Oracle America Inc. vs. M-Tech Data Ltd.

Oracle America Inc. (Formerly Sun Microsystems Inc.) vs. M-Tech Data Ltd.

[2012] UKSC 27

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Key Words: Parallel Import, Exhaustion Principle, Trade Mark

RELEVANT PROVISION(S): EU Directive 89/104 (available here)

Article 5:

According to Article 5(1) of the Directive, the registered trade mark confers on the proprietor exclusive rights therein. In addition, Article 5(1)(a) provides that those exclusive rights entitle the proprietor to prevent all third parties not having his consent from use in the course of trade of, inter alia , any sign identical with the trade mark in relation to goods or services which are identical to those for which the trade mark is registered. Article 5(3) sets out a non-exhaustive list of the kinds of practice which the proprietor is entitled to prohibit under paragraph 1, including, in particular, importing or exporting goods under the trade mark concerned.

Article 7: Exhaustion of the rights conferred by a trade mark

1. The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.

2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market.

FACTS:

The appellant, trade mark proprietor, Sun Microsystems (S) had supplied disk drives bearing its trade mark to the United States (US). The respondent company, M-Tech Data (M), a computer hardware supplier had imported them from the US into the United Kingdom and sold them to a third party. By virtue of Directive 89/104 art.5 and art.7, a trade mark proprietor has the exclusive right to control the first marketing in the European Economic Area of goods bearing its trade mark. Since S had not consented to the disk drives being marketed in the EEA, it started proceedings for infringement.

ISSUE: Whether M was entitled to defend the action on the ground that S was engaging in anti-competitive activity and obstructing the free movement of goods between Member States.

The court found, at first instance that S’s rights under art.5 and art.7 were unqualified and that it was entitled to summary judgment. The Court of Appeal set aside the judgment, finding that M’s proposed defences had substance.

CONTENTION:

M argued that S had no enforceable rights under art.5 of the Directive because that article was subject to an implied limitation derived as a matter of construction from TFEU art.34 to art.36 which precluded any exercise of trade mark rights having the object or effect of partitioning the EU internal market.

HELD:

The Appeal was allowed.

The Directive had to be construed on the assumption that it was intended to be consistent with the provisions of The Treaty on the Functioning of The European Union (TFEU) (available here) relating to the free movement of goods; the scheme of art.5 and art.7 directly embodied those provisions. Reconciliation between art.5 of the Directive and the TFEU provisions was achieved in the Directive by art.7: the rights derived from art.5 were exhausted under art.7.1 as soon as the goods were first put on the market in the EEA by, or with the consent of, the trade mark proprietor. Thereafter, subject to art.7.2, which provided for the proprietor to retain control where there were “legitimate reasons” for doing so, the proprietor had no subsisting rights capable of engaging the prohibition of restrictions on trade between Member States. ECJ case law therefore differentiated between cases where-

a) the goods had not previously been marketed in the EEA with the proprietor’s consent, and the proprietor sought to exercise his rights under art.5 where his rights under art.7.1 were not exhausted; and

b) cases governed by art.7.2 where the goods were legitimately in circulation within the EEA but where the proprietor had legitimate reasons to oppose their further commercialisation.[1]

In the first scenario, the principle of free movement of goods was incapable of restricting the proprietor’s right to prevent the first marketing within the Community of goods imported from outside the Community.[2] In the second scenario, the principle of the free movement of goods might be engaged on the facts.

While national law might place the burden of proving consent on the alleged infringer, if the effect of that would be to enable the proprietor to partition national markets within the EU, the burden of proof had to lie with the proprietor.[3]

Applying those principles to the facts of the instant case meant that M did not have a defence since the unlawful conduct it alleged was collateral to the particular right which S was seeking to enforce, namely its right to control the first marketing of the goods in the EEA. That exercise did not engage the principle of free movement of goods, only the entry of the goods into the EEA market. It was an entirely lawful exercise and not one which could be prevented simply because S proposed to withhold information about the provenance of its goods.

The exercise of S’s rights was not an abuse of EU law (paras 33-35). The legislative provisions and legal principles applicable to the instant case were entirely clear and no reference to the ECJ was needed. The judgment in favour of S was restored (para.36).