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	England and Wales High Court (Patents Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Patents Court) Decisions >> Sun Microsystems Inc v M-Tech Data Ltd & Anor [2009] EWHC 2992 (Pat) (25 November 2009) URL: http://www.bailii.org/ew/cases/EWHC/Patents/2009/2992.html Cite as: [2009] EWHC 2992 (Pat), [2010] FSR 9, (2010) 33(2) IPD 33010, [2010] ETMR 13, [2010] 2 CMLR 7

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/11/2009

Mr Justice Kitchin:

Introduction

1. This is an application for summary judgment in an action for infringement of a registered trade mark which concerns parallel imports into the EEA.
2. The claimant ("Sun") is a US corporation which makes and sells computer systems and workstations and other related goods and services. It is the registered proprietor of a series of UK and Community trade marks comprising or consisting of the word "Sun". All of these marks are registered in respect of, inter alia, computers, computer hardware, computer software and computer peripherals.
3. The first defendant ("M-Tech") is a company incorporated in England and Wales and it carries on business supplying computer hardware in what has been described as the secondary market for hardware originally sold by one of the major manufacturers such as Hewlett Packard, IBM or Sun.
4. The particular activities giving rise to this action concern 64 Sun disk drives which M-Tech purchased from a broker in the USA, imported into the UK and sold to a business called KSS Associates. Sun contends these disk drives were put on the market by M-Tech in the UK without its consent and accordingly there can be no doubt that M-Tech has infringed its registered trade marks.
5. M-Tech resists this application essentially on three grounds. First, it contends Sun has failed to establish where the disk drives were first marketed, and says it may be the case that they were first marketed in the EEA, in which case Sun's trade mark rights are exhausted. Second, it asserts that the enforcement by Sun of its trade mark rights is contrary to Articles 28-30 EC as its effect will be to prevent the attainment of a single market in hardware which has been marketed by Sun or with its consent in the EEA. Third, it asserts that the enforcement by Sun of its trade mark rights is connected with agreements which are contrary to Article 81 EC and is therefore prohibited. The agreements relied upon are those between Sun and its authorised distributors which require the distributors to buy Sun equipment, whether new or second hand, within the Sun authorised supply network whenever possible. I must elaborate the various facts and matters upon which M-Tech relies in support of these defences later in this judgment.

Principles to be applied on a summary judgment application

6. There was no dispute between the parties as to the principles I must apply upon this application. They have been conveniently drawn together by Lewison J. in Pegasus Management Holdings S.C.A. v Ernst & Young [2002] EWHC 2720 at [42]:

"42. …:

i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 2 All ER 91;

ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];

iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman;

iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];

v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63.

7. To these I would add the cautionary observation of Longmore LJ. in Doncaster Pharmaceuticals at [92]:

"92. The relevant law is still in the process of formulation and, rather as this Court has held in Sportswear SpA v Stonestyle Ltd [2006] EWCA Civ 380; [2007] FSR 2, summary disposition is not appropriate in what is a developing area of law."

Legal framework

8. The relevant provisions of First Council Directive 89/104 of 21 December 1988 ("the Directive") (now European Parliament and Council Directive 2008/95 of 22 October 2008) read as follows:

"Article 5

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;

…

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."

9. These provisions correspond to Articles 9(1)(a), (2) and 13 of Council Regulation 40/94 on the Community trade mark of 20 December 1993 ("the Regulation") (now Council Regulation 207/2009 on the Community trade mark of 26 February 2009) and sections 10(1), (4) and 12 of the Trade Marks Act 1994.
10. The application of these provisions to the importation into the EEA of goods first marketed by a trade mark proprietor outside the EEA has been considered by the Court of Justice of the European Communities (the "ECJ") in a number of cases. For present purposes I need only refer to the decision in Joined Cases C-414 to 416/99 Zino Davidoff SA v A & G Imports and Levi Strauss & Co v Tesco Stores and Costco Wholesale UK Ltd [2002] Ch 109. In paragraphs [32], [33] and [39] of its judgment, the ECJ made clear that Articles 5 to 7 of the Directive embody a complete harmonisation of the rules relating to the rights conferred by a trade mark and a limitation of the rule of exhaustion:

"32. It must also be borne in mind that in articles 5 and 7 of the Directive the Community legislature laid down the rule of Community exhaustion, that is to say, the rule that the rights conferred by a trade mark do not entitle the proprietor to prohibit use of the mark in relation to goods bearing that mark which have been placed on the market in the EEA by him or with his consent. In adopting those provisions, the Community legislature did not leave it open to the Member States to provide in their domestic law for exhaustion of the rights conferred by a trade mark in respect of products placed on the market in non-member countries: Silhouette International Schmied GmbH & Co KG v Hartlauer Handelsgesellschaft mbH (Case C-355/96) [1999] Ch 77, 97, para 26.

