Scottish Court of Session Decisions

[1] In this Opinion I shall refer to the pursuer as "Beecham" and to the defender as "Munro". Beecham is part of the SmithKline Beecham Group of companies, which specialise in, inter alia, the development, production and distribution of pharmaceuticals for human use. This action is concerned with a medicinal product with the generic name of paroxetine, the patent to which is held within the Group, which is sold as an anti-depressant in a number of countries. As I understand it, all products containing paroxetine as the active ingredient are manufactured by companies within the SmithKline Beecham Group. In all European countries, with one exception, in which the product is sold it is sold under the brand name SEROXAT. In the United Kingdom, where the product is marketed by Beecham, Beecham is the registered proprietor of the trade mark SEROXAT, number 1239899, in Class 05 (Pharmaceutical, Veterinary and Sanitary Preparations and Substances). In Sweden Beecham is proprietor of the trade mark SEROXAT, number 256863. The product is marketed in Sweden by an associated Swedish company.

[2] In France, the regulatory authorities have required that the product be marketed under another name, to avoid confusion with a similarly-named product, and accordingly it is marketed there by SmithKline Beecham Laboratoires Pharmaceutiques under the brand name DEROXAT. Beecham is the proprietor of the trade mark DEROXAT registered in France under number 92420574 and as a Community Trade Mark under number 0010757587. It appears that the price at which the product is sold in France is substantially less than that at which it is sold in Sweden and is indeed the lowest in Europe. This yields the possibility of making a profit by parallel importation of DEROXAT from France for sale in Sweden. In France the product is sold in tablet form, with the name DEROXAT embossed in each tablet. Tablets are packaged in blister packs, printed with the name DEROXAT, and blister packs are packaged in cardboard boxes, again printed with the name DEROXAT.

[3] Munro, according to Beecham's pleadings, which I do not understand to be disputed in this regard, trades as a wholesaler of pharmaceutical products in the United Kingdom. It imports such products into the United Kingdom from other European markets and sells them to retailers. Munro has obtained a licence from the Medicines Control Agency in the United Kingdom for the parallel importation of the DEROXAT product from France into the United Kingdom, to place it on the United Kingdom market under the generic name of paroxetine. So far as parallel importation into Sweden is concerned, Munro imports the DEROXAT product from France into the United Kingdom. It leaves the tablets unaltered within their blister packs. It affixes a label with the name SEROXAT to each blister pack. It re-boxes the blister packs in cardboard boxes printed with the name SEROXAT. It then exports the re-labelled and re-packaged product to Sweden, where it is sold under the name SEROXAT by an associated Swedish company, Medartuum AB ("Medartuum"). The cardboard box and a leaflet within it contain information, in Swedish, about the re-labelling of the product from DEROXAT to SEROXAT. Medartuum AB has obtained marketing authorisation from the Swedish Medical Products Agency for this parallel importation of the re-labelled and re-packaged product. Beecham claims that Munro's affixing of the name SEROXAT to the blister packs and the boxes infringes its exclusive rights under the Trade Marks Act 1994 ("the Act"). At this stage, it seeks interim interdict in terms of the first conclusion of the summons, which is in these terms:

[4] Counsel for the pursuer explained that the conclusion for interdict is based on section 10 of the 1994 Act, which provides in particular by sub-section (1) that 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, and sub-section (4), which provides that for the purposes of the section a person uses a sign if, in particular, he inter alia (a) affixes it to goods or the packaging thereof, offers or exposes goods for sale, puts them on the market or stocks them for those purposes under the sign, or imports or exports goods under the sign. Section 10 was enacted to give effect in the United Kingdom to Article 5 of the First Council Directive of 21 December 1988 to approximate the laws of the Member States relating to trade marks (89/104/EEC) ("the Harmonisation Directive"). Counsel said that the action is not concerned with the provisions of section 12 of the 1994 or Article 7 of the Harmonisation Directive.

