Summer Sales -- but not for all products

Hurry, while stocks last!

Surtec International GmbH v A-Tech Chemicals UK Ltd, a Chancery Division, England and Wales, decision of Mr Justice Sales last week, is (like most extempore rulings) not available on BAILII and, given that the judge is not a regular member of the jurisdiction's IP judicial squad, it's quite likely to get overlooked entirely -- but this Kat thought it was of enough interest to discuss here since it deals with the sort of everyday humdrum episode that occurs in IP litigation. The explanation which follows is derived from the bare bones of the action, in the form of a handy little note on the subscription-only Lawtel service.  The IPKat hopes he has got it right: the various players are referred to in the note as C, R1, R2, R3 and X respectively, but he doesn't see what crime would be committed if they were referred to by their names or status.

Surtec, a chemical manufacturer, alleging that A-Tech and two of its directors were infringing its trade mark, sued and commenced proceedings in which it sought interim injunctive relief pending a full trial on the merits of the action. The type of infringement which Surtec alleged was the best sort if you're a claimant: same-goods-same-mark infringement under the Trade Marks Act 1994 section 10(1) [= Directive 2008/95, art.5(1)(a)].  The two directors of A-Tech were once, it seems, directors of one of Surtec's subsidiaries, 'X'.  What usually happened was that another of Surtec's subsidiaries supplied goods bearing its trade mark to X, which then sold it on to customers, all with Surtec's consent.

All went well until X encountered trading difficulties and entered liquidation. At this sad point of time, X had substantial book debts but much of the trade mark-bearing product in stock.  The two directors then set up A-Tech and continued supplying the product to customers. Surtec was none too happy about this, suggesting that the directors had misappropriated the product from X and that A-Tech was therefore selling Surtec's goods.

Exhaustion doctrine in practice

Could A-Tech and its directors rely on the doctrine of exhaustion of rights enshrined in section 12(1) of the same Act [= art.7(1) of the same Directive].  No, said Surtec, the goods had been sold without its consent, using A-Tech's own logo, and there was evidence that the first-named director had admitted that some of the supplies sold had been obtained not in the European Economic Area (EEA) but outside the territory of European trade mark law, in North America. And even if the exhaustion rule apparently applied, section 12(2) [= art.7(2)] came along to disapply it, in that Surtec had legitimate reasons to oppose the further commercialisation of the goods.

A-Tech and its human co-defendants conceded that there was a serious issue to be tried as to whether the product had been relabelled and resold in conformity with the requirements under section 12(2) [Astute readers will recall that this section, and the corresponding article of the Directive, make no mention of relabelling. The EU's laws of relabelling have been developed by the Court of Justice of the European Union in numerous cases involving pharmaceutical products, with little assistance from the relevant legislative provisions] but submitted that they were not in breach of section 12(1) as the product had been purchased from an authorised distributor of the product in the EEA.

Sales J refused the application for interim relief.  In his view

* The allegation that the two directors had misappropriated the product from X was not directly relevant to the trade mark claim;  that was a matter for the liquidators to deal with. However, in the court's view there was no arguable case for dishonesty on the part of either of the directors. The fact that X had book debts and trading difficulties was, on the face of it, an explanation as to what happened to the product and there was. There was no suggestion of wrongdoing.

* The evidence confirmed that there had been supplies that were from an authorised distributor of the product [though Merpel notes that the fact that supplies have been sourced from an authorised distributor does not mean that other supplies have not been sourced from unauthorised suppliers: this is part of the evidential scenario that can make even same-goods-same-mark infringement actions so tricky]. Further, the trade mark had been clearly displayed so as to show the origin of the goods as a genuine product manufactured by Surtec. There was no serious issue to be tried on that point.

* However, as to whether the product had been obtained in North America, there was a serious issue to be tried since there was no explanation for the first director had said that goods had been obtained from North America if that was not the case and a later denial did not dispel that possibility [Says Merpel: if the provenance of the goods in question is not traced with precision, the possibility always exists that the goods were sourced from North America, whether the director admitted it or not. The evidential value of a concession which is not supported by any proof and which is subsequently denied, in proceedings in which the civil burden of proof is just that of 'balance of probability', is unclear. If nothing else, it will affect the trial judge's perception of the reliability of the director's testimony].

* The two directors, having conceded Surtec's section 12(2) point, offered undertakings not to sell the product unless Surtec agreed, or until further order of the court. Since they had done so, Surtec would be fully protected until trial by the undertakings offered by A-Tech and its directors and it was therefore unnecessary to make an order beyond that.

This Kat wishes that more was known about the background to the case. Being addicted to small print, he always reads the bits on the bottom of the packaging of pharmaceutical products, including the use-by date, and he is often surprised at how little time remains between a pharma product coming into his domain and its becoming unusable.  The same factor might have been at play here, given that most of X's stock was described by the liquidator at page two of this letter as "aged and obsolete": he'd love to know how much attention judges give to the shelf-life of products bearing disputed trade marks when the effect of a successful application for interim injunctive relief would be to render the disputed goods commercially useless.