ECJ allows limits on supply intended to stop parallel trade

Yesterday the ECJ delivered its judgment in Case C-468/06 Lelos v GSK, a reference from the Greek competition authorities concerning a failure by GSK to fully meet orders submitted to it by Greek wholesales which GSK deemed to be well in excess of demand on the Greek market.

Although it is an abuse of a dominant position under Art.82 of the EC Treaty for an undertaking to refuse to supply wholesalers in order to put a stop to parallel importation, an undertaking can stop supplying if orders are placed which are out of all proportion to those previously sold by the same wholesalers to meet the needs of the market in that Member State. It is for Member States' courts to determine whether orders are not 'ordinary', i.e. if they are out of proportion to the needs of that Member State's market. The court stressed that such supplies can only be limited to protect the undertaking's economic interests. It is for the Member State's authorities, and not for pharma companies to crack down on parallel imports which are so extensive that the exporting market finds itself within sufficient supplies of the drug in question.

The IPKat notes that the ECJ wiggled out of commenting on a couple of issues of particular interest to IP lawyers:

1. The argument was raised that consumers wouldn't ultimately benefit from parallel importation because any price differential between the importing country and the country of origin would be eaten up by parallel importers are resellers. No matter, said the ECJ - price competition would still result in the shape of 'financial benefits not only for the social health insurance funds, but equally for the patients concerned, for whom the proportion of the price of medicines for which they are responsible will be lower. At the same time... parallel trade in medicines from one Member State to another is likely to increase the choice available to entities in the latter Member State which obtain supplies of medicines by means of a public procurement procedure, in which the parallel importers can offer medicines at lower prices.' The IPKat says that this reasoning is limited to industries like pharma, where there is massive public procurement, backed by social funds. He also notes that this reasoning assumed that patients are responsible for a proportion of the cost, unlike the NHS, where a flat rate applies.
   
2. The court felt it unnecessary to consider the argument that undertakings might need to limit parallel importation to recoup their R & D costs.

The Kat also detects a whisker of the court's old IP-scepticisim in para.64:

On the other hand, it should be recalled that, where a medicine is protected by a patent which confers a temporary monopoly on its holder, the price competition which may exist between a producer and its distributors, or between parallel traders and national distributors, is, until the expiry of that patent, the only form of competition which can be envisaged.

No link between parallel trade and reduction in R&D, says AG

It's only available in ten official EU languages (naturally excluding English), but the IPKat thinks that the Opinion of Advocate General Dámaso Ruiz-Jarabo Colomer in Joined Cases C-468/06 to C-478/06 Sot. Lélos Kai Sia EE (and Others) v GlaxoSmithKline AEVE is worth paying close attention to. So, presumably does the European Court of Justice itself since it went to the effort of pinning a press release on the Opinion on to its website.

Right: it may provide relief from migraine, but Imigran is giving GSK a real headache in these proceedings before the ECJ

At the heart of this case, a reference for a preliminary ruling from Greece, lies the question whether GlaxoSmithKline can refuse to supply orders from wholesalers for pharma products that, it believes, will be pushed into the IP owners' favourite bugbear, parallel trade. The Advocate General has recommended the Court to rule that any attempt to use one's market dominance (and having patent and trade mark rights can create that dominance) in order to stop lawful parallel trade is an abuse of dominant position under Article 82 of the EC Treaty.

According to the press release, which gives a fuller picture:

"Through its subsidiary, GSK ... distributes in Greece certain pharmaceutical products for which it holds the patent (Imigran for migraine, Lamictal for epilepsy and Serevent for asthma). For a number of years, the applicants (intermediary wholesalers) have been buying those medicinal products in order to supply the market not only in Greece but also in other countries (Germany and the United Kingdom) where the amount reimbursed per medicinal product is higher than that obtained in Greece. In 2000, GSK changed its system of distribution in Greece, no longer meeting orders from wholesalers. It supplied hospitals and pharmacies through a company called Farmacenter AE. The dispute which then arose gave rise to a first reference to the Court of Justice of the European Communities for a preliminary ruling [Case C-53/03 Syfait and Others [2005] ECR 4609 ..., in which the Court declared that it had no jurisdiction to reply to the body which had referred the question to it (the Epitropi Antagonismou), since the latter was not a court or tribunal].

Before the Greek civil courts, Sot. Lélos and the other wholesalers maintained that GSK’s interruption of supplies, as well as its practice of trading through Farmacenter, amounted to anti-competitive conduct and abuse of dominant position.

The Trimeles Efeteio Athinon (Appeal Court of Athens) therefore sought a preliminary ruling on a number of questions concerning Community competition law and the abuse of dominant position, as well as parallel exports of medicinal products from Greece to other Member States.

Advocate General Dámaso Ruiz-Jarabo points out that the Treaty provision which prohibits abuse of dominant position does not admit of any exception. Moreover, he maintains that the Treaty does not provide a basis for attributing to undertakings in a dominant position conduct which is in itself abusive, even when the circumstances of the case leave no room for doubt as to its anti-competitive purpose or effect. On the contrary, such conduct may be objectively justified.

First, in the view of the Advocate General, the European pharmaceuticals market is an imperfect market, with a low level of harmonisation, characterised by State intervention in respect of pricing and public reimbursement systems and by the duty to supply and where, because of the industrial patents of pharmaceutical products, the holders of those industrial property rights can easily assume positions of dominance.

