England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		July 14 2005

Mr Justice Lawrence Collins:

I Introduction

1. This case concerns the question whether a trade mark owner can prevent internet sales in the United Kingdom of parallel imports from outside the EEA.
2. The first claimant, which is incorporated in Japan, trades as Sony Computer Entertainment Inc ("SCEI") and is the parent company of the second claimant, Sony Computer Entertainment Europe Ltd ("SCEE"). I shall refer to them together as "Sony." Their ultimate parent company is Sony Corporation. SCEI is responsible for the development and worldwide marketing and sales of the highly successful computer games system, PlayStation and more recently, Psone and PlayStation 2.
3. The original PlayStation was introduced in Japan in December 1994, and in the United Kingdom and the rest of Europe in September 1995. It was replaced by Psone, an updated version, which went on sale in Europe in September 2000. PlayStation 2 was launched in Japan in March 2000, in the United States in October 2000, and went on sale in Europe in November 2000.
4. SCEE is responsible for the sales and marketing of PlayStation, Psone and PlayStation 2 in more than 100 countries which use the PAL television system. These countries include the United Kingdom and the other Member States of the European Union. More than 5 million PlayStation 2 units have been shipped to date in the United Kingdom. Over 70 million PlayStation 2 units have been shipped worldwide.
5. SCEI has developed the "PlayStation Portable" hand-held console ("the PSP console"). The PSP console is a personal multimedia entertainment system which allows the user, not only to play games, but also to watch films, listen to music and store photographs. The hand-held game player is a sector of the market which has historically been dominated by Nintendo, one of SCEI's principal competitors in this sector.
6. Sony's evidence is that the PSP console represents a major shift for the SCEI group of companies world-wide. It is SCEI's first ever hand-held device. It is not simply a games machine, but it is a multi-media device that allows the user to watch films, listen to music and store photographs. It also has wireless functionality enabling two or more persons to communicate with each other (for example for the purposes of interactive games).
7. SCEE says that its marketing objective with the PSP console is to focus the public on each of the product's multi-media capabilities in equal measure. Because the PSP console represents a major shift from Sony's roots in pure games (although the Play Station 2 played DVDs), SCEE seeks to highlight both this shift and the console's multi-purpose functionality, so that it will be attractive to a key target market of men and women in their 20s, 30s and 40s for whom a games machine may not have had appeal, and in respect of whom the future PSP related marketing opportunities are more extensive and diverse – photo storage, UMD films (universal media discs, a compact storage disc developed by SCEI exclusively for use with the PSP console) and music libraries etc. On the other hand, if the PSP console were offered as just another games machine, and therefore perceived as such, the product's unique selling point would be undermined. This would lead to a shift in interest to a much younger audience which in turn will be likely to alienate (to an uncertain extent) SCEE's key target market.
8. The PSP console was launched in Japan on December 12, 2004 and sold over 150,000 units on the first day. In the United States, the PSP console was launched on March 24, 2005 and in the first week of sales in the United States approximately 600,000 PSP consoles were sold. SCEE had intended to launch the PSP console in Europe at the end of March 2005, shortly after the US launch. But in about February 2005 Sony, in order to ensure an adequate supply of stock for the launch in the United States, decided to postpone the launch of the PSP console in Europe. When SCEI announced this delay (in February 2005) it was hoped by Sony and anticipated by the public that the PSP console would be launched by June 2005. But on April 26, 2005 Sony announced that the PSP console would be launched in Europe on September 1, 2005.
9. The defendant ("Nuplayer") was incorporated in 2004. It originally traded in blank recordable DVDs and CDs. Towards the end of 2004, Nuplayer decided to withdraw from this market, and since January 2005 has imported PSPs from Japan into the United Kingdom. Nuplayer sells to the public exclusively through its website, and does not sell from retail premises. It says that the products have been bought abroad from authorised Sony distributors, or distributors who had bought the products from authorised distributors.
10. These imported consoles (and also games for use with the PSP console, which Nuplayer also offers for sale) have not been put on the market in the European Economic Area by or with the consent of Sony.

II Parallel imports

11. A few days before the launch of the PSP console in the United States in March 2005, SCEE became aware of parallel imported PSP consoles (probably from Japan) being offered for sale in the United Kingdom the rest of Europe. As a result of these concerns, SCEE made investigations with the aim of identifying those persons who were selling parallel imported product. From April 25, 2005, SJ Berwin, its solicitors, wrote to parallel importers requiring them to desist from importation and sale. Over 70 traders have been the subject of solicitors' letters seeking undertakings, and undertakings have been obtained from almost all of them.
12. On April 26, 2005, SCEE's local European offices issued a circular to their respective trade customers to say that SCEE would be taking action against parallel imported product, not only to ensure a level playing field for SCEE's customers but also because of concerns as to whether such imports complied with European product safety legislation. No product can be put on the market in the UK unless it has a "CE" marking which signifies that the product complies with relevant safety regulations. The CE mark can only be applied by the manufacturer or its authorised representative. The PSP console intended for sale in the European Union is presently being tested and the necessary compliance checks are in the process of being carried out. It is not suggested by Sony that the product could in any sense be unsafe, but the PSP console has to comply with the detailed European Union regulations before it can be marketed.
13. Sony claim that parallel imported product, if not eradicated from the United Kingdom (or at least limited to the greatest possible extent), will significantly damage the exclusivity which Sony would otherwise enjoy in the run up to the September launch date and beyond. The launch of the PSP console (because of the shift in emphasis which it represents for Sony), gives SCEE the opportunity to build up interest and excitement amongst the public (many of whom may not be traditional SCEE game customers), retailers and the press. That exclusivity would be greatly undermined by a stream of parallel imports.
14. Sony's evidence is that SCEE's marketing campaign for the launch on September 1, 2005 will involve a huge media, advertising, special events, promotions and public relations spend (running into many millions of Euros in the UK and the rest of Europe). It will create much interest amongst the wider media and public. In such circumstances it would be very serious for SCEE if, having created such interest, awareness and excitement, resellers of parallel imports siphoned off the interest and goodwill which SCEE will have generated, for their own benefit.
15. The market perception that SCEE wishes to emphasise will be undermined by the resellers of parallel imported product whose advertising is focused on games. In part this is because the majority of the product available to parallel importers are software games.
16. Sony say that the sale of PSPs from outside the European Economic Area risks damaging SCEE's relationship with consumers and members of the public:

(1) Parallel imported product does not comply with United Kingdom product safety legislation and SCEE has no control over the type or quality of electronic peripherals (such as United Kingdom mains leads) offered by parallel importers, and Sony's control over consumer safety is therefore lost.

