Rainy November, but Sun shines in Court

It's not every day that the IPKat starts to peruse a judgment and finds himself reading a set of FAQs, but today was that day, in Sun Microsystems Inc v M-Tech Data Ltd and another [2009] EWHC 2992 (Pat), decided last week by Mr Justice Kitchin in the Chancery Division, England and Wales. This is another splendidly interesting decision on parallel trade -- this time in Sun computers and workstations -- that really sets the pulse racing. Are the goods really grey, bravely crossing national boundaries in their quest to further the aims of price competition, or are they eternally damned as trade mark infringements? More to the point, in one of the rainiest Novembers ever, would the Sun penetrate the cloud of European jurisprudence on exhaustion of rights and triumph in court?

In this case Sun (the US computer and workstation folk) owned a series of United Kingdom and Community trade marks comprising or consisting of the word 'Sun' for computers, computer hardware, computer software and computer peripherals. M-Tech, a UK company, supplied computer hardware in the "secondary market" for hardware originally sold by major manufacturers like Sun and its rivals. M-Tech bought 64 Sun disk drives from a US broker and sold them in the UK. Sun sued for trade mark infringement, alleging that M-Tech had put the drives on the UK market without Sun's consent. Not so fast, said M-Tech: since Sun hadn't shown where the drives had been first marketed, its attempt to enforce its trade mark rights was contrary to Articles 28 to 30 of the EC Treaty since its effect would be to prevent the attainment of a single market in hardware. Not only that, but the enforcement of Sun's rights in this way was contrary to Article 81 of the EC Treaty and therefore prohibited. No way, said Sun, and can we please have summary judgment since M-Tech doesn't have a leg to stand on?

What did Sun base its case on? The company provided evidence that the drives had initially been placed on the market outside the European Economic Area (EEA) and they said that there was no evidence to suggest that it had ever consented to their importation into the EEA.

Mr Justice Kitchin sided with Sun and granted summary judgment. In his view

* The court had to ask whether the claimant had a 'realistic' as opposed to a 'fanciful' prospect of success, one which carried some degree of conviction and which was more than merely arguable.

* In reaching its conclusions the court should not conduct a mini-trial, but had to take account of evidence that could reasonably be expected to be available at trial.

* The court should not be hasty to reach a final decision without a full trial where reasonable grounds existed for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.

* Summary disposition was not appropriate in any area of law that was still developing.

* 'Consent' -- the parallel importer's favourite defence to a trade mark infringement -- had to be a pan-European concept under harmonised European law. It was thus up to the European Court of Justice to supply a uniform interpretation of the concept of 'consent' to the placing of goods on the market within the EEA. In view of its serious effect in extinguishing the exclusive rights of proprietors of trade marks, consent had to be expressed in such a way that an intention to renounce those rights was unequivocally demonstrated. While such an intention would normally be gathered from an express statement of consent, it was conceivable that consent might be inferred from the facts and circumstances surrounding the placing of the goods on the market outside the EEA that unequivocally demonstrated that the proprietor had renounced his rights.

* Implied consent to the marketing within the EEA of goods put on the market outside that area could not be inferred from the mere silence of the trade mark proprietor, from the fact that the proprietor had not communicated his opposition to goods placed on the market outside the EEA being placed on the market within the EEA or from the fact that the goods carried no warning of a prohibition on their being placed on the market in the EEA.

The thing the IPKat found most interesting about this decision wasn't the legal analysis but the lengthy cut-and-paste of Sun's FAQs, which if not actually decisive are quite instructive. The Kat thinks that any business that wants to make its position on grey goods crystal clear would do well to execute a similar document and ensure that it is promulgated and made easily accessible. Citing the FAQs, the judge said this:

"25 It is a consequence of the size and nature of this secondary market in Sun hardware that it is practically impossible for brokers or traders who are outside the Sun authorised network to discover whether any particular item of Sun hardware was first marketed by Sun inside or outside the EEA and, if the latter, whether it has subsequently been imported into and put upon the market in the EEA by Sun or with its consent. Such is not apparent from the hardware itself, nor is this information likely to be available from the broker or trader from whom it is bought. All of these matters are recognised by Sun which says on its website in a "Frequently Asked Questions" section:

"Q. What is meant by "unlawfully imported product"?
A. Sun Microsystems is entitled through the enforcement of its trademark rights to control into which market products are placed and must remain. Only with the explicit permission of Sun, as the trademark owner, can product bearing Sun's trademarks be migrated between markets. Therefore, any Sun product brought into the UK from outside the European Economic Area without Sun's explicit permission is considered to have been unlawfully imported.
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Q. How do I know if a reseller who is offering me Sun product is authorised by Sun to do so?
A. Sun UK maintains a full list of all UK and Ireland based resellers who are authorised to sell the full range of Sun Microsystems products. This list can be …. If the name of the party offering you Sun product is not on that list and they are a UK and Ireland based company then they are not authorised by Sun to sell Sun product. Please contact your local Sun Sales Office to obtain validation of a Sun reseller based inside the EEA.

Q. What other hidden dangers are there in buying grey market Sun product?
A. Apart from the issues of the product not being on the market in the UK lawfully and the validity (or otherwise) of all software licences there are other factors to consider. Sun will not place grey market product on a Sun support contract so you would not benefit from Sun's world-class hardware and software support infrastructure. Sun does not in any way guarantee the quality of any Sun product purchased from an unauthorised source. Unlike within Sun's authorised reseller network, Sun has no knowledge of how its products are transported, handled and stored within the unauthorised broker network. Sun has seen instances where Sun product offered for sale in the grey market has been stolen and also situations where Sun product has been "upgraded" with 3rd party and/or counterfeit parts. All these factors add to the significant business risk associated with obtaining Sun product from unauthorised sources.
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Q. How can grey market brokers offer Sun product much cheaper than the authorised resellers?
A. Much of the new product offered for sale by unauthorised brokers has been unlawfully imported by the brokers from other global markets. Sun Microsystems, like all vendors with a global sales and distribution model, is entitled to ring fence those markets from each other. It is the price differential between these markets, that is being unlawfully exploited by the brokers and allows them to offer seemingly cheap products for sale. It is also worth noting that the price of a Sun product from a grey market broker may seem cheaper than that available from an authorised reseller but there are many hidden costs associated with the grey product - lack of warranty support, no support eligibility, invalid Solaris licence, etc.
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Q. What is Sun doing to kerb the unlawful activities of some of the unauthorised brokers?
A. Sun Microsystems globally monitors the activities of unauthorised brokers and does act when appropriate to protect its IP rights and its reputation as a supplier of high quality and reliable computer products. Sun has taken legal action against some brokers involved in unlawful activity and won all the cases it has embarked on. Sun takes these measures to protect its customers from unscrupulous brokers and to protect its IP rights as a global supplier.
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Q. What is an "EU serial number"?
A. Many brokers, trying to allay the concerns of their potential customers regarding the source of their product, use the term "EU Serial number". The term is designed to make the customer feel that the product is on the market in the UK legitimately and that it has not been unlawfully imported. Usually the basis for this assertion is either where the product was manufactured (e.g. "Made in Ireland") or where the broker obtained the product (e.g. another broker within the EU). Neither of these factors gives any protection against the likelihood that the product has been unlawfully imported. Sun manufactures product in a number of plants in the EU but the product those plants produce is just as likely to be placed on the market by Sun outside the EU as it is to be sold inside the EU. Therefore, an unauthorised broker is unlikely to know the true provenance of Sun product they obtain from other unauthorised brokers, even if those brokers are within the EU."

It emerges particularly from the last question and answer that Sun maintains that an unauthorised broker is unlikely to know the true provenance of Sun products it obtains from other unauthorised brokers, even if those brokers are located within the EEA. In any event, traders jealously guard their own sources to avoid being cut out".

Sun King here
Sun Cat here