Roundabout trade avoids trade mark infringement, says Court of Appeal

The IPKat has been a little slow to report on Eli Lilly and Co and another v 8PM Chemist Ltd [2008] EWCA Civ 24, a decision of the Court of Appeal for England and Wales earlier this month, on appeal from the ruling late last year from Mr Justice Mann (noted here by the IPKat).

In brief, Eli Lilly -- a big international pharma company -- owned the Community and UK registrations of the Cialis, Lilly, Evista, Humalog and Humulin word and logo trade marks. 8pm, a substantial UK company, ran a pharmacy business. Eli Lilly's products sold well in the USA, where patients tried to buy genuine goods more cheaply outside the USA, generally by using the internet. This was done in the following manner: USA patients would first get a doctor's prescription for the product; they would then order it from a Canadian company, which placed an order with a Turkish company (which had genuine stocks of the drugs concerned, packaged in boxes bearing the Lilly trade marks, instructions in Turkish and containing information leaflets in Turkish). That order would then checked by a pharmacist, who reviewed the dispensing label to check the directions. The appropriate label would then be stuck on to the side of the Lilly box, following which the product would be placed into a brown box which was sealed and given a label containing just the patient's name and address. Each brown box was then air-freighted to 8pm in the UK, where the box remained sealed and the relevant trade mark was not revealed. Boxes would then be posted to the patient in the US.

8pm's activities were all carried out under an authorised Customs procedure which enabled products to be processed or dealt with in the UK without incurring the obligation to pay duty or VAT. The goods were under 'inward processing relief suspension' and were, accordingly, not 'released for free circulation' in the EU. Eli Lilly sued for trade mark infringement and, in an application for interim relief, Mann J held that there was an arguable case of infringement and granted an interim injunction. 8pm appealed.

The Court of Appeal (Lords Justices Rix and Jacob and Sir William Aldous) allowed the appeal.

* The European Court of Justice of the European Communities in Case C-405/03 Class International BV v Colgate-Palmolive Co (here ) had made it plain that a trade mark owner's goods which were 'non-Community' goods were to be regarded as not having entered the EU for trade mark infringement purposes. This was so, regardless of the fact that those goods had a physical presence.

* Using a mark in the course of trade required introduction of the goods into the Community for the purposes of putting them on the market there. As long as the requirements of the customs-approved treatment or use, other than release for free circulation, under which the goods had been placed were satisfied, the mere physical introduction of the goods into the territory of the Community was not 'importing' and did not entail using the mark in the course of trade.

* The key issue is whether there is an interference with the right of first marketing within the EU. The genuine goods of a trade mark that never become Community goods do not interfere with that right.

* The essential function of the claimants' European trade marks was in no way jeopardised by 8pm's activities. No one in Europe even saw the trade marks and it was unlikely in those circumstances that there would be infringement.

* There was no use of the marks 'in the course of trade'. 8pm's acts were all in relation to goods subject to Customs control and none of the goods ever became Community goods. It followed that the marks were never used in the course of trade in the EU. The giving of an impression to consumers in the USA that goods emanated from the UK, if that could be proved, did not make the case arguably different from that in the case law of the European Court of Justice.

The IPKat can't fault the reasoning of the Court of Appeal, but he feels unhappy at the result. That's not to say that he believes that the principle of Class International is wrong, but rather that any set of rules that requires such a roundabout business model in order to comply with the formal rules relating to trade mark infringement creates the impression that something dodgy is being done.