(2) One of the PSP console's principal features is video playback. In relation to video playback, the UMDs are divided into two formats, one for the United States market and another for the rest of the world. Anyone buying a United States sourced PSP console from Nuplayer will be unable to play the video UMDs which will be available in the United Kingdom and the rest of the European Union after the launch on September 1, 2005.

(3) SCEE offers a warranty only for the goods it distributes in Europe. The parallel imported product does not have the backing of the SCEE 12 month warranty. Although, if a product proves to be faulty, the consumer can revert to the person from whom they bought the product, SCEE will not be obliged to remedy any problem arising (and indeed, may not be competent to do so as SCEE's technical staff will not be familiar with certain aspects of the overseas models, most notably the UMD playback for the United States models).

(4) The Japanese PSP consoles and games do not come with English language manuals. Other importers and resellers of parallel imported product are offering the Japanese consoles with a copy of SCEI's English language user manual. It would appear that no such manual is offered by Nuplayer (although if it did, the copying and offering of the SCEI manual would inevitably be an act of copyright infringement).

III History

17. Sony first learned of the imports by Nuplayer on March 21, 2005. Sony's solicitors, SJ Berwin, sent a letter before action to Nuplayer on May 9, 2005. The letter complained of two registered trade marks, both for the PS logo, namely UKTM 1568532 and ECTM 995894, which related only to classification 9. It sought undertakings by May 16, 2005. The undertakings were given until May 23, 2005 pending a substantive response from Nuplayer's solicitors, Roiter Zucker.
18. In correspondence Nuplayer's solicitors took these points. First, Nuplayer accepted that the goods which it supplied bore the marks on their packaging and on the products, but its business was conducted by mail order and the marks were never visible to the consumer until after a contract of sale had been concluded and property had passed and the goods had been paid for and delivered to the customer. The registered marks were not relied upon by Nuplayer in any of their business dealings. The only reference to the products was as "PSP", which was not a registered trade mark. Accordingly, Nuplayer had therefore not at any time "used" the marks in the course of trade in the relevant goods. Second, Nuplayer was prepared to remove or obliterate all instances of the trade marks on the goods or packaging of the PSP consoles which it intended to continue to import. If the marks were obliterated, then the marks were no longer being used to guarantee the origin of the product. If it proved necessary to obliterate the registered marks, Nuplayer would explain to its customers that such pointless defacement has only been performed because Sony required it. Third, there would be no damage to Sony's reputation because the goods were genuine and there would be no loss of sales, because Sony was not selling the PSP console in the United Kingdom, and the goods came from Sony. Customers were prepared to purchase these goods on that basis. Fourth, Nuplayer was selling the products at a premium price and so was not undercutting Sony's potential market in the United Kingdom and would will therefore not prejudice any subsequent launch by Sony in the EEA. Fifth, every sale by Nuplayer was necessarily preceded by a sale by Sony, on which Sony would have made their profit. Fifth, Nuplayer's sales would benefit Sony because they will increase the installed base of PSP consoles, thus enabling Sony to sell more games and accessories over the coming years.
19. Sony issued proceedings on June 15, 2005. In this action Sony allege that Nuplayer is liable for trade mark infringement. Sony relies on five registered trade marks (the "Trade Marks"), three of which are owned by SCEI and two of which are owned by SCEE. In relation to the SCEI marks, SCEE is SCEI's exclusive licensee to use the marks under licence in connection with the PSP console and PSP games.
20. The marks are for, respectively:

(1) the stylised "PS" logo: ECTM 1274547 (SCEI);

(2) the PlayStation controller button symbols: ECTM 786715 (SCEI) and ECTM 1352517 (SCEE); and

(3) the word mark "PlayStation": UKTM 2224389 (SCEI) and ECTM 1545094 (SCEE).

21. The stylised "PS" logo features on the PSP console and on the PSP console packaging. The PlayStation controller button symbols feature on the product itself and on the picture of the product on the packaging. The word mark PlayStation features on the packaging of the Japanese packaging as part of the website address www.playstation.jp. and on the United States packaging the website address is given as www.us.playstation.com. One or some of these marks appears in various places on the console, including on its face, on its controller buttons, on its battery, carry strap and memory stick, headphones and on its packaging and Japanese instruction manual.
22. An application for the designation "PSP" has been made but it is not yet a registered trade mark. The product and the packaging also feature the "Sony" trade mark, which is owned by the ultimate parent company, Sony Corporation, but it is not a party and no complaint is made in these proceedings about its use.
23. Sony say that there are many other rights (most owned by them) infringed by the importation of these products from outside the European Union. The product incorporates software, which itself incorporates artistic works displayed when the device is used. Copyright subsists in all these works (most will vest in the claimants or other companies in the Sony group). The product shape and appearance itself is protected by registered designs.
24. , In their evidence Sony claimed that the PSP consoles being offered for sale by Nuplayer did not comply with EU/UK product safety legislation. In particular no product could be put on the market in the United Kingdom unless it had a "CE" marking, which is a declaration by the manufacturer signifying that the product complies with relevant safety regulations. The PSP console intended for sale in the EU is presently being tested and that the necessary compliance checks are in the process of being carried out.
25. On June 23, 2005 Nuplayer's solicitors wrote in response to Sony's solicitors enclosing an EC Declaration of Conformity supplied by ElectricBirdland Ltd, which is another on-line retailer being sued by Sony in respect of PSP consoles. After further correspondence, in his witness statement Mr Watson, a director of Nuplayer, said that until Nuplayer could make a declaration of compliance, it would not supply PSP consoles. Sony's uncontradicted evidence at the hearing of the application was that the ElectricBirdland Ltd certificate was deficient in many material respects, and the Japanese PSP console would be incorrectly marked if marked in accordance with the ElectricBirdland Ltd certificate. From subsequent correspondence it appeared that Nuplayer was still supplying PSP consoles with CE marking. In correspondence its solicitors stated that it was satisfied that ElectricBirdland Ltd's technical file is sufficient to enable it to comply with CE marking requirements. Nuplayer also say that it has been advised by Conformance Ltd, a consultant in CE marking, that the test results and documentation held by Nuplayer is satisfactory for the purpose of CE marking, and their solicitors have produced a copy of a report from Conformance Ltd which they say has that effect.

