of the origin of the goods.
56. The principle of essential function would not apply, however, if the product bearing the mark had been placed on the market in Spain or in the United Kingdom by or with the consent of the owner of the trade mark or via a person connected by economic links or the possibility of control with the owner. In such a case, the essential function of the trade mark (i.e. the exclusive right to use the mark for the purpose of putting the product into circulation on the market in the EU for the first time) would have been exhausted and the doctrine of exhaustion of rights would come into play.

The Ideal-Standard case

57. In the Ideal-Standard the Court of Justice discussed the doctrine of the exhaustion of rights. The context was that of a German company, which owned the trade mark "Ideal Standard" in Germany for heating equipment and sanitary ware, but sold only sanitary ware, and a French company which owned the trade mark in France for heating equipment and sanitary ware, but sold heating equipment only. The French company sold under the trade mark in Germany heating equipment, which had been manufactured in France.
58. The trade mark for sanitary fittings and heating equipment had originally been held in Germany and France by the American Standard Group, acting through its German and French subsidiaries. In 1984, however, the French subsidiary sold the French trade mark for heating equipment to a French company, with which it had no links. The German company sought to use its German trade mark to prevent the heating equipment made in France from being imported and marketed in Germany under the "Ideal Standard" trade mark.
59. The Court held that there was no unlawful restriction on trade between member states in enforcing the German trade mark to prevent the importation of the French heating equipment, to which the mark had been applied by the French manufacturer to whom the mark had been assigned. The territorial independence of particular national trade marks was recognised.
60. The Court said of the doctrine of exhaustion of rights-

"34. So, application of a national law which would give the trade-mark owner in the importing State the right to oppose the marketing of products which have been put into circulation in the exporting State by him or with his consent is precluded as contrary to Articles 30 and 36. This principle, known as the exhaustion of rights, applies where the owner of the trade mark in the importing State and the owner of the trade mark in the exporting State are the same or where, even if they are separate persons, they are economically linked. A number of situations are covered: products put into circulation by the same undertaking, by a licensee, by a parent company, by a subsidiary of the same group, or by an exclusive distributor.

35. There are numerous instances in national case-law and Community case-law where the trade mark 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. Article 30 and 36 [now Articles 28 and 30] defeat such manipulation of trade-mark rights since they preclude national laws which enable the holder of the right to oppose imports.

61. The Court explained that the function of the trade mark was not called into question by freedom to import. In all the cases mentioned control was in the hands of a single body and the origin, which the trade mark is intended to guarantee, was the same, defined by reference to the point of control of manufacture.
62. It stressed (in paragraph 38) that the decisive factor is the "possibility of control over the quality of goods, not the actual exercise of that control", so that recourse cannot be had to trade mark rights "in order to prevent the free movement of a product bearing a trade mark whose use is under unitary control " (paragraph 39).
63. The Court of Justice also addressed the specific case of an assignment of the trade mark and

"whether the same principles apply where the trade mark has been assigned, for one or several Member States only, to an undertaking which has no economic link with the assignor and the assignor opposes the marketing in the State in which he has retained the trade mark, of products to which the trade mark has been affixed by the assignee" (paragraph 40).

64. The Court rejected the submission of the Commission that, by assigning the trade mark in France for heating equipment to a third party, the assignor thereby gave implied consent to the third party to put heating equipment into circulation in France bearing that trade mark and that, because of that implied consent, it should not be possible to prohibit the marketing in Germany of heating equipment bearing the assigned trade mark.
65. The Court held that

"43. That view must be rejected. The consent implicit in any assignment is not the consent required for application of the doctrine of exhaustion of rights. For that, the owner of the right in the importing State must, directly or indirectly, be able to determine the products to which the trade mark may be affixed in the exporting State and to control their quality. That power is lost if, by assignment, control over the trade mark is surrendered to a third party having no economic link with the assignor."

66. Thus, provided that the owners have no economic links and there is no possibility of control, the phenomenon of separate trade mark owners in different Member States, following on voluntary assignments dividing ownership on a territorial basis, guarantees the essential function of the trade mark to identify the origin of the marked goods and does not breach the principle of the exhaustion of rights.

Position of Bolton as claimant/assignee

67. Relying on Ideal-Standard Bolton contends that, although AZ was the original proprietor of the mark KALTEN in Spain and the UK, the mark is now, as a result of voluntary territorial assignments by AZ, in different territorial ownership in Spain and in the UK. If, as Bolton insists, there is no continuing economic link or possibility of control between the respective different owners in those member states, the successive division of the ownership of the mark by assignments in several member states does not, by itself, constitute a restriction of trade between member states. The essential function principle applies for the protection of the specific subject matter of the trade mark indicating the respective origins of the products.
68. Bolton also contends that, as a matter of domestic law, it is not prevented from asserting its trade mark rights by any estoppel or acquiescence. It had started its proceedings against Doncaster within five months of acquiring the mark KALTEN. It could not have started the proceedings before it acquired the UK rights from AZ.

The judgment below

69. After summarising the facts and reviewing the law (including the judgment in Ideal-Standard), the deputy judge concluded in paragraph 23 that any defence based upon the exhaustion of rights doctrine had no real prospect of success. There was no evidence before him supporting the contention that AZ/ Teofarma and Bolton were economically linked or that there was a possibility of unitary control of the mark KALTEN. He said that

"19. Following the assignment of the trade mark to Teofarma and to the Claimant by AstraZeneca, the Defendants contend that if there is some economic link between Teofarma and the Claimant and AstraZeneca, the doctrine [of exhaustion of rights] may continue to apply. That may be so, but will depend upon the nature of the economic link. In this case, there is no evidence of any meaningful economic link. There is no evidence to suggest that either Teofarma or the Claimant are part of the group controlled by AstraZeneca or other entity which would satisfy the concept of linkage above. The Defendants relied upon the terms of the agreement of 6^th September 2001 to transfer the trade mark to Teofarma and to the Claimant dated 23^rd September and, in particular, terms of the agreement providing for termination in the event of failure to pay consideration for the trade mark or in the event of bankruptcy.

20. In relation to the agreement with the Claimant, the Defendants tried to rely upon the definition of "product," the technical information licence and various other provisions of the agreement. None of these provisions came near to fulfilling the requirement of linkage as required to import the doctrine of exhaustion of rights. None of them gave AstraZeneca control over the point of manufacture with the quality of the product which is required.

21. The point taken by the Defendants in order to support an argument that AstraZeneca's link to the products supplied in Spain is based upon a letter dated 3^rd March 2003 from the Medicines Control Agency that KALTEN in Spain was manufactured by AstraZeneca Farmaceutica Spain SA. At that time, it is likely that Teofarma was still using products supplied by AstraZeneca. As I have said, the evidence is that AstraZeneca ceased to supply in April 2001, when its supplies had a shelf life of three years. The Spanish agreement makes it plain that Teofarma and AstraZeneca would sever all links by 30^th June 2002 at the latest: I refer to clauses 3.1 and 6.1 of that agreement.

22. The packets of the Spanish manufactured product bear Teofarma as the manufacturer in its labelling. The Spanish leaflet inside the packet describes Teofarma as the manufacturer under EC Regulation of Article 59 of Directive 2001/83 as a product such as medicine must bear the name and address of the manufacturer. The only [reference] to AstraZeneca Farmaceutica Spain SA is in a leaflet produced by the Defendants and inserted in the packets for sale in the UK. Indeed, it appears from the Defendants' evidence that they now accept that AstraZeneca is not linked to Teofarma any longer …."

70. As to the domestic law defence of estoppel the deputy judge held that a defence based upon acquiescence or estoppel in relation to the claim had no realistic prospect of success. Although Bolton took about 5 months to assert its rights, it did nothing positively to mislead the Doncaster and there was no allegation that AZ had done anything to mislead Doncaster during the period when it owned the trade mark prior to 23 September 2004. A mere failure to assert a right was not sufficient to establish a defence of acquiescence.
71. The deputy judge also held that he did not consider that the issue whether Bolton knew of the parallel importing at the time of the acquisition of the trade mark was a relevant circumstance. At the time AZ entered into the agreement with Bolton in September 2004 to sell the trade mark it was not estopped from asserting its own rights to the mark, though it might have been subject to an exhaustion of rights argument for some considerable period after it sold the Spanish trade mark to Teofarma, because it supplied products to Teofarma until April 2001 with a sell-by date of April 2004. Accordingly AZ would not have been able to complain about importation of products which it had supplied to Teofarma with a sell-by date of April 2004. But mere delay from September 2001 would not have amounted to acquiescence by AZ and there was no estoppel against it in September 2004.
72. In relation to stopping importing after 2004 Bolton had the right to the trade mark. There was no act which can be said to have misled Doncaster in any way. Bolton was under no duty to seek out the parallel importers and inform them of its rights of acquiring the trade mark.

Discussion and conclusion

73. Having considered the relevant law, such facts as appear from the documents, and the rival submissions summarised above, I have reached the conclusion that, with respect to the deputy judge, he was wrong to treat this as a suitable case for summary disposal.
74. I start from the position that prior to 2001 AZ owned the trade mark KALTEN in both Spain and UK. While that situation prevailed down to 2001 parallel imports into the UK of products, which had been circulated on the market in Spain with the consent of AZ, were lawful. They formed a substantial proportion of KALTEN sold on the UK market.
75. In 2001 AZ began to divest itself of ownership of the mark in favour of different entities in different member states. There has been no investigation of the reasons for this. I think that a proper investigation is called for, especially as it is contended by Bolton that the effect of the assignment of the Spanish mark in 2001 has been to reverse or revoke the effects of AZ's previous consent to circulation of the products in parts of the EU market, from which they were lawfully imported into the UK, and to make it unlawful in the future for Doncaster to do was previously lawful for it to do in relation to imports of KALTEN from Spain into the UK. Parallel imports had been conducted on such a scale that up to 70% of the KALTEN on sale in the UK had been parallel imports.
76. According to Bolton the assignments by AZ to Teofarma and Bolton have put Bolton, as assignee of the mark in UK, in a better and stronger position than AZ, the assignor, was in relation to the enforcement of the UK trade mark against Doncaster. This is difficult to square with the general rule that an assignee steps into the shoes of the assignor and, in law, is in no different position than the assignor was.
77. I do not think that it is sufficient for Bolton simply to rely on the judgment of the Court of Justice in Ideal Standard for the proposition that a voluntary assignment of a mark for a particular territory is a surrender of control in the territory in question and does not constitute a consent to the circulation of the goods for the purposes of the doctrine of exhaustion of rights.
78. I accept that there is no evidence here of conventional control by AZ continuing to manufacture KALTEN in Spain, or by the use of subsidiaries, or by the use of licensing, market sharing or franchising operations. I agree, however, with Mr Howe that the judgment in Ideal Standard probably does not comprehensively identify the variety of circumstances in which the doctrine of exhaustion of rights may be invoked as a defence to proceedings for infringement of trade mark. The limits of the doctrine of exhaustion of rights are less clear than Bolton asserts.
79. The assignment by AZ to Bolton may, for example, be part of a planned process for deliberately and artificially partitioning and manipulating the EU market for KALTEN so as to amount to a disguised restriction on trade between member states with respect to the product. I do not agree with Bolton's submission that the assignment to it should be looked at separately from the assignment to Teofarma. The assignments and related transactions and the circumstances in which they were made need to be analysed with care in order to see if there was present something behind the decision to split the ownership of the mark on a territorial basis and whether it was to designed to conceal the reality of linkage and control so as to disguise a restriction on trade between member states.
80. This point is quite apart from the issues of economic links and the possibility of control via AZ over the products to which the mark is applied. This was not a case of bare out-and-out assignments of the mark. The assignments were accompanied by other transactions (know how licences, product agreement) which kept AZ in the frame. A trial preceded by disclosure of documents and exchange of witness statements is necessary in order to establish the facts relevant to the issue whether, in all the circumstances, there are also economic links or the possibility of control between AZ and its assignees, which might prevent the enforcement of the mark KALTEN by Bolton against Doncaster from being justified on the essential function principle.
81. Eventually, but not, I think, before the relevant facts have been ascertained at trial, it may even become necessary to refer the matter to the Court of Justice for a ruling on the interpretation of Article 30. Although this case may raise a point on exhaustion of rights not covered by the existing authorities, neither side suggested that a reference should be made under Article 234 at this stage.
82. I am particularly influenced in my conclusion by the incompleteness of the relevant evidence, quite apart from the uncertainty as to the scope of the legal principles in Ideal-Standard.
83. As for the facts, I am not satisfied that enough relevant evidence is at present available to the court to enable it to make a final decision on the exhaustion of rights issue.
84. First and by way of general comment, the disclosure of documents relating to the transactions between AZ, Bolton and Teofarma is, on the face of it, incomplete. Parts of the documents which have been disclosed have been redacted.
85. Secondly, although AZ is not a party to the proceedings, its relationship with both Teofarma and Bolton is potentially relevant to the exhaustion of rights point, but no documents have been sought or obtained from AZ.
86. Thirdly, what has been voluntarily disclosed by Bolton to date indicates that economic links and the possibility of control may exist in respect of the imported products and the products made in the UK which, according to Ideal-Standard, could take the case outside the protection of industrial property exception in Article 30. In addition to the short form of assignment originally put in evidence, Bolton produced shortly before the hearing an agreement in a heavily redacted form. Under the agreement AZ appears to have retained, after the assignment of the mark, a measure of control over the quality of KALTEN sold in the UK. For example, under clause 4 of the agreement it is stated that Bolton's right is for use solely in connection with "the Product," as defined in clause 1.19 and in the Product Specification in Schedule C. Under clause 3 AZ's Technical Information is licensed to Bolton only for use in relation to "the Product," as defined. By this means AZ can ensure that Bolton can only use the mark on the "Product." That gives AZ a measure of control over the use of the mark. Disclosure by Bolton of the technical information received by Bolton from AZ may also point to the possibility of control by AZ or to an economic link or to the artificial partitioning of the market by use of territorial assignments to two different entities. AZ have not, as a result of the assignments of the mark, dropped out of the picture completely with regard to the marketing of identical products in the two different countries. AZ may remain a single point of control over the composition and quality of the product.
87. Fourthly, Bolton, like Teofarma in Spain, manufactures the product in accordance with know-how licensed by AZ under a Technical Information Licence referred to in the agreement to assign. That may also form a sufficient continuing economic link with AZ or a possibility of quality control, so as to prevent Bolton from relying on Article 30 to justify the enforcement of its claim to prevent Doncaster's imports of KALTEN from Spain.
88. I do not find it necessary to express a view on Mr Howe's more radical contention, which was not argued below, that the effect of the EU pharmaceutical regulatory regime and the Medicinal Products Directive is to take this case out of the Ideal Standard principles relating to the exhaustion of rights altogether. As at present advised I doubt whether the pharmaceutical regulatory regime is directly relevant to the competition considerations affecting the enforcement of trade marks and parallel imports, although it is a part of the total picture of the relevant market.
89. As to the estoppel defence I doubt whether it has a real prospect of success, whether based on the failure of AZ to notify Doncaster of the Spanish assignment and assert its rights to prevent imports between 2001 and 2004 or on the delay by Bolton in asserting its rights after September 2004. I would not, however, hold it to be unarguable at this stage if, as I have concluded, there should be a trial on liability and remedies as there is a real prospect of the exhaustion of rights defence succeeding.
90. By a respondent's notice Bolton took the point that it is entitled to oppose importation of the products on the further ground that Doncaster had not given it requisite notification in respect of re-labelling and re- packaging the imported KALTEN capsules. I express no view on this point. It does not go to the real issue between the parties and should be left over to be dealt with at trial.

Result

91. I would allow the appeal on the ground that this case is not a suitable case for summary judgment. There needs to be more investigation into the circumstances of the assignments of the trade mark by AZ and, in particular, into the facts about the economic links (if any) between AZ and Bolton and the possibility of control and the application of the principles of exhaustion of rights and essential function to the acts once established. This is a sufficiently compelling reason for disposing of the Article 30 issue at a trial rather than in a summary fashion under CPR Part 24.

Lord Justice Longmore:

92. I agree with my Lord that this case is not appropriate for summary judgment. In particular I do not regard it as beyond argument that successive assignments, in the circumstances of the present case, were not "a disguised restriction on trade between Member States" within the concluding words of Article 30 of the EC Treaty. It would, as my Lord has said (para. 78) be a little surprising if an assignor can, by assignment, convey more rights than he himself has. If the owner of a trade mark could assign his mark successively to different entities in each EU country, freedom of movement of goods could be said to be more of an inspiration than a reality. The relevant law is still in the process of formulation and, rather as this Court has held in Sportswear SpA v Stonestyle Ltd [2006] EWCA Civ 380, summary disposition is not appropriate in what is a developing area of law.

Mr Justice Lewison:

93. I also agree.