Nevertheless, the Advocate General believes that the price regulation system is not completely free from the influence of the manufacturers, who negotiate prices with the health authorities of the Member States. By the same token, the duty to supply does not justify cutting off supplies to rival wholesalers, because the needs of patients in a Member State are not subject to sudden changes, and the statistics for the various illnesses are reliable, offering companies a degree of predictability which enables them to adapt to the market.

Second, protection of legitimate business interests may justify conduct such as that of GSK, in accordance with certain case-law of the Court of Justice. However, in the present case, the Advocate General rejects the idea of a causal link between the loss of income because of parallel trading and the producer’s reduction of investment in research and development. In fact, the European Union offers undertakings a favourable environment in that respect, encouraging them to minimise the costs entailed by research and development by means of block exemptions for horizontal agreements of that nature.

Lastly, the Advocate General suggests that undertakings in a dominant position may be entitled to demonstrate the efficiency in economic terms of their potentially abusive conduct. As regards the circumstances of the present case, however, the Advocate General takes the view that – apart from the description of the negative consequences of parallel trade – GSK has not indicated any positive aspect resulting from its cutting down on medicinal supplies to wholesalers.

In consequence, the Advocate General proposes that the Court of Justice state in reply to the questions referred for a preliminary ruling that an undertaking in a dominant position which refuses to meet in full the orders of wholesalers of pharmaceutical products, with a view to reducing the harm caused by parallel trade, thereby engages in abusive conduct. However, it is possible that the undertaking can provide an objective justification for its conduct by showing that the regulation of the market compels it to behave in that manner in order to protect its legitimate business interests (it not being possible in the present case to rely on the pricing system for medicinal products, the duty to supply or the impact on innovation incentives)".

Says the IPKat, it would be good to see the basis upon which the Advocate General was able to conclude that there was no "causal link between the loss of income because of parallel trading and the producer’s reduction of investment in research and development". What is the nature of his evidence? And how, in the course of a reference to the ECJ on a preliminary legal issue, is it possible for a party to the proceedings to challenge such a conclusion?

Some cures for headaches here and here

Boehringer Ingelheim v Swingward decision: and the show's not over yet...

The Court of Appeal has delivered its verdict in Boehringer Ingelheim v Swingward. (Readers will be excused if they have a sense of deja vu as they read those words). This is in the light of the ECJ's reponse to the second set of questions referred to it in this case. The ultimate result is Jacob LJ's statement "what I would do for the present is hold that the defendants have complied with BMS condition 4 and in particular that their activities by way of re-boxing and re-labelling have not caused and will not cause damage to the reputation of the claimants' trade marks.". The for now element is a result of a request from the claimants that the Court of Appeal hold off from making its final decison in the light of the fact that there is a pending Austrian reference to the ECJ asking the following questions:

1(a) Are Article 7 of the Trade Marks Directive [full title set out] and the case-law of the Court of Justice of the European Communities which has been pronounced on it to be interpreted as meaning that proof that reliance on the trade mark would contribute to an artificial partitioning of the market must be furnished not only as regards the repackaging in itself, but also as regards the presentation of the new packaging?

If the answer to this question is in the negative:

(b) Is the presentation of the new packaging to be measured against the principle of minimum intervention or (only) against whether it is such as to damage the reputation of the trade mark and its proprietor?

The IPKat can only agree with Jacob LJ's introductory comments:

Notwithstanding the two references to the ECJ and its answers, each "side" claims to have won...That is a sorry state of affairs. European trade mark law seems to have arrived at such a state of uncertainty that no one really knows what the rules are, outside the obviously core case of straightforward infringement (the use of a mark as a trade mark for the defendant's goods which is the same as or confusingly similar to a plaintiff's registered mark registered for the same or similar goods). Big brand owners want bigger rights; smaller players, no change or less. The compromises which have emerged have very fuzzy lines. So it is that in this case, notwithstanding two references (and a host of cases about relabelling parallel imports going back at least 30 years...), there is still room for argument. There is indeed a yet further reference about the subject still pending before the ECJ, see below.

The only winners here seem to be the lawyers (and of course the academics who get to write about the whole sorry mess).

ECJ limit on free movement of DVDs

Not quite an IP case, but one which could halt parallel imports of copyright and/or trade marked materials that would otherwise be allowed under the exhaustion of IP rights doctrine. In Dynamic Medien v Avides Media, the ECJ has ruled that:

"Article 28 EC does not preclude national rules, such as those at issue in the main proceedings, which prohibit the sale and transfer by mail order of image storage media which have not been examined and classified by a higher regional authority or a national voluntary self-regulation body for the purposes of protecting young persons and which do not bear a label from that authority or that body indicating the age from which they may be viewed, unless it appears that the procedure for examination, classification and labelling of image storage media established by those rules is not readily accessible or cannot be completed within a reasonable period, or that a decision of refusal is not open to challenge before the courts."

To give some factual background, Avides imported 'Anime' DVDs from the UK which were classified by the British classification authorities and then sold them on the German market. Dynamic alleged that this breached the Law on the protection of young persons, which prohibits the sale by mail order of image storage media which have not been examined in Germany in accordance with that Law, and which do not bear an age-limit label corresponding to a classification decision from a higher regional authority or a national self-regulation body. Avides argued that this law prevented free movement of goods, and so violated Art.28 EC.

The IPKat finds this case a little odd. The DVDs in question had been examined by the UK authorities. He wonders if standards concerning what programming is suitable for children really is so different in the different EU Member States.