IV Sony's argument

26. Sony seeks summary judgment. If summary judgment is not granted, then Sony seeks interim relief pending trial. There is no defence as it is well settled that products placed on the market outside the EEA may not be imported into the EEA without the consent of the trade mark owner, as intellectual property rights are not exhausted by first marketing elsewhere: Joined Cases C-414 to 416/99 Zino Davidoff and Levi Strauss [2001] ECR I-8691, [2002] RPC 20. Sony argue that the same applies to other intellectual property rights utilised by the product, such as registered designs and the numerous copyright works (including software, artistic works and literary works) incorporated into the PSP console or its packaging.
27. Trade mark rights entitle the owner to control the initial marketing of the goods bearing the mark. The importation, offering and exposure for sale putting on the market and stocking for those purposes under the signs are straightforward infringements of trade mark: Trade Marks Act 1994, section 10(4)(b),(c).
28. It is also an infringement to supply parts not coming from Sony in any way under the mark. A United Kingdom power cable is added to the ensemble supplied (it is assumed, in the box bearing the marks) which is an infringement also. The use on the website to advertise and promote the product is also an infringement.
29. Two points are relied upon as giving a defence: (a) the marks have now been removed form the website so none are seen before a product is delivered; (b) the controller marks on the buttons will be covered by ink and the console supplied with a "skin". This is a removable decorative accessory which some people like to buy to decorate the console. Similar facings are available for mobile phones. They are shopped to snugly fit around the phone or console and incorporate holes for buttons and controllers to protrude and for the display or screen to be seen. They are intended to be easily removed (and changed if desired). Nothing at all is to be done about the marks on its battery, carry strap, memory stick, and headphones and on its Japanese instruction manual.
30. The suggestion that the marks will be obliterated is a threat to tamper with the product in a way that the customer is very likely to be unhappy with and then to tell the public it is done at Sony's behest. In any event it appears to apply only to the buttons by use of ink. Sony does not know whether it will be in ink that will not rub off as the buttons are used. Nuplayer's own evidence seeks to highlight that the different buttons have different functions, and accordingly to do this will frustrate the customer. To tell customers is still referring to the mark and using it - and doing so in a way calculated to damage Sony because it will suggest it is done at Sony's behest.
31. But in any event this comes nowhere near to meeting the claim as the skin is plainly not an obliteration of the mark on the console. That is merely the supply of product with an accessory already fitted that is intended to be and will be removed - some people may remove it for good because they do not care for the decoration, others may change it for another skin.
32. One or other of the marks present on the carry strap, the battery, the headphones the memory stick and the Japanese instruction manual will all still be present. Each is an infringement.
33. The argument regarding the fact that the sale is made before the product is delivered and seen is fanciful. The trade mark owner's rights include the right to prevent third parties not having consent from importation. The trade mark does not have to be seen by the customer to be "used": Kerly, Trade Marks and Trade Names, 13^th ed Kitchin et al, 2001, para 13-27. Consumer perceptions after sale are important: Case C-206/01 Arsenal Football Club plc v Reed [2003] RPC 9, para 57.
34. The argument would apply to any product sold by a shop where it is asked for before the product is handed over. Counterfeit Levi's could be supplied in response to a request for jeans as the mark is not seen until the contract is concluded. Moreover every mark on products inside packaging or on components inside a product would also not be an infringement if this argument were right. Products can be supplied with counterfeit batteries and accessories with impunity.
35. If summary judgment is not granted, there should be an interim injunction. The product cannot lawfully be sold in the UK without CE marking. It cannot be CE marked without extensive testing being carried out. Nor, on the evidence can all the available testing be carried out without the cooperation of the manufacturer, i.e. Sony. A certificate supplied by Nuplayer from ElectricBirdland Ltd (but not now relied upon by Nuplayer) is inadequate and in any event identifies the testing bodies as bodies which are extremely unlikely to have carried out the required tests. Sales made thus far have been unlawful. The court should not countenance continued unlawful sales.
36. Moreover, there are plainly many other rights (most owned by Sony) infringed by the importation of these products from outside the EEA. The product obviously incorporates software, which itself incorporates artistic works displayed when the device is used. Copyright will subsist in all these works (most will vest in the claimants or other companies in the Sony group). Parallel importation of copies of the works not put into circulation by the copyright owner in the EEA with the consent of the owner will infringe (Copyright, Designs and Patents Act 1988, section 18). Moreover, the product shape and appearance itself is protected by registered designs and importation and sale is likewise an infringement. This is not a case of arguing that the infringement is close enough to the registered design to infringe, which may be met with a serious argument as to validity if earlier designs are also close. The design which is the subject of the registration is the very design that is being imported and sold unlawfully.
37. These latter claims are not formally included in the claim form as Sony conceive that the trade mark claim is straightforward and that summary judgment will be obtained on this simple case. To incur the cost of identifying each and every one of the multitude of intellectual property rights being infringed flagrantly would be met with a complaint of acting disproportionately when costs were sought to be recovered from the infringer. But if one of the defences put forward is accepted to raise a triable issue they are specific to trade marks, and so the other rights could (and will) obviously be added to overcome it.
38. Nuplayer is a new company with no discernible assets. No attempt has been made to suggest it is good for damages. Nuplayer is merely procrastinating for as long as possible to obtain the benefit of selling the parallel imported product as long as possible. There will obviously be no interest in parallel imported product when the PSP console is launched in September.
39. If enjoined Nuplayer will lose its profit margin of the sales it would have otherwise made. Calculating this is a simple accounting exercise and Sony are plainly good for the money. Conversely the carefully planned and expensive launch of the product in Europe is immensely important to Sony. Its effectiveness and the resulting benefit to Sony long-term are very real but difficult to quantify, and Nuplayer will never be in a position to compensate Sony.
40. There are other ways in which Sony suffer loss which is real but unquantifiable. In particular their standing and reputation with lawful retailers who wait for the official product will be damaged as they have announced their intention to prevent parallel trade. These retailers depend upon Sony to prevent unlawful competition. If Sony are unable to take effective measures to stop in the run up to the launch its reputation will obviously take a serious knock. An ability of Sony themselves to seek damages (from impecunious defendants after the event) will be of no comfort to the retailers.
41. A failure to grant an injunction would signal the end of Sony's attempts to enforce their clear legal rights ahead of the PSP console launch in September. They have been engaged on a full time and widespread campaign to bring these illegal activities to a halt. The activities receive widespread publicity. If it were to be known that Sony were unable to take any steps to prevent unlawful parallel trade before the launch in September a very large number of traders can be expected to view the floodgates as open and they will jump on the bandwagon. Sony's successful effort to date will be wasted as it is hard to see any court granting an injunction in any subsequent case if Nuplayer have the sanction to continue until after the launch leaving Sony only with a damages claim against impecunious importers.