[5] Counsel explained that in the present action Beecham takes issue not with the re-packaging of the product per se, but the removal of the trade mark pertaining to sale of the product in France and the affixing of the trade mark pertaining to Sweden, into which the product is imported from France as a parallel import.

[6] Turning to the authorities, counsel referred firstly to Articles 28, 29 and 30 of the E.C. Treaty (formerly Articles 30, 34 and 36). Article 28 provides that quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States. Article 29 provides that quantitative restrictions of exports, and all measures have equivalent effect, shall be prohibited between Member States. Article 30 provides that the provisions of Article 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of inter alia 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. Counsel submitted that the European Court of Justice (E.C.J.) has held that these Articles may come into play where a third party removes a trade mark relative to the Member State of export and substitutes a trade mark relative to the Member State of import. He said that because Beecham is not fully aware of the arrangements between the defender and Medartuum, it is possible that Beecham may have an argument that the only issue which arises is the straight application of section 10 of the 1994 Act, depending on the extent to which Munro is involved in the export of the product. Counsel accordingly reserved his position in respect of a possible later argument to the effect that Articles 28, 29 and 30 do not come into play in the present case. For the purposes of the present motion, however, he proceeded on the basis that he did have to deal with the considerations arising from these Articles.

[7] The first case to which counsel referred was the decision of the E.C.J. in Case-397/97 Pharmacia & Upjohn SA v Paranova A/S [1999] ETMR 937. In that case the Court, in response to a reference for a preliminary ruling under Article 177(now Article 234) of the E.C. Treaty by the Maritime and Commercial Court in Denmark, ruled that the condition of artificial partitioning of the markets between Member States, as laid down in the judgments in Case 102/77 Hoffmann-La Roche v Centrafarm [1978] ECR 1139 and in Joined Cases C-427/93, C-429/93 and C-436/93 Bristol-Myers Squibb &c v Paranova [1996] ECR I-3457, means that it is necessary, in order to determine whether the proprietor of a trade mark may, under national law, prevent a parallel importer of pharmaceutical products from replacing the trade mark used in the Member State of export by that which the proprietor uses in the Member State of import, to assess whether the circumstances prevailing at the time of marketing in the Member State of import make it objectively necessary to replace the original trade mark by that used in the Member State of import in order that the product in question may be marketed in that State by the parallel importer. Counsel referred to the summary by the Court, at paragraphs 13 to 22, of its previous case law. Counsel referred in particular to paragraphs 20 and 21, in which reference is made to Case 3/1978 Centrafarm BV v American Home Products Corporation [1978] E.C.R. 1823, which concerned the case where the parallel importer replaces the original trade mark used by the proprietor in the Member State of export by the trade mark which the proprietor uses in the Member State of import. As summarised in paragraph 21 of Pharmacia & Upjohn SA v Paranova A/S, in paragraphs 14, 17 and 18 of that judgment, the Court held, first, that the essential function of the trade mark, namely the guarantee of origin of the trade-marked product, would be jeopardised if it were permissible for a third party to affix the mark to the product, even the original product, and, second, that the right granted to the proprietor of the trade mark to prohibit any unauthorised affixing of that mark to his product accordingly comes within the specific subject-matter of the trade mark. The proprietor was accordingly justified, pursuant to the first sentence of Article 36 of the Treaty, in preventing the parallel importer from so acting. It would however constitute a disguised restriction on trade between Member States if it were established that the practice of using different trade marks for the same product had been adopted by the proprietor of those trade marks for the purposes of artificially partitioning the markets. Counsel said that he founded very strongly on a trade mark's being a guarantee of origin. This was the justification for the prevention of the unauthorised affixing of a trade mark to the proprietor's goods. No question arose in this case of the artificial partitioning of markets, because the use of a different name in France had been imposed by the French authorities.

