Merck KGaA v Merck Sharp & Dohme Corporation & Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 21 November 2014 |
| Neutral Citation | [2014] EWHC 3867 (Ch) |
| Docket Number | Case No: HC13B00955 |
| Court | Chancery Division |
| Date | 21 November 2014 |
[2014] EWHC 3867 (Ch)
Mr Justice Nugee
Case No: HC13B00955
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Henry Carr QC & Benet Brandreth (instructed by Bird & Bird LLP) for the Claimant
Geoffrey Hobbs QC & Guy Hollingworth (instructed by Linklaters LLP) for the Defendants
Hearing dates: 7–8 October 2014
Introduction
This is the hearing of a preliminary issue ordered by me on 27 February 2014 to determine, in the context of a trade mark dispute, the governing law of a contract entered into between the parties.
The Claimant, Merck KGaA, is a German company with its registered office in Darmstadt, Germany. It is the owner of UK and international registered trade marks which have effect in the UK for the word mark or device mark MERCK for pharmaceuticals among other goods. It complains in these proceedings of the use by the Defendants of the sign 'Merck' without its consent.
The 2 nd Defendant, now called Merck & Co, Inc, is a US company, incorporated in New Jersey. It is the ultimate parent of all the other Defendants. For present purposes the relevant Defendant is the 1 st Defendant, now called Merck Sharp & Dohme Corp, also incorporated in New Jersey.
The German and US businesses have a common heritage and there is a history of dealings between them. One of the matters relied on by the Claimant in these proceedings is an agreement dated 1 January 1970 made between the German and US businesses regulating the parties' use of their respective trade marks throughout the world ( "the 1970 Agreement"), together with a letter dated 24 November 1975 which augments and clarifies the 1970 Agreement ( "the 1975 Letter"). The 1970 Agreement was itself a restatement of an agreement dated 12 September 1955 which was to similar effect ( "the 1955 Agreement").
The US entity which entered into the 1955 and 1970 Agreements and the 1975 Letter was "Merck & Co., Inc." It is agreed that this was the 1 st Defendant, which had this name until 2009 when it was re-named Merck Sharp & Dohme Corp (and the 2 nd Defendant was re-named Merck & Co, Inc). I will refer to it as "Merck & Co".
The German entity which entered into the 1955 Agreement was "Emanuel Merck offene Handelsgesellschaft" (open partnership). The 1970 Agreement was prompted by the change of this body's name back to "E. Merck", E. Merck being its original name. I will refer to it as "E. Merck". It is not admitted on the pleadings whether the Claimant, which currently runs the German business and owns the trade marks, is technically the same entity as E. Merck, or a successor to it, but nothing turns on that for present purposes.
There is a dispute between the parties on the pleadings whether the 1970 Agreement and 1975 Letter are governed by German law or the law of New Jersey, and that is the subject of the preliminary issue which is in these terms:
"There be a trial of a preliminary issue to determine the governing law of the Agreement and Letter as defined in the Particulars of Claim."
Although the Agreement and Letter here referred to are the 1970 Agreement and 1975 Letter, it is accepted by both Mr Carr QC, who appears for the Claimant, and Mr Hobbs QC, who appears for the Defendants, that the governing law of the 1970 Agreement and 1975 Letter must be the same as the 1955 Agreement. Thus although it is no longer in force, the argument before me has concentrated entirely on the governing law of the 1955 Agreement.
The legal principles
There is no dispute as to the legal principles. Since the 1955 Agreement (and the 1970 Agreement and 1975 Letter) all pre-date 1 April 1991, neither the Contracts (Applicable Law) Act 1990 nor the Rome I Regulation applies, and the question as to the governing law of the 1955 Agreement is to be determined under the English common law rules. There is an extended treatment of these in the 1987 (11 th) edition of Dicey & Morris, The Conflict of Laws ( "Dicey"). Rule 180 in Dicey reads as follows:
"The term "proper law of a contract" means the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection."