33 . The effect of the Directive is therefore to limit exhaustion of the rights conferred on the proprietor of a trade mark to cases where goods have been put on the market in the EEA and to allow the proprietor to market his products outside that area without exhausting his rights within the EEA. By making it clear that the placing of goods on the market outside the EEA does not exhaust the proprietor's right to oppose the importation of those goods without his consent, the Community legislature has allowed the proprietor of the trade mark to control the initial marketing in the EEA of goods bearing the mark: Sebago Inc v GB-Unic SA (Case C-173/98) [2000] Ch 558, 570, para 21.

…

39 . Articles 5 to 7 of the Directive embody a complete harmonisation of the rules relating to the rights conferred by a trade mark and accordingly define the rights of proprietors of trade marks in the Community: Silhouette [1999] Ch 77, 97, 98, paras 25 and 29."

11. The ECJ then proceeded to articulate a series of clear principles which can be summarised by as follows. First, the "consent" referred to in Articles 5 and 7 is tantamount to the proprietor's renunciation of his exclusive right under Article 5 and therefore constitutes the decisive factor in the extinction of that right.
12. Second, if the concept of consent were a matter for the national laws of the Member States, the consequence for trade mark proprietors could be that protection would vary according to the legal system concerned. It therefore fell to the ECJ to supply a uniform interpretation of the concept of "consent" to the placing of goods on the market within the EEA.
13. Third, in view of its serious effect in extinguishing the exclusive rights of proprietors of trade marks, consent must be so expressed that an intention to renounce those rights is unequivocally demonstrated.
14. Fourth, such an intention will normally be gathered from an express statement of consent. Nevertheless, it is conceivable that consent may, in some cases, be inferred from the facts and circumstances surrounding the placing of the goods on the market outside the EEA which unequivocally demonstrate that the proprietor has renounced his rights.
15. Fifth, implied consent to the marketing within the EEA of goods put on the market outside that area cannot be inferred from the mere silence of the trade mark proprietor. More specifically, implied consent cannot be inferred from the fact that the proprietor has not communicated his opposition to goods placed on the market outside the EEA being placed on the market within the EEA, nor from the fact that the goods carry no warning of a prohibition on their being placed on the market in the EEA.
16. Finally, ignorance on the part of the trader importing the goods into the EEA is irrelevant.
17. The application of these principles in the context of the present case would seem to lead to the inevitable conclusion that M-Tech has no defence to the claim. It is not disputed that Sun is the proprietor of a series of registered trade marks comprising or consisting of the word Sun, or that the trade mark appears on the 64 disk drives imported by M-Tech and sold to KSS Associates. Further, the application is supported by three witness statements of Mr John Sanders, a Market Integrity Manager employed by Sun Microsystems Limited, a wholly owned subsidiary of Sun. In his second and third statements, Mr Sanders explains in detail the investigations Sun has carried out to ascertain the source of these disk drives. Specifically, he explains and exhibits supporting documents which confirm that Sun supplied six of the disk drives to United Electronics in China in a shipment in June 2008, 45 to Advance Computer Tecnology in Chile in shipments in December 2008 and June 2009, and the remaining 13 to Midrange Open Computing in the USA in shipments in October 2008 and March and April 2009. Accordingly, it cannot be disputed that all 64 disk drives were first placed on the market outside the EEA and there is no evidence to suggest that Sun has ever consented to their importation into the EEA. Subject therefore to the three defences to which I have referred, I am satisfied that M-Tech has no defence to this claim.

Evidence of first marketing

18. M-Tech contends that Sun's evidence as to where the Sun disk drives were first marketed raises a number of questions which it is entitled to investigate.
19. The first point concerns a discrepancy between the evidence given by Mr Sanders in his second witness statement and the contents of a letter before action sent by Sun's solicitors to M-Tech on 15 May 2009. That letter, and its appended schedule, suggested that six of the disk drives were sold and supplied to Bell Microproducts in Canada. In my judgment this discrepancy has been satisfactorily explained by Mr Sanders in his third witness statement. There he says that he realised after the