[8] In Pharmacia & Upjohn SA v Paranova A/S the Court said at paragraphs 43 to 46:

[9] Counsel next turned to decisions of the national Courts. In Aventis Pharma AB v Paranova Lakemedel AB, in which the judgment of Stockholm District Court was delivered on 5 October 2000, the defendant was prohibited from using the trade mark IMOVANE on pharmaceutical products imported from Spain and there placed on the market under the trade mark LIMOVAN. As I understand it from the Court's discussion of the facts in that case, physicians in Sweden, except in rare exceptional cases, indicate on their prescriptions the names of the drugs and thus also their trade marks, rather than making generic prescriptions. Prescribed drugs are dispensed by Apoteksbolaget AB, which has a monopoly of pharmacies. Where a physician describes a named drug, only this will be dispensed. The pharmacy does not make any determination as to whether a less expensive drug may be sufficient for the patient, and only in certain cases, for instance if the pharmacy is out of stock, is a replacement made, but then only at the request of the patient and after consultation with the prescribing physician. The unofficial translation of the judgment contains this passage:

Towards the end of the judgment the Court considered whether it was objectively necessary for Paranova to have access to Aventis's trade mark in order to gain effective access to the market for the parallel imported product. The Court said:

The Court concluded that there was nothing which prevented Paranova from marketing in Sweden the drug imported from Spain, and accordingly the replacement of the trade marks by Paranova constituted trade mark infringement.

[10] Counsel said that he founded on this case because it provided guidance on the approach to the test of objective necessity. It also provided the basis upon which Beecham intended to bring proceedings in Sweden against Medartuum, which proceedings were likely to succeed. In this connection, counsel referred to a letter from a firm of lawyers in Stockholm which concluded that Beecham has good chances of obtaining both a preliminary injunction and a final ruling prohibiting Medartuum from re-labelling the DEROXAT product as SEROXAT. The letter expressed this view in light of the decisions of the E.C.J. and the Stockholm District Court on which counsel relied.

[11] Counsel also referred to Boehringer Ingelheim Danmark A/S &c v Orifarm A/S, a decision of the Court in Odense in Denmark dated 21 August 2000, and a decision of the Higher Regional Court in Frankfurt/Main dated 4 November 1999 under reference 6U155/98, in which similar results were reached. Counsel submitted that it is strongly arguable that these decisions of the national Courts are a correct view of the law established by the decisions of the E.C.J.

[12] It is averred in the summons that the replacement of the mark DEROXAT with the mark SEROXAT is not objectively necessary for the product to gain access to the market in Sweden. There are no regulations, rules or practices in Sweden which would prevent the product's being marketed under the mark DEROXAT. If Munro is prohibited from affixing the trade mark SEROXAT to the French product, this will not hinder its effective access to the market in Sweden. Moreover, Munro could purchase the product under the mark SEROXAT in other Member States of the E.E.A. The product is sold by Beecham on several of these markets at a price lower than that at which it is sold in Sweden. Munro replaces the mark DEROXAT with the mark SEROXAT solely in an attempt to secure a commercial advantage. In particular Munro and/or Medartuum seek to avoid the costs of promoting the brand DEROXAT, which is unknown in Sweden.

