Hollister Incorporated and Another v Medik Ostomy Supplies Ltd

JurisdictionEngland & Wales
JudgeLord Justice Kitchin,Mr Justice Peter Smith,Lord Justice Jackson
Judgment Date09 November 2012
Neutral Citation[2012] EWCA Civ 1419
Docket NumberCase No: A3/2012/0331 and 0334
CourtCourt of Appeal (Civil Division)
Date09 November 2012
Between:
(1) Hollister Incorporated
(2) Dansac A/S
Claimants/Appellants
and
Medik Ostomy Supplies Limited
Defendant/Cross-Appellant

[2012] EWCA Civ 1419

Before:

Lord Justice Jackson

Lord Justice Kitchin

and

Mr Justice Peter Smith

Case No: A3/2012/0331 and 0334

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE PATENTS COUNTY COURT

His Honour Judge Birss QC

[2010] EWPCC 40

Royal Courts of Justice

Strand, London, WC2A 2LL

Mark Vanhegan QC and Giles Fernando (instructed by Sloan Plumb Wood LLP) for the Claimants/Appellants

Richard Hacon (instructed by DWF LLP) for the Defendant/Cross-Appellant

Hearing dates: 3–4 October 2012

Lord Justice Kitchin

Introduction

1

This is an appeal against a decision and consequential order of HHJ Birss QC following the hearing of an account of the profits made by the defendant ("Medik") from its infringement of various registered UK and Community trade marks which belong to the claimants and contain or consist of the words "Hollister" or "Dansac".

2

The first claimant ("Hollister") and the second claimant ("Dansac") are members of the Hollister group of companies and are engaged in making and selling a range of medical products, including ostomy products, under and by reference to their registered trade marks.

3

Medik is a parallel importer and in 2003 it began to import into and sell in the UK ostomy products placed upon the market by the claimants or with their consent elsewhere in the EEA but which it had repackaged and to which, in so doing, it had re-applied the claimants' registered trade marks.

4

As the judge observed, there can be no objection to this activity provided the conditions explained by the Court of Justice in Joined Cases C-427/93, C-429/93, C-436/93 Bristol-Myers Squibb v Paranova A/S [1996] ECR I-3457 are met. These conditions, often referred to simply as the BMS conditions, include, as BMS condition (5), a requirement that the importer gives notice to the trade mark owner before any repackaged product is put on sale, and, on demand, supplies him with a specimen.

5

Medik failed to give Hollister or Dansac the appropriate notice in accordance with BMS condition (5) and accordingly, on 6 July 2009, the claimants commenced these proceedings against Medik for infringement of their registered trade marks. On 27 April 2010, Medik admitted the alleged infringements and, on 14 June 2010, a consent order was made against it restraining it from further infringement, directing it to give disclosure of the extent of its infringing activities and directing that there be an inquiry as to damages suffered by the claimants or, at the claimants' option, an account of the profits made by Medik from its infringing activities.

6

After reviewing the disclosure provided by Medik, the claimants elected for an account of profits which came on for trial before the judge on 2 November 2011. The parties invited the judge to decide particular issues of fact and principle on the basis that this would allow their accountants to determine the precise sum due. The judge duly proceeded to hear the account and gave judgment in writing on 20 December 2011. So far as relevant to this appeal, he made the following findings.

7

First, in carrying out the account and determining the sum the infringer must pay, the court is required by Community law to consider the extent of damage to the trade mark owner caused by the parallel importer's infringement and the principle of proportionality. Accordingly the court should adopt the following approach:

i) assess the account on the normal basis under English law;

ii) consider 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;

iii) decide what final sum should be awarded having regard both to the sum assessed on the account at step (i), and the factors considered at step (ii).

8

Applying this approach, the judge decided to award the claimants half of Medik's net profits assessed on the normal basis under English law.

9

Second, the judge addressed the approach to be adopted to the calculation of net profits. Specifically he held that Medik was entitled to deduct not only the direct costs associated with the importation and sale of the infringing products but also a proportion of its general overhead costs. It was, he said, irrelevant whether, absent the infringement, the costs would have been incurred anyway.

10

Third, the judge resolved a dispute between the parties about the number of infringing products sold by Medik. He found that Medik had sold a total of 58,211 infringing products comprising 3,275 repackaged Hollister products and 54,936 repackaged Dansac products, these being the figures for which Medik contended.

11

On this appeal both sides submit that the judge fell into error in making the first of these findings. The claimants say there should have been no deduction from the sum found due upon the taking of the account on the normal basis under English law. Medik contends the judge ought to have found that the claimants were not entitled to any of Medik's profits at all.

12

The claimants also say the judge fell into error in making the second and third findings. They say that the judge adopted the wrong approach to overheads and that he underestimated the number of infringing products which Medik had sold.

13

The following issues therefore fall to be determined:

i) whether the judge erred in his approach to the taking of an account for infringement arising from a breach of BMS condition (5);

ii) whether the judge erred in his approach to the assessment of net profits, a point of general importance in intellectual property cases;

iii) whether the judge erred in finding that Medik had sold a total of 58,211 infringing products.

14

I will address these issues in turn.

An account for breach of BMS condition (5)

15

The rights of a registered trade mark owner are defined by Article 5 of Directive 2008/95/EC ("the Directive") which has replaced Directive 89/104/EEC, and by Article 9 of Council Regulation (EC) No 207/2009 ("the Regulation") which has replaced Council Regulation (EC) No 40/94. These provisions are the same in all material respects and so I need only refer to Article 5 of the Directive which reads, so far as relevant:

" Rights conferred by a trade mark

1. The registered trade mark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade:

a. any sign which is identical with the trade mark in relation to goods or services which are identical with those for which the trade mark is registered;

3. The following, inter alia, may be prohibited under paragraphs 1 and 2:

a. affixing the sign to the goods or to the packaging thereof;

b. offering the goods, or putting them on the market or stocking them for these purposes under that sign, or offering or supplying services thereunder;

c. importing or exporting the goods under the sign;

d. using the sign on business papers and in advertising."

16

Article 5 of the Directive is subject to Article 7 (corresponding to Article 13 of the Regulation) which provides:

" 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 commercialisation of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market."

17

Article 7(1) of the Directive enshrines the principle of Community exhaustion. Save in the circumstances defined by Article 7(2), a trade mark owner is precluded from relying on his trade mark rights to prevent the importation of a product which has been put on the market in another Member State by him or with his consent. In the context of parallel imports of repackaged products it raises the question as to what constitutes a legitimate reason for the trade mark owner to oppose further commercialisation of the imported product. This question was answered by the Court of Justice in Bristol-Myers Squibb in articulating the five BMS conditions:

"Article 7(2) … must be interpreted as meaning that the trade mark owner may legitimately oppose the further marketing of a pharmaceutical product where the importer has repackaged the product and reaffixed the trade mark unless:

(1) it is established that reliance on trade mark rights by the owner in order to oppose the marketing of repackaged products under that trade mark would contribute to the artificial partitioning of the markets between Member States …;

(2) it is shown that the repackaging cannot affect the original condition of the product inside the packaging; …;

(3) the new packaging clearly states who repackaged the product and the name of the manufacturer in print such that a person with normal eyesight, exercising a normal degree of attentiveness, would be in a position to understand; similarly, the origin of an extra article from a source other than the trade mark owner must be indicated in such a way as to dispel any impression that the trade mark owner is responsible for it; however, it is not necessary to indicate that the repackaging was carried out without the authorization of the trade mark owner;

(4) the presentation of the repackaged product is not such as to be liable to damage the reputation of the trade mark and of...

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