Parallel Imports and Repackaging: Comply with Notice
In this decision, His Honour Judge Birss QC, sitting in the Patents County Court, considered the key principles governing accounts of profits in the context of a parallel-import repackaging dispute.
Background to the dispute
Hollister Incorporated and Dansac A/S (the claimants) manufacture and sell medical devices under the trade marks ‘HOLLISTER’ and ‘DANSAC’, registered in Classes 5 and 10, which include ostomy products. Medik Ostomy Supplies Limited (the defendant) parallel imported and repackaged the claimants’ products from other EU Member States into the UK.
The defendant’s business does not constitute trade mark infringement under the so-called exhaustion of rights principle, because a trade mark proprietor cannot object to the use of his mark in relation to goods which have been put on the market in the EEA under that mark by him, or with his consent, unless there are legitimate reasons for him to object (eg, where the conditions of the goods is changed or impaired) – see section 12 of the Trade Marks Act 1994 and article 7 of Directive 2008/95/EC.
In Bristol-Myers Squibb v Paranova (Joint Cases C-427, 429, 436/93), the CJEU set out the conditions to be satisfied by an importer which purchases goods in a Member State, repackages them and re-affixes the trade mark for onward sale in a different Member State. Such conditions include the requirement to give notice to the trade mark owner before the repackaged product is put on sale and provide samples to the trade mark proprietor upon request.
The claimants sued the defendant because the latter had failed to comply with the notice requirement. The defendant admitted infringement and the claimants elected an account of profits as their relief.
The claimants argued that they were entitled to the gross profits generated by the defendant, as all such sums had been improperly made. The defendant’s counterargument ran as follows:
- the claimants were not entitled to any sums (or a token sum at most), because the infringing act (ie, failure to give notice) had caused no actual damage to the claimants, or alternatively
- if any sums were due, these were to be assessed looking at the net profits (ie, gross profits less attributable costs).
Findings of the Court
On the notice requirement
With regard to the failure to comply with the notice requirement, the Judge reiterated the key principles laid out in Bristol-Myers, ie, that:
It is for the national court to determine the amount of financial remedies according to the circumstances of the case; the sanction must be proportionate, which could include a remedy whereby the trade mark proprietor is entitled to claim financial remedies on the same basis as if the goods had been spurious; and the sanction must be sufficiently effective and a sufficient deterrent to ensure that [the rules] are complied with.
The latter two principles, the Judge noted, reflect the purpose of the notice requirement, which is ‘to give the trade mark proprietor an opportunity to check the repackaging before the product goes on sale and to afford the proprietor a better possibility of protecting himself against counterfeiting’.
On the account of profits
Addressing the parties’ arguments, the Judge observed that:
It was unlikely that the account of profits would result in a token amount, as that would not be an effective remedy or sufficient deterrent; and at the same time, the gross profit figures would not be appropriate as the ‘idea is to assess the profits actually made by the infringement’ and, therefore, costs should be deducted.
With regard to the calculation of the sums due on account, the Judge adopted the following approach:
- he assessed the account on the normal basis under English law following the principles summarised in Celanese International Corp v BP Chemicals Limited  RPC 203. These involved an apportionment of the defendant’s fixed or overhead costs relevant to the infringing activity, ie, the defendant’s resources employed in the parallel importing and repackaging of products. On the facts, such apportionment was to be made by units and not turnover, because the defendant was not a manufacturer but a trading business. This meant that the sale price of the goods was “not a function of the work carried out by [the defendant on them]” and, therefore, “from the point of view of the general costs of the business, one unit [was] much like another”. In other circumstances, an apportionment by value might be appropriate;
- he then considered the extent of damage caused to the trade mark proprietor by the infringement and the issue of proportionality, in all the circumstances of the case. The Judge found that, if the defendant’s sales had not taken place, “the claimants would have earned a substantial profit”; and
- having regard to 1 and 2, he determined what would be a “fair and proper fraction” of the profits at 1, above. The Judge concluded that the claimants were entitled to half of the defendant’s profits, which amount would constitute “an effective deterrent to dissuade those engaged in repackaging and relabelling from not giving notice”, whilst being “proportionate to the reality of the case as a breach of a procedural requirement and nothing more”.