[13] Counsel submitted that in the foregoing circumstances Beecham has a strongly arguable prima facie case. Turning to the balance of convenience, he referred to Burn Murdoch on Interdict, paragraph 152 at p. 137, and made the broad submission that if interim interdict is not granted, Beecham is likely to suffer damage which would be difficult to quantify and for which it would accordingly be unlikely to be compensated. This is elaborated in the summons, where it is averred that the replacement of the mark DEROXAT with the mark SEROXAT jeopardises the essential function of the trade mark, which is to guarantee to the consumer or end-user the identity of the origin of the trade-marked product by enabling him to distinguish it without any risk of confusion from products of different origin. This guarantee of origin is jeopardised by Munro's use of the mark SEROXAT on the product. Unquantifiable but significant damage would thereby be done to the specific subject matter of the trade mark which includes (1) the right to prohibit the unauthorised affixing of the trade mark to the product and (2) the right to oppose any use of the trade mark which is likely to impair the guarantee of origin. The substitution of SEROXAT for DEROXAT is capable of causing confusion in the minds of pharmacists and patients as to the origin and genuineness of the product and could lead to a loss of confidence in the SEROXAT product amongst pharmacists and patients in Sweden. It is likely to cause harm to the goodwill which Beecham has built up in the SEROXAT product and in both the United Kingdom mark and the Swedish mark. There are a number of further averments on the same lines. Counsel said that he was not seeking for present purposes to found on loss of sales at this stage. Overall, he submitted, if interim interdict were granted, Munro would be in a better position to demonstrate financial loss, should the point arise, than Beecham would be if interim interdict were not granted.

[14] Counsel for Munro said that it had been purchasing DEROXAT in France since March 1999. On 30 March 1999 it was granted a licence by the Medicines Control Agency to import and market the product in the United Kingdom, where it is marketed under the generic name paroxetine. Munro has also since May 1999 been exporting the product to Medartuum in Sweden. This is a joint venture company between Munro and others. Counsel had not been supplied with details about the precise trading arrangements with Medartuum, but accepted that in broad terms Munro exports the product to Medartuum. The re-packaging is undertaken by Munro in Scotland. The re-packaging, with text in Swedish, complies with the terms of the licence granted by the Swedish Medical Products Agency to Medartuum. I have already described the re-labelling and re-boxing in the introduction to this Opinion.

[15] Counsel said that Munro would accept that Beecham has a stateable case on the merits for the purposes of interim interdict. He submitted, however, that Munro also has a stateable case on the merits. This is not a case of passing-off. The re-labelling does not involve any break in the association between the trade mark SEROXAT and the manufacturer of the product. By an accident of history a different trade mark is applied to the product in France. But for this Munro would be in a clear position under section 12(1) of the 1994 Act. Counsel founded on section 10(6) of the Act, which provides that nothing in the preceding provisions of that section, which relates to infringement of a registered trade mark, is to be construed as preventing its use by any person for the purpose of identifying goods or services as those of the proprietor or a licensee. Counsel submitted that Munro's activity in affixing the trade mark SEROXAT strengthens rather than weakens the association between the goods and their origin. DEROXAT would be an unfamiliar name in both the United Kingdom and Sweden. Its replacement with SEROXAT minimises and avoids the risk of confusion in the market.

[16] Counsel sought to rely on Articles 29 to 31 of the Treaty. He submitted that if Munro were prevented from using the name SEROXAT there would be artificial partitioning of markets. Doctors in Sweden who prescribe medicines show a marked reluctance to use any new name. They prescribe under the name SEROXAT, not paroxetine. Anyone wanting to break into the market would have to overcome this reluctance to use a different name. Moreover, patients might be reluctant to accept a product with a different name. The real issue is to do with what is necessary for the purposes of access to the market.

[17] Counsel referred to the decision of Laddie J. in Glaxo Group Limited &c v Dowelhurst Limited &c [2000] E.T.M.R. 415, which related to the parallel importation into the United Kingdom of pharmaceutical products from other E.U. Member States, the products being re-packaged or re-labelled, using the maker's names and trade marks under which they originally were sold. Laddie J. made a reference to the E.C.J. for a preliminary ruling on a number of questions. As summarised by him in paragraph 193, he held inter alia:-

At the end of the judgment a number of draft questions for reference to the E.C.J. are set out. These include:

Counsel referred in particular to a passage in paragraph 104 where Laddie J. said:

He went on to consider evidence that there was resistance in the United Kingdom to the purchase of re-labelled, rather than re-boxed, products. He accordingly concluded that, absent guidance from the E.C.J. to the contrary, it was necessary for the defendants to engage in the various acts of re-packaging which were complained of.