VI Nuplayer's argument

42. The products dealt in by Nuplayer are all genuine PSP consoles, made by Sony, and imported from Japan. Nuplayer sells only on the internet.
43. No attempt has been made to limit the injunction sought by reference to the trade mark rights claimed. The injunction sought is for a blanket ban on dealings in PSP consoles regardless of how they are marked. Sony's commercial objective is not merely to enforce any legitimate trade mark rights, but to prevent any dealings at all in the PSP console. That goes far beyond any legitimate trade mark rights which Sony may have, or which are claimed in these proceedings.
44. Nuplayer has at least a reasonable defence in relation to all alleged past acts of infringement. Nuplayer's present and intended future dealings (with the marks obliterated) are plainly not infringement.
45. Even if Sony establish some past infringement, there are a number of issues as to the claimed relief sought – entitlement to any injunction, the scope of any injunction, and the question of entitlement to an account of profits – which turn on questions of facts to be found and are themselves "compelling reasons" why the matter should go to trial.
46. For infringement to arise even in the case of parallel imports, there still has to be infringing "use" of the mark. The fact of "use" at the point of sale does not appear to have been disputed in Joined Cases C-414 to 416/99 Zino Davidoff and Levi Strauss [2001] ECR 8691, [2002] RPC 20: the defendants were conventional retailers selling the products in their stores, and the marks were being used to promote and sell the products. The decisions must be understood in that context. The present case is critically different because Nuplayer does not trade in that way. It sells on the internet, does not display the products for inspection, and describes the products merely as "PSP consoles". That is what they are and there is no trade mark registration which is thereby offended.
47. There is no "use" where the consumer does not see the marks (and so does not and cannot ever rely upon them as a "badge of origin") during the sale transaction: see Unilever's (Striped Toothpaste) Application [1980] FSR 280. The answer certainly is not "acte claire" in Sony's favour, and it may be that this case will require a reference to the European Court once the full facts are found. Kerly, Trade Marks and Trade Names, 13^th ed Kitchin et al, 2001, para 13-27 tentatively expresses a contrary view, but accepts that the position is not clear.
48. The European Court does not interpret the "use" requirement widely. Instead it confirms that the definition of "use" has to be understood in, and limited by, the context of the underlying purpose of the trade mark right. The ECJ has confirmed that for infringement to arise, such use has to be "trade mark use", i.e. used in such a way that it would be understood as indicating origin: Case C-206/01 Arsenal Football Club plc v Reed [2003] RPC 9, paras 48-56. See also Case C-200 Hölterhoff [2002] ECR I-4187, where the European Court held that the interests which Article 5(1) of the Trade Marks Directive intended to protect are not affected by a situation in which the third party refers to the trade mark in the course of commercial negotiations with a potential customer, the reference is made for purely descriptive purposes, namely in order to reveal the characteristics of the product offered for sale to the potential customer, who is familiar with the characteristics of the products covered by the trade mark concerned, and the reference to the trade mark cannot be interpreted by the potential customer as indicating the origin of the product.
49. Thus a "use" which is not in the context of the function of a trade mark, to denote origin, is not "use" falling within the definition of infringement in the Directive and the 1994 Act.
50. Even apart from the offer to remove the marks from the goods themselves, this case therefore plainly differs from Zino Davidoff and Levi Strauss in that the registered trade marks in issue are not relied upon in any respect by Nuplayer in any of its business dealings. What its customers know about the origin of the goods is that they are genuine PSP consoles sourced from Japan. None of that is dependent in any way upon any "use", of any kind whatever, of any of the registered trade marks.
51. Nuplayer trades only on the internet and its customers therefore do not have any opportunity to handle or inspect the consoles or packaging prior to placing an order or at any other time prior to the entire transaction being performed and concluded. On the facts of this case, there is therefore plainly no "use" of the marks which takes place in the context of sales to consumers. The marks are not being used to denote origin – customers already know everything there is to know about the origin of the goods at the time of placing an order.
52. The presence of the marks on the packaging cannot be described as "use" by Nuplayer within the meaning of the Act. Customers never see them. It is plainly wrong to construe section 10 of the Act and the corresponding Article 5 of the Trade Marks Directive as attributing any such "use" to persons in Nuplayer's position when dealing with genuine goods (whether or not parallel imported from outside the EEA), having regard to the facts of this case as set out above.
53. The consequences are that there has not been any infringing use. Nuplayer has at the least a properly arguable defence in respect of past infringement.
54. Section 15(1) of the Trade Marks Act 1994 clearly contemplates that if obliteration is practicable, the goods can thereafter be freely marketed, as the trade mark owner's rights have been secured. Nuplayer has offered to do exactly that, but Sony has ignored the offer. It cannot be proper that, when a complaint of use of the trade marks has been made, the response to an offer to remove them is a further complaint.
55. There is no "use" of the marks in the present case. Nuplayer has removed all reference to all of the marks from its website. In relation to its present and all future dealings, it only refers to the products in question as "PSP", which does not infringe any subsisting trade mark rights relied upon herein.
56. So far as the future is concerned, there will not be any infringement. The marks are expunged from the website and removed from the products. There is no continuing threat to infringe and so Sony are in any event not entitled to injunctive relief.
57. A further ground for refusing equitable relief is Sony's conduct. From the outset Nuplayer made a clear and unequivocal offer to obliterate the marks complained of from the product and packaging, thus giving Sony exactly what they were entitled to under section 15 even assuming that there had been infringement. Sony's response was not an acceptance that this satisfied their legitimate trade mark rights. Instead they first ignored the offer, then responded with a claim form pleading different marks and stated in their solicitors' letter of June 15, 2005 that the removal or obliteration of the trade marks from the products may itself amount to an infringing act and/or passing off. In short, Sony are not content if Nuplayer leaves the marks on, but also not content if it takes them off. This attempt to force Nuplayer into a "no-win" situation is inequitable and intolerable. Sony have been asked, but have refused to elect, as to whether they (i) object to the marks being present on the product, or (ii) object to the marks being removed. They cannot have it both ways. Failing this, they cannot be entitled to injunctive or any other equitable relief.