Subject to one point, there is no doubt that this is the appropriate test to apply. (The one point on which there is some doubt is whether at the third stage the test should refer to the system of law or the country with which the transaction has its closest and most real connection: see Dicey at 1193f.) The commentary to the Rule in Dicey at 1162f recognises that although there are in theory three stages in the analysis (express intention, inferred intention, closest and most real connection), in practice courts frequently move straight from the first to the third stage because the tests of inferred intention and close connection merge into each other. In the present case there is no expressed intention and the argument has largely revolved around the third stage.
Various other points, which were not disputed before me, emerge from the commentary in Dicey:
(1) Renvoi has no place in the law of contract: Dicey at 1164.
(2) The issue falls to be determined at the time the contract was made. There must be a governing law at the outset of the contract, and the governing law cannot fall to be decided, retrospectively, by reference to events which are uncertain when the contract is concluded: Dicey at 1167.
(3) English law adopts a flexible method of determining the proper law: there are no rigid or narrow rules and a wide variety of circumstances are taken into account: Dicey at 1164.
(4) Although some of the older authorities purported to search for the "presumed intention" of the parties where they had not expressly or impliedly chosen the proper law (ie at the third stage), and for that purpose there was a tendency to resort to rebuttable presumptions, the use of presumptions was rejected by the Court of Appeal in Coast Lines Ltd v Hudig & Veder Chartering NV [1972] 2 QB 34 and it was recognised that it is not in truth a question of intention at all (see Chitty on Contracts (31 st edn, 2012) at §30–012 n 65). The judge, putting himself in the place of the 'reasonable man' determines the proper law for the parties, not by seeking to ascertain their (non-existent) intention, but by "how a just and reasonable person would have regarded the problem", what intention "ordinary, reasonable and sensible businessmen would have been likely to have had if their minds had been directed to the question.": Dicey at 1191f.
I was also referred to a number of cases for particular points that were said to be either helpful or unhelpful to one or other side's argument, but it is more convenient to deal with those as and when they arise in discussing the arguments.
Facts
There was no oral evidence and the facts were entirely drawn from the surviving documentary record. As a result there was little disagreement as to what the record showed and this account is largely taken from a schedule of agreed facts, supplemented by statements in the documents which there is no reason to suppose are inaccurate.
The German business has a long history, having its origins in an apothecary's shop in Darmstadt in 1668. It grew to become one of the world's largest manufacturers of chemical and pharmaceutical products with a significant export trade.
The US business had its origins in 1889 when George Merck (a son of one of the members of the German family that were then partners in E. Merck) and Theodor Weicker established a partnership in New York called Merck & Co. Although E. Merck did not have any formal ownership interest in the firm, it lent George Merck the funds to make his initial capital contribution and in return he agreed to pay them his share of the profits, so in practice it had an economic interest in the firm. In 1908 George Merck, who had become a US citizen in 1902, incorporated the US business as Merck & Co, Inc, a New York corporation, the stock being owned by the partners in E. Merck (of whom George was then one). In or about 1917, after the entry of the US into the First World War, the US Alien Property Custodian took steps to seize the company and George Merck voluntarily turned over the shares held by German members of the Merck family, amounting to 80% of the stock. After the end of the war, George Merck bought these interests back, and since then the two businesses have been independent of each other. In 1927 the New York corporation transferred its business to a New Jersey corporation, also called Merck & Co., Inc. In 1934 there was a corporate reorganisation as a result of which the business was transferred again, this time to the 1 st Defendant, another New Jersey corporation and again called Merck & Co., Inc. Nothing for present purposes turns on the identity of the various US entities which have successively owned the US business, and I will use "Merck & Co" to include not only the 1 st Defendant but also its predecessors where appropriate.
Prior to the First World War, Merck & Co acted as a selling agent for E. Merck. During the war, Merck & Co expanded its own manufacturing facilities; and, taking advantage of the allied blockade of Germany, it also obtained a considerable export business in South and Central America. After the war however, it allowed the trade in those countries to be resumed by E. Merck; and from the end of the war to 1932 the parties enjoyed an informal co-operation under which the use of the word 'Merck' in connection with the business of Merck & Co was almost exclusively confined to the US and its territories and...
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