Trade mark infringement and parallel imports—lessons from Flynn Pharma

Has the decision in  Flynn Pharma Ltd v Drugsrus Ltd and another [2015] EWHC 2759 (Ch) clarified the law of trade mark infringement concerning parallel imports of repackaged pharmaceuticals? Tamsin Holman, partner in the dispute resolution legal group at intellectual property specialist D Young & Co, assesses the implications of the case.

What is the background to this case?

Flynn Pharma Limited (Flynn) was attempting to stop the proposed sale in the UK of a parallel imported epilepsy drug which was rebranded with its trade mark FLYNN. The parallel importers (Drugsrus) were intending to purchase phenytoin sodium capsules in other EU countries, where the product is made and marketed by Pfizer under its brand name EPANUTIN, and import them into the UK for repackaging and sale under the name ‘Phenytoin Sodium Flynn’. In 2012, Flynn had acquired the UK marketing authorisation for phenytoin sodium capsules from Pfizer (who originally developed the drug) and, from September 2012, sold the product in the UK as ‘Phenytoin Sodium Flynn’. Pfizer stopped selling the capsules in the UK market shortly thereafter, but continued to sell other presentations (non-capsules) under their EPANUTIN brand. Drugsrus denied infringement of Flynn’s trade mark on two grounds:

  • that they were not using the word ‘Flynn’ in a trade mark sense, and
  • that to stop the parallel imports would be a disguised restriction on trade contrary to the principle of free movement of goods within Europe

How did the High Court address the defendant’s argument that their use of the word FLYNN did not amount to trade mark use?

The court had little hesitation in finding that the use of ‘Phenytoin Sodium Flynn’ on the parallel imported product constituted use as a trade mark, rather than being descriptive of the goods. Drugsrus were therefore unable to avail themselves of the defence under TAM 1994, s 11(2)(b). In considering the Court of Justice of the European Union (CJEU) decisions in Adam Opel AG v Autec AG: C-48/05 [2007] IP & T 408 and Arsenal Football Club plc v Reed: C-206/01 [2003] IP & T 43, the judge viewed the situation as being closer to the latter, since the use of the word FLYNN would be perceived by consumers as indicating that the product originates from Flynn as being the entity responsible for the goods.

How did the conditions laid down by Bristol Myers Squibb and the Court of Appeal decision in Speciality European Pharma v Doncaster apply in this case?

The cases over the years have sought to strike a balance between the right to prevent parallel importation on grounds of trade mark infringement, and the principle of free movement of goods. In Bristol Myers Squibb v Paranova: C-427/93, the CJEU held that trade mark rights could not be used to prevent the sale of repackaged parallel imported pharmaceutical products so long as five conditions are met—the first of which is that the repackaging is ‘necessary’ in order to market the product in the country of importation. Subsequently, inPharmacia and Upjohn SA (formerly Upjohn SA) v Paranova A/S: C-379/97 [1999] IP & T 88, the CJEU confirmed there is no objective difference between re-affixing the same trade mark after repackaging or replacing it with a different mark (used in the country of import), as both constitute use by the parallel importer of a trade mark which does not belong to him. In both these cases, however, the CJEU was addressing situations where the company placing the goods on the market in the country of export was the same as, or affiliated with, the company in the country of import seeking to prevent the importation, such that the latter’s trade mark rights were ‘exhausted’. In the present case, however, Flynn and Pfizer were unrelated.

Drugsrus relied on a passage from the recent Court of Appeal decision in Speciality European Pharma Ltd v Doncaster Pharmaceuticals Group Ltd and another [2015] EWCA Civ 54[2015] IP & T 532, which summarised the applicable CJEU case law, as support for the proposition that, provided the BMS conditions are met, parallel importation cannot be prevented even if the product was not placed on the market by or with the consent of the same trade mark owner who is seeking to prevent the imports. In other words, the question of whether the trade mark owner’s rights had been exhausted was irrelevant in circumstances where the products were identical—as Pfizer in fact manufactured Flynn’s ‘Phenytoin Sodium Flynn’ (under an exclusive supply agreement), as well as its own Epanutin capsules. In rejecting Drugsrus’ argument, the judge stated that the CJEU ‘was not abandoning the protection conferred by a trade mark in favour of some public health criterion dependent solely on the characteristics of the goods sold’ and that the CJEU’s rationale was to uphold the essential function of a trade mark as a guarantee of origin ‘whereby the end user is not misled and does in fact receive products manufactured under the sole supervision of the trade mark owner’.

How did wider contractual arrangements affect the outcome of this case?

In the alternative to its primary case above, Drugsrus contended that in fact Flynn’s trade mark rights were exhausted and that the BMS conditions were satisfied. In determining whether the parallel imported product (Epanutin) had been placed on the market in the exporting state by or with the consent of Flynn, the judge conducted an analysis of the 2012 contractual arrangements between Pfizer and Flynn. She concluded, among other things, that Flynn was responsible for the quality of ‘Phenytoin Sodium Flynn’ in the UK whereas Pfizer was responsible for the quality of Epanutin placed on the market in other EU Member States. This was based on the parties’ respective responsibilities under the agreements, the way they operated in practice, and that the UK marketing authorisation (conferring responsibility for ‘Phenytoin Sodium Flynn’ capsules in the UK) was held byFlynn not Pfizer. Accordingly, Flynn’s trade mark rights in the name FLYNN were not exhausted in respect of the Epanutin capsules that had been placed on the market outside the UK and Flynn was entitled to rely on such rights to prevent Drugsrus from relabelling the parallel imported product. The fact that the capsules themselves were identical did not affect the judge’s view:

‘To hold that the owner of a brand name cannot prevent a third party attaching that brand name to products if the third party can prove incontrovertibly that the product he wishes to supply has rolled off exactly the same production line at the factory which makes the branded goods would be a substantial inroad into trade mark rights.’

What lessons can be learnt from this case?

Notwithstanding the judge’s conclusions on the law, she went on to consider whether the first of the Bristol Myers Squibb conditions would in fact be satisfied in this case (if they were to apply at all). The evidence showed that 7%–9% of UK prescriptions for phenytoin sodium capsules name ‘Phenytoin Sodium Flynn’—such prescriptions can only be fulfilled by dispensing the product carrying that exact name. Following Speciality European Pharma, the exclusion of Drugsrus from even 7% of the UK market could not be regarded as insignificant and, accordingly, the judge held that Drugsrus had established that it is ‘necessary’ for them to rebrand parallel imported product.

While the circumstances of the case may be somewhat unusual, the judgment provides welcome clarification that exhaustion of rights is a precondition for the application of the Bristol Myers Squibb criteria in seeking to defeat a claim of trade mark infringement in cases where the goods are identical. Nevertheless, given the finding that the first Bristol Myers Squibb condition (necessity) would have been satisfied on the facts, the case largely turned on the contractual arrangements and precise nature of the relationship between the company placing the goods on the market in the country of export (Pfizer) and the company in the country of import seeking to prevent the importation (Flynn). As this case demonstrates, the terms upon which marketing authorisations and related rights are divested for a drug in relation to a specific country, and who has responsibility for quality control of the product, can be all important to the ability to restrain parallel imports.

Interviewed by Anne Bruce.

This article is republished with kind permission of WIPIT’s sister site, Lexis®PSL IP & IT. For a free trial click here.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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