Oracle America Inc. (formerly Sun Microsystems Inc.) v M-Tech Data Ltd

JurisdictionEngland & Wales
JudgeLord Reed,Lord Carnwath,Lord Clarke,Lord Walker,LORD SUMPTION
Judgment Date27 June 2012
Neutral Citation[2012] UKSC 27
Date27 June 2012
CourtSupreme Court

[2012] UKSC 27

THE SUPREME COURT

Trinity Term

On appeal from: [2010] EWCA Civ 997

before

Lord Walker

Lord Clarke

Lord Sumption

Lord Reed

Lord Carnwath

Oracle America Inc (Formerly Sun Microsystems Inc)
(Appellant)
and
M-Tech Data Limited
(Respondent)

Appellant

Geoffrey Hobbs QC

Guy Hollingworth

(Instructed by Nabarro LLP)

Respondent

Christopher Vajda QC

Guy Tritton

(Instructed by Hill Dickinson LLP)

Heard on 30 April and 1 May 2012

LORD SUMPTION (with whom Lord Walker, Lord Clarke, Lord Reed and Lord Carnwath agree)

1

This is another case arising out of the economically controversial but legally well-established policy of the EU relating to parallel imports of genuine goods bearing registered trade marks. Broadly stated, the question at issue is whether a person who has imported goods bearing the mark into the EEA and offered them for sale there without the consent of the trade mark proprietor, is entitled to defend an action for infringement on the ground that the proprietor of the mark is engaged in conduct calculated to obstruct the free movement of such goods between member states or to distort competition in the EEA market for them.

2

Ever since the Trade Marks Act 1994 gave effect in the United Kingdom to directive 89/104/EC, the rights of proprietors of registered trade marks have been governed by a uniform scheme of EU law. That directive has now been replaced by the current directive 2008/95/EC, but the two directives are in the same terms in every respect relevant to the present dispute. I shall refer to them indifferently as "the Trade Mark Directive" or "the directive".

3

The fundamental provisions are articles 5 and 7. Article 5 defines the rights of the trade mark proprietor. It provides, 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."

Article 5 is subject to article 7, 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."

4

It has been accepted ever since the decisions of the Court of Justice in Silhouette International Schmied GmbH & Co. KG v Hartlauer Handelsgesellschaft mbH ( Case C-355/96) [1999] Ch 77 and Sebago Inc v GB-Unic SA ( Case C-173/98) [2000] Ch 558, that the combined effect of articles 5 and 7.1 of the directive is to confer on the trade mark proprietor the exclusive right to control the first marketing in the EEA of goods bearing his trade mark, even if they are genuine goods which have previously been put on the market by him or with his consent outside the EEA. This is the only right attaching to the trade marks which is relevant in the present case. The subsequent decision of the Court in Zino Davidoff SA v A&G Imports Ltd (Joined Cases C-414/99 to 416/99) [2002] Ch 109, underlined its absolute nature by establishing that the consent of the trade mark proprietor had to be such as to amount to an unequivocal renunciation of the right. It could therefore rarely be implied, and never from the mere fact of his having placed the goods on the market outside the EEA and/or his silence on the question whether they had been lawfully placed in the market within the EEA: see paras 53–56. These decisions are understandably unpopular with parallel traders not forming part of the authorised distribution network of the trade mark proprietors. But they are securely established as part of the legal order of the EU in the domain of trade mark protection. Proposals to modify their effect or to adopt a rule of international exhaustion have been firmly rejected by the EC Commission and the Economic and Social Committee and no attempt was made to change the position when the new directive was adopted in 2008. There is an interesting account of these debates in Stothers, Parallel Trade in Europe (2007), at pp. 347–354.

5

The Claimants, Oracle America Inc, were at the relevant time called Sun Microsystems and that is how I shall refer to them. They are manufacturers of computer systems, workstations and related goods. They are also the proprietors of five relevant Community trade marks and two relevant United Kingdom trade marks registered for use in connection with computer hardware. M-Tech is a supplier of computer hardware in Manchester, which in 2009 fulfilled a trap order from a purchaser called KSS Associates in Epsom for 64 new Sun disk drives. The disk drives had originally been supplied by Sun to purchasers in China, Chile and the United States. M-Tech had bought them through a broker in the United States and imported them into the United Kingdom. Although there was at one time a dispute about this, it is now common ground that Sun had not consented to their being put on the market in the EEA. On the face of it, therefore, M-Tech infringed the marks contrary to article 5.1(a) by using them in circumstances where Sun's exclusive right had not been exhausted under article 7.1.

6

The present appeal arises out of an application initially made by Sun to Kitchin J for summary judgment for (among other things) damages for the infringement, and an injunction restraining any further infringements of the same kind. There is no challenge to the validity of the trade-marks, nor to the facts said to constitute the infringement. M-Tech's defence is set out in a number of witness statements, whose contents are the basis of a draft pleading served shortly after Sun applied for summary judgment. In summary, M-Tech say that Sun's trade marks are not enforceable because (i) the object and effect of enforcement would be to partition the EEA market in Sun hardware contrary to the treaty provisions relating to the free movement of goods (articles 34 to 36 of the Treaty on the Functioning of the European Union); and (ii) the exercise of Sun's trade mark rights is connected with its distribution agreements, which are said to contain restrictive provisions inconsistent with article 101. After the hearing before Kitchin J, M-Tech added a third argument, to the effect that enforcement of Sun's trade marks would constitute an abuse of rights as that concept is understood in EU law.

7

'Euro-defences' of this kind have been deployed by alleged infringers of intellectual property rights for many years, and the English courts have varied in the robustness with which they approach them. The dilemma is that litigation devalues intellectual property rights, by increasing the cost and delay associated with their enforcement. It may also serve to confer on the alleged infringer a temporary immunity or an improvement of his bargaining power in settlement negotiations, to which he will turn out not to be entitled. The effect can often extend beyond the parties or transactions in issue, to many other cases in which similar questions might be raised. These factors mean that defences like the present one must be scrutinised with some care, even if that requires a certain amount of analysis. On the other hand, a defendant must be allowed to go to trial if it has raised a triable issue of fact which is relevant in point of law. For obvious reasons, this is especially important when the case is founded on fundamental principles of the European Union such as the free movement of goods and undistorted competition. Kitchin J resolved this dilemma in favour of the trade mark proprietor. He gave summary judgment, ordering (among other things) an inquiry as to damages and an injunction. The Court of Appeal (Lord Neuberger of Abbotsbury MR, Arden LJ and Tomlinson LJ) allowed the appeal and set aside the order. This court has been invited to order a reference to the Court of Justice of the European Union. It is I think common ground that if there is an arguable defence in EU law, there will have to be a reference at some stage, either now or after the facts have been found at a trial. But the first question is whether there is.

Articles 34 to 36: Free movement of goods
8

Articles 34 and 35 of the treaty prohibit quantitative restrictions on imports and exports between member states and measures having equivalent effect. Both are subject to article 36, which provides that they do not apply to "prohibitions or restrictions…justified on grounds of…the protection of…industrial and commercial property", provided that these do not constitute a "means of arbitrary discrimination or a disguised restriction on trade between member states."

9

The facts on which M-Tech relies as engaging these provisions are disputed, at least in part, but must for present purposes be assumed to be true. They can be summarised as follows. There is a large global market for second-hand computer hardware, much of which is in the hands of independent resellers who do not belong to the manufacturers' authorised distribution networks. In 2007, according to...

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