[18] Counsel said that it would take another eighteen months at least for the E.C.J. to answer the questions referred to them. Meanwhile, an appeal is being brought against the decision of the Stockholm District Court in the Aventis case, and the defendant in that case also intends to seek a reference to the E.C.J.

[19] In these circumstances, counsel submitted that Munro's activities may not constitute infringement of Beecham's trade mark. Although at this stage it is accepted that Beecham has a stateable case on the merits, the possibility that Munro's activities may ultimately be held not to constitute infringement is a factor to be taken into account in considering the balance of convenience. Turning to the balance of convenience, counsel said that Munro has been exporting the re-labelled product for eighteen months. It has built up a significant level of trade with Sweden, amounting to about £20,000 a month. Munro finds it hard to accept that Beecham's Swedish subsidiary was not aware that there was a significant trade involving the re-labelled product. The details of Swedish Medical Products Agency approvals are public knowledge, and the Swedish Pricing Authority, which gives details of different wholesalers' prices, would have indicated Medartuum's involvement. The boxes in which the product is re-packaged bear Munro's name. An explanation was therefore called for as to why it had taken eighteen months for Beecham to become aware of Munro's activities and to decide to take action against it. Interim interdict would invert the status quo of the existing trading pattern. If interim interdict were pronounced, Munro would require to find another name under which to sell the product. If they used the name DEROXAT, Beecham might say there was a risk of confusion. It would take Munro and Medartuum six months to go through the procedures necessary to put the product on the Swedish market under another name, which would mean that they would effectively be out of the market.

[20] Counsel went on to say that parallel imports account for 40% of the Swedish market in SEROXAT. The re-labelled DEROXAT product accounts for about 4% of the total market. If sales of the re-labelled product were prevented, other parallel importers, not Beecham, would take over this share of the market. It was a matter of assertion by Beecham that it would suffer damage by reason of the alleged infringement of its trade mark. There was no evidence of any complaint by patients, physicians or pharmacists that they had been confused by the packaging. Swedish pharmacists are relatively sophisticated, and the Swedish Government encourages parallel imports because they are cheaper. In the Glaxo case at paragraph 175 Laddie J., after reviewing the evidence, had concluded that there was none to support the claim of damage or any reason to suspect that damage would be caused. Pending the outcome of the reference to the E.C.J. in that case, Munro should be allowed to continue with its activities. It keeps accounts and is a substantial organisation.

[21] Counsel for Beecham, who in his opening submissions had anticipated the reliance by counsel for Munro on the Glaxo case, submitted that the decision in that case was inconsistent with the decisions of the E.C.J. on which he relied. Laddie J. was alone in the views he had expressed. Even he had said that there was an obligation on the re-packager to tell the trade mark proprietor about his proposals. Beecham itself was not aware of Munro's activities until 4 September 2000. Its associated Swedish company was aware that Medartuum was marketing the product in Sweden, but did not think an action would succeed until the Aventis decision. There had thus been no unnecessary delay. Regardless of the outcome of proceedings in Sweden, Munro's infringing activities are taking place in Scotland. The peculiar feature of a trade mark is that it is applied by the person having the right to use it, and it is this right which Munro is infringing.

[22] Counsel for Munro accepted that there had been no formal notification to Beecham about Munro's activities. Beecham did however have constructive knowledge as a result of what had come to the notice of its associated company in Sweden.

[23] Counsel said that the decision of Laddie J. in Glaxo does not stand alone among the authorities. There are decisions of other Courts in Europe, particularly Courts in Germany, Austria and Denmark, which support Munro's position, although copies of them are not yet available. If, as Beecham claims, there is damage to its trade mark, that is taking place in Sweden, and, if there is a remedy, it will be available there.

[24] It is not in dispute that Beecham has a prima facie case, that is to say that there is a case to argue and a case to answer. The question for me therefore is whether the balance of convenience favours the granting of interim interdict at this stage. While, having regard to the explanation given by counsel for Beecham, I am prepared to accept that there has been no unreasonable delay on its part in raising the present action, nevertheless I must take account of the fact that there is an established market for the re-labelled and re-packaged product in Sweden as a result of activities which Munro has been carrying on for some time. It is not possible to say whether Medartuum's sales of the product have taken business away from Beecham's associated company or from other parallel importers. It was not, however, suggested to me that any difficulty has arisen in practice from the sale of the DEROXAT product re-labelled and re-packaged as SEROXAT. While the decisions of the E.C.J. would suggest that Munro should have informed Beecham in advance of its intentions, the advantage of what has in fact happened is that it has been possible to form an impression of the reaction of the market in Sweden. In the event, it appears that the market is sufficiently sophisticated to understand that, where a product has been the subject of parallel importation involving its re-labelling and re-packaging, this does not detract from the integrity of the product as one derived from the manufacturer whose mark has been applied in this process. In particular, the tablets embossed with the name DEROXAT are unaffected. The blister pack is unopened and it is only its exterior which is re-labelled. The cardboard box states clearly in Swedish that the tablets are marked DEROXAT and the blister packs have been re-labelled from DEROXAT to SEROXAT. It is therefore difficult to see what scope there is for confusion.

[25] If the market is prepared to accept that the re-labelled and re-packaged DEROXAT is no different from the same manufacturer's SEROXAT, it is hard to see what damage Beecham could suffer, in particular to its rights in its trade mark. I accept that the function of a trade mark is to distinguish goods or services of one undertaking from those of other undertakings and that under section 9(1) of the 1994 Act its proprietor has exclusive rights in it which are infringed by use of it in the United Kingdom without his consent. This, however, requires to be read in conjunction with section 10(6), to which reference has already been made. It is not easy to see how the rights of a proprietor in respect of his trade mark could suffer material damage through the affixing by another person of the trade mark to goods manufactured by the proprietor, the goods themselves (in this case the tablets) remaining unaltered. In a situation such as this, the assertion that the damage is unquantifiable may amount to no more than that the proprietor is unable to say whether or not he has suffered any damage.

[26] The 1994 Act must of course be construed and applied in light of the European materials to which reference has been made. It does not appear to me that the decisions of the E.C.J. on which counsel for Beecham founded are as clear-cut as he claimed. The decision of Laddie J. in the Glaxo case shows that it is possible to take a different view of them. Clarification of its previous decisions will no doubt result from Laddie J.'s reference of various questions to the E.C.J. In the meantime, however, I would regard it as undesirable that different jurisdictions within the United Kingdom should differ except for good reason on issues such as this, and I would only, at this stage at least, be prepared to differ from Laddie J. if I were persuaded that he was clearly wrong. I am not persuaded of this. On the contrary, I find his approach to the question of necessity to be persuasive. I recognise that some national Courts, particularly the Swedish Court in Aventis, have reached a different view. I am told that some national Courts have reached a similar view. The decision in Aventis is obviously of most significance for present purposes. It is, however, subject to appeal, and cannot be taken as the last word on the subject in Sweden. Given the market conditions in that country as set out in the judgment in that case, the result there did not obviously follow from the application of the test of necessity identified by the Court to the facts of that case, which were mutatis mutandis the same as those in the present case. If, in the conditions of that market, re-labelling and re-packaging of a product which is the subject of parallel importation are the only effective means of securing sales on a commercial scale, the test of necessity, if applicable, might be thought to be satisfied in the interests of free trade between Member States. In any event, if the decision in Aventis is to be taken for the time being to represent the law

as it is applied in Sweden, Beecham has a remedy there against Medartuum. It was not suggested that Munro re-labels and re-packages the product for sale as SEROXAT in any other country.

[27] Taking account of these considerations, I am not persuaded that the balance of convenience favours the granting of interim interdict at this stage, and I shall accordingly refuse the motion for the pursuer.