58. Sony's true motives are oppressive and extend far beyond the mere protection of such legitimate trade mark rights as they may have. The motive is betrayed by the form of interim injunction which they seek. The injunction seeks to restrain any dealings in PSP consoles as such regardless of how they are marked.
59. If Sony's approach is correct, then the function of a trade mark would extend far beyond a mere indication of origin, but instead would constitute a simple device for enabling a trade mark owner to control any dealings whatever in its products of which it did not approve. By applying a simple swing ticket with a registered mark, it could thereafter complain at will either of dealings with the mark present or with the mark absent. It would in effect "own" the product, not just the mark. Such total control is not the proper function of a trade mark.
60. Sony must elect. They have been asked in clear terms to do so and have clearly failed to do so. They are not entitled to stop all dealings in PSP consoles. If they want the marks removed, Nuplayer has offered to do so. If Sony do not want the marks removed, then they have disentitled themselves to injunctive relief.
61. Further or alternatively, Sony are in any event not entitled to an account of profits. Sony's oppressive conduct disentitles them to equitable relief. Prior to the complaints, and for a reasonable period to permit investigation thereafter, Nuplayer was not aware of the registrations or of the fact that Sony were entitled to object to any use of the marks in relation to genuine PSP products. Nuplayer is entitled to rely upon its innocence as a defence to a claim for an account of profits. If Sony dispute this, this is in itself a triable issue. It further follows that a disclosure order prior to election between damages and an account of profits (Island Records v Tring [1995] FSR 560) would also be inappropriate as Sony do not have a right to elect between damages and an account.
62. Sony are not entitled to disclosure of names of suppliers or customers. Supply from outside the jurisdiction of genuine goods is not tortious, and Nuplayer's customers are end users and commit no infringing act by purchasing or keeping the consoles. There is therefore no justification or legal basis for an order for disclosure, in particular this is not a case for Norwich Pharmacal relief.
63. All of the issues raised on relief themselves give rise to triable issues of fact. They are therefore in themselves "compelling reason(s) why the case or issue should be disposed of at a trial" pursuant to CPR 24.1, and mean that Sony are not entitled summary judgment for these reasons alone.
64. An interim injunction should not be granted. There is no arguable case of future infringement, and no continuing threat of infringement.
65. In any event the balance of convenience lies strongly in favour of refusing any interim relief. Most of the arguments advanced by Sony in support of interim relief are the arguments found in the case of dealings in counterfeit goods. Sony allege that Nuplayer will significantly damage the exclusivity which Sony would otherwise enjoy and that Nuplayer will have siphoned off the interest and goodwill. No attempt has been made to take account of the fact that these are genuine Sony products (or that Sony are not actually selling them here).
66. Nuplayer has repeatedly invited Sony to explain the damage which Sony are suffering. Such evidence of damage as has been produced is of such generality that it is impossible to give it any weight at all. The vague allegation that Nuplayer's dealings will be disruptive of Sony marketing and market positioning cannot be correct, since Nuplayer is selling Sony products. The court is entitled to assume that even if damage is said to be unquantifiable, its nature should at least be capable of being articulated and tested.
67. Sony will in fact benefit from the sales, as customers might otherwise buy competing products. A sale of a PSP console generates a future revenue stream as customers will continue to but games and accessories for it.
68. Sony do not attempt to argue that the products sold in Japan are of inferior quality. So there is no damage to their European reputation for that. There is a complaint that Nuplayer supplies a non-Sony mains lead. But that is irrelevant unless there is an implicit allegation that Nuplayer might electrocute its customers by supplying lethally dangerous mains leads. The argument is so remote from reality that it demonstrates Sony's inability to find any meritorious arguments.
69. Nuplayer is taking all proper steps to address the issue concerning the "CE" mark, and does not intend to act in contravention of the law. The product is undoubtedly of merchantable quality (it would hardly be sold in the United States otherwise) and there is certainly no deliberate attempt by Nuplayer to trade improperly. It should be noted that this point has nothing whatever to do with trade mark law. The relevant regulations give rise to no private right and no cause of action at the behest of Sony. Nuplayer has confirmed that Nuplayer will not supply the product until it is in a position to comply with those regulations.
70. Sony have not acted with proper haste. They knew about Nuplayer on March 21, 2005. It took until May 9, 2005 to write a letter before action (relying only on other marks). It has shown little urgency since, and ignored the offer to remove the marks. The status quo is that Nuplayer has established its business and it should not be harmed now.
71. Nuplayer is a new company, however, and Sony rely on a risk that it may not be able to pay damages. It is impossible to see that Sony suffer any damage at all. But Nuplayer has also offered to pay money into a joint account in respect of each sale, to build up a fund. This is an approach that has found favour in a number of reported cases. Sony have ignored that offer.
72. Sony allege a "floodgates" effect. They have succeeded in persuading a number of other importers not to continue to import PSP consoles, no doubt because those other traders are unwilling to stand up to Sony irrespective of legal merit. That is no reason to grant relief against Nuplayer. If Sony are not entitled to an injunction against Nuplayer, they are probably not entitled to an injunction against anybody else.
73. The reality is that Sony alone are the authors of such misfortune if any as has befallen them. They long ago promised a European launch in Spring 2005, stimulated demand, and then repeatedly reneged on their promise. That is the real cause of any problems in their relationship with retailers and the public. Sony do not deserve injunctive relief. It is hardly surprising that Nuplayer's customers are flocking to them. Sony's own actions have created the market.
74. Any injunction would result in unquantifiable damage to Nuplayer because Nuplayer will never be able to tell how many PSP consoles it could have sold. Nuplayer would suffer a devastating loss of business of its main product.

VII Conclusions

Legislation

75. The relevant provisions of the Trade Marks Act 1994 ("the 1994 Act") for present purposes are:

(1) section 9(1):

"The proprietor of a registered trade mark has exclusive rights in the trade mark which are infringed by use of the trade mark in the United Kingdom without his consent"

(2) section 10:

"(1) A person infringes a registered trade mark if he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services which are identical with those for which it is registered.

…

(4) For the purposes of this section a person uses a sign if, in particular, he ...

(a) affixes it to goods or the packaging thereof;

(b) offers or exposes goods for sale, puts them on the market or stocks them for those purposes under the sign, or offers or supplies services under the sign;

(c) imports or exports goods under the sign; or

(d) uses the sign on business papers or in advertising."

(3) section 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 that trade mark by the proprietor or with his consent."

(4) section 15(1):

"Where a person is found to have infringed a registered trade mark, the court may make an order requiring him-

(a) To cause the offending sign to be erased, removed or obliterated from any infringing goods, material or articles in his possession custody or control, or

(b) If it is not reasonably practicable for the offending sign to be erased, removed or obliterated, to secure the destruction of the infringing goods material or articles in question."

(5) section 103(2):

"References in this Act to use … include use … otherwise than by means of a graphic representation."

76. Sections 9, 10, and 12(1) are designed to implement Articles 5 and 7 of the First Council Directive 89/104 ("the Directive") approximating the laws of Member States relating to trade marks.
77. The equivalent provisions of the Directive are:

(1) Article 5(1):

"The registered trade mark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade:

(a) any sign which is identical with the trade mark in relation to goods … which are identical with those for which the trade mark is registered;"

(2) Article 5(3), which is in substantially the same terms as section 10(4);

(3) Article 7(1) (as amended by the Agreement on the European Economic Area):

"The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in a Contracting Party under that trade mark by the proprietor or with his consent."

Trade marks and parallel imports

78. In Joined Cases C-414 to 416/99 Zino Davidoff and Levi Strauss [2001] ECR I-8691, [2002] RPC 20, the European Court held that a trade mark proprietor could rely on trade marks rights to prevent marketing within the European Economic Area of products bearing the mark which had previously been placed on the market outside that area, unless the proprietor had renounced its right to prevent marketing. See also Case C-355/96 Silhouette International Schmied GmbH v Hartlauer Handelsgesellschaft mbH [1998] ECR I-4799; Case C-173/98 Sebago Inc and Maison Dubois v GB-Unic SA [1999] ECR I-4103; Case C-244/00 Van Doren v Lifestyle Sports, April 8, 2003.
79. The effect of the decision in Zino Davidoff and Levi Strauss is that: (a) Articles 5 and 7 of the Directive embody a complete harmonisation of the rules relating to the rights conferred by a trade mark and accordingly define the rights of proprietors of trade marks in the Community (para 39); (b) the Community legislature laid down the rule of Community exhaustion, that is to say, the rule that the rights conferred by a trade mark do not entitle the proprietor to prohibit use of the mark in relation to goods bearing that mark which have been placed on the market in the EEA by him or with his consent (para 32); (c) the effect of the Directive is to limit exhaustion of the rights conferred on the proprietor of a trade mark to cases where goods have been put on the market in the EEA and to allow the proprietor to market his products outside that area without exhausting his rights within the EEA (para 33); (d) in view of its serious effect in extinguishing the exclusive rights of the proprietors of the trade marks in issue in the main proceedings (rights which enable them to control the initial marketing in the EEA), consent must be so expressed that an intention to renounce those rights is unequivocally demonstrated (para 45); (e) such intention will normally be gathered from an express statement of consent, but it is conceivable that consent may, in some cases, be inferred from facts and circumstances prior to, simultaneous with or subsequent to the placing of the goods on the market outside the EEA which, in the view of the national court, unequivocally demonstrate that the proprietor has renounced his rights (para 49); (g) implied consent to the marketing within the EEA of goods put on the market outside that area cannot be inferred from the mere silence of the trade mark proprietor or from the from the fact that a trade mark proprietor has not communicated his opposition to marketing within the EEA or from the fact that the goods do not carry any warning that it is prohibited to place them on the market within the EEA (paras 54-56).
80. In particular the European Court said (at paras 33, 40):

"By making it clear that the placing of goods on the market outside the EEA does not exhaust the proprietor's right to oppose the importation of those goods without his consent, the Community legislature has allowed the proprietor of the trade mark to control the initial marketing in the EEA of goods bearing the mark …

…

Article 5 of the Directive confers on the trade mark proprietor exclusive rights entitling him, inter alia, to prevent all third parties not having his consent from importing goods bearing the mark. Article 7(1) contains an exception to that rule in that it provides that the trade mark proprietor's rights are exhausted where goods have been put on the market in the EEA by the proprietor or with his consent."

81. Consequently the starting point is that (a) the proprietor of a registered trade mark has exclusive rights in the trade mark which are infringed by the use in the United Kingdom without his consent (1994 Act, section 9(1)); (b) there is infringement (inter alia) where the alleged infringer offers goods for sale or puts them on the market under the sign, or imports goods under the sign (section 10(4)); (c) the trade mark is not infringed by the use of a trade mark in relation to goods which have been put on the market in the EEA or with his consent (section 12(1)), but it is infringed by importation from outside the EEA without the consent of the proprietor.
82. I also accept that it is an infringement to supply parts (such as batteries or a United Kingdom power lead) not coming from Sony in any way under the mark.

"Use"

83. Nuplayer claims that, since PSP itself is not a registered trade mark, and it markets the goods solely by reference to that name, there is no infringement of the PS logo, or the PlayStation mark, or the controller button symbols, because (a) they are not seen until the contract of sale is concluded with the customer; and/or (b) they are obliterated prior to importation.
84. Nuplayer relies on Case C-200 Hölterhoff [2002] ECR I-4187, para 16 and Case C-206/01 Arsenal Football Club plc v Reed [2003] RPC 9, para 54, where the European Court accepted that the use of a trade mark for purely descriptive purposes does not fall within the Article 5(1) prohibition of "using in the course of trade."
85. In Case C-200 Hölterhoff [2002] ECR I-4187 the plaintiff in the Austrian proceedings was the proprietor of two trade marks, Spirit Sun and Context Cut, covering diamonds and precious stones for processing as jewellery. Mr Hölterhoff was a dealer in precious stones, and he offered for sale to a jeweller stones which he described as Spirit Sun and Context Cut, and the jeweller ordered two stones in the Spirit Sun cut. The Austrian court found that Mr Hölterhoff used the descriptions Spirit Sun and Context Cut solely in order to describe the qualities and type of cut of the stones he was offering for sale, and not with any suggestion that they originated from the plaintiff's firm. The Austrian court asked the European Court whether there was an infringement where the defendant revealed the origin of the goods and used the trade mark solely to denote the particular characteristics of the goods he was offering for sale, so that there could be no question of the trade mark being perceived in trade as a sign indicative of the firm of origin. It was held that (a) in a situation such as that described by the national court, the use of the trade mark does not infringe any of the interests which Article 5(1) is intended to protect (b) those interests are not affected by a situation in which the third party refers to the trade mark in the course of commercial negotiations with a potential customer, and where the reference is made for purely descriptive purposes, namely in order to reveal the characteristics of the product offered for sale to the potential customer, who is familiar with the characteristics of the products covered by the trade mark concerned, and the reference to the trade mark cannot be interpreted by the potential customer as indicating the origin of the product. The Court said (at para 17) that it was not necessary to discuss further what constitutes the use of a trade mark within the meaning of Article 5(1)(a) and (b) of the Directive.
86. In Case C-206/01 Arsenal Football Club plc v Reed [2003] RPC 9 the Arsenal logo was used in conjunction with a disclaimer that the scarves and other products sold by Mr Reed outside the ground were official Arsenal merchandise. The European Court held: (a) the exclusive right under Article 5(1)(a) of the Directive was conferred in order to enable the trade mark proprietor to protect his specific interests as proprietor, that is, to ensure that the trade mark can fulfil its functions (para 51); (b) the exercise of that right must be reserved to cases in which a third party's use of the sign affects or is liable to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods (ibid); (c) the exclusive nature of the right conferred by a registered trade mark on its proprietor under Article 5(1)(a) of the Directive can be justified only within the limits of the application of that Article (para 52); (d) the proprietor may not prohibit the use of a sign identical to the trade mark for goods identical to those for which the mark is registered if that use cannot affect his own interests as proprietor of the mark, having regard to its functions (para 54); (e) thus certain uses for purely descriptive purposes are excluded from the scope of Article 5(1) of the Directive because they do not affect any of the interests which that provision aims to protect, and do not therefore fall within the concept of use within the meaning of that provision (ibid); (f) the present case was fundamentally different from that in Hölterhoff, since the use of the sign took place in the context of sales to consumers and was obviously not intended for purely descriptive purposes (para 55); having regard to the presentation of the word Arsenal on the goods at issue in the main proceedings and the other secondary markings on them, the use of that sign is such as to create the impression that there is a material link in the course of trade between the goods concerned and the trade mark proprietor (para 56); that conclusion was not affected by the presence on Mr Reed's stall of the notice stating that the goods were not official Arsenal FC products (para 57). See also Arsenal Football Club plc v Reed [2003] RPC 39, paras 39, 69 (CA).
87. In this context, these are simply cases falling on different sides of the line dividing cases where words are being used to identify the origin of the goods and those where they are not, of which a case under the Trade Marks Act 1938 on which counsel for Nuplayer relied (Unidoor Ltd v Marks & Spencer plc [1988] RPC 275, 280) is simply another example.
88. There is no basis for an argument that any use of these marks by Nuplayer could possibly be regarded as descriptive in that sense.
89. The next point taken by Nuplayer is that the signs are not visible at the point of sale, and that the consequence is there is no infringement, or alternatively there is a triable issue as to whether there has been an infringement. Mr Burkill QC relies on a passage in Kerly, Trade Marks and Trade Names, 13^th ed Kitchin et al, 2001, para 13-27, as suggesting that it is doubtful whether there is infringement if the offending sign is not visible at the point of sale:

"A question arises as to whether the offending sign needs to be visible at the point of sale. It is submitted that this is not a requirement, provided that when the sign does become apparent it is understood to be a sign used in the course of trade in relation to the relevant goods.".

90. A footnote to the passage refers to the wide definition of use in section 103(2), to the Parliamentary record on it (while accepting that this is not a case in which recourse may be had to it), and to the law prior to the 1994 Act. It also refers to a case on the Trade Marks Act 1938 (Unilever's (Striped Toothpaste) Application [1980] FSR 280) as authority to the contrary. In that case the Registrar refused an application for registration of a trademark for toothpaste consisting of the colour red applied in stripes to white toothpaste on extrusion. It was held that the Registrar was correct in refusing registration: the mark was not used in the course of trade because the consumer did not see the mark until the toothpaste was extruded. Even if correct (which may be open to doubt), the decision is of no assistance. The point was that the mark for the toothpaste (as distinct from the mark on the packaging, which was the subject of a separate application) was not simply not visible when the product was sold, but it did not even come into existence until the toothpaste was extruded.
91. In this market the consumer will of course expect to see the marks on the products. I am satisfied that even if the marks are not seen by the consumer before the sale is concluded Kerly is right in submitting that there is an infringement. The fact that Nuplayer sells on the internet, does not display the products for inspection, and describes the products merely as "PSP consoles" does not mean that it does not use the marks. Section 10(4)(b) of the 1994 Act specifically includes stocking products under the sign as an infringement. In Case C-206/01 Arsenal Football Club plc v Reed [2003] RPC 9 the European Court interpreted "use" for the purposes of Article 5(1) widely to include matters arising after the sale. When dealing with the argument that there was no use for the purposes of Article 5(1)(a) of the Directive because Mr Reed's stall had a notice stating that the goods were not official Arsenal FC products, the European Court said (at para 57):

" … there is a clear possibility in the present case that some consumers, in particular if they come across the goods after they have been sold by Mr Reed and taken away from the stall where the notice appears, may interpret the sign as designating Arsenal FC as the undertaking of origin of the goods."

92. Nuplayer is plainly using the marks in relation to the goods. If that were not right, then the sale of counterfeit goods over the internet would not be an infringement, and it would also follow that every mark on products inside packaging or on components inside a product would also not be an infringement, including, for example, counterfeit batteries and accessories.

Obliteration

93. It is plain that until Sony's complaint Nuplayer was making use of the marks on the website and/or on the packaging and products. It has now become clear (contrary to what was said on its behalf in evidence and at the hearing) that Nuplayer was doing so even after the hearing of this application on July 4, 2005.
94. Mr Watson's witness statement stated that the trade marks would be removed in future from the PSP consoles and their packaging. At the hearing of the application, I was told that for future sales the trade marks would be obliterated. I was told that Nuplayer would apply a skin over the PSP console, and mask the controller symbols by the use of indelible ink. The PSP consoles would be sold in plain boxes (without, presumably, instruction manuals), and the batteries would be generic. In answer to the point that the protective skin (similar to that sold for mobile phones) would be removable, I was told that they would be affixed with super-glue.
95. What I was told has turned out not to be true, and there is very considerable doubt about whether the offer to obliterate was genuine. On June 29, 2005, Sony's solicitors made a test purchase of a PSP console from Nuplayer's website, and the PSP console was despatched on July 5, 2005, the day after the hearing. It was packaged in the Japanese box which features each of the trade marks, and contains the accessories which are marked with the PS logo and/or the controller symbol. There was no skin cover and no obliteration.
96. In a letter of July 12, 2005 Nuplayer's solicitors accepted that sales of PSP consoles had been made after the hearing, without obliteration of the trade marks. They said that Nuplayer's offer to obliterate the trade marks had been rejected by Sony. Nuplayer had since the hearing been establishing a way of permanently and unanswerably obscuring the marks, in particular by super-gluing black skins to the face and rear of the PSP console and permanently obscuring the controller buttons with indelible marker pen. The PSP consoles would be sold with unbranded generic accessories, including battery, memory card, and headphone. All obliteration would be carried out in the Far East and the consoles would be supplied in unmarked brown cardboard boxes.
97. This strongly suggests that Nuplayer was prepared to say anything to avoid an injunction, however untrue. But I do not consider that the offer to obliterate the marks makes any difference, even if it were genuine. Even if the batteries and the headphone would be replaced with generics, and the carry strap would not be sold, the product would still be sold under the marks. Nuplayer has indicated that it will inform consumers that it has obliterated the marks, and why it has done so: this will be an offending use of the marks. It is true that section 15(1) of the 1994 Act provides that, where infringement has taken place, the court may order the infringer to cause the offending sign to be "erased, removed or obliterated" from any infringing goods, but that is merely one of the possible remedies, and cannot possibly found an argument that products which would otherwise be infringing cease to be so when the marks are erased or obliterated.
98. Consequently I am satisfied that Nuplayer has no arguable defence, and that Sony is entitled to an injunction in substantially the terms asked.

Interim injunction

99. Even if I were wrong on the summary judgment application, this is plainly a case for an interim injunction. Nuplayer claims that it is not cost-cutting, and that it is simply taking advantage of the fact that there are consumers who want to purchase the product before its official launch. Its place in the market therefore depends on the product not having been launched in the United Kingdom. If, as anticipated, the PSP console is launched in the United Kingdom on September 1, 2005, Nuplayer on its own case will only be losing sales between July and September.
100. There would be plainly be a serious issue to be tried. Damages would not be an adequate remedy for Sony because (a) quantification of the loss to the marketing prospects and relations with their wholesale and retail customers would be impossible to quantify; (b) Nuplayer is a new company of wholly unknown financial capability.
101. On the present state of the evidence there is considerable doubt as to whether Nuplayer could validly affix CE marking, without which the product cannot lawfully be sold in the United Kingdom. Nuplayer has not answered the point that the CE marking can only be applied by the manufacturer or its authorised representative. If CE marking cannot be validly affixed, that in itself would be a compelling reason for the grant of an injunction.
102. But in any event the balance of convenience factors (which also include the ineffectiveness of a remedy in damages) are all one way: (a) Sony would lose at least part of the benefit of a co-ordinated and expensive launch and marketing strategy in Europe, not only through Nuplayer's sales but through sales by other parallel importers who would jump on the bandwagon; (b) Nuplayer would be selling the product in a highly unsatisfactory form, which would damage Sony's goodwill; and (c) Nuplayer might lose some sales but could be compensated by an award on the cross-undertaking.
103. There are no other factors which militate against an injunction. In particular there is nothing in the point that Sony have delayed, and in any event there is no reason to believe that Nuplayer was in any way prejudiced by any failure by Sony to take action between the time that they knew about Nuplayer's activities (March 21, 2005) and May 9, 2005, when the letter before action was written.
104. I will hear argument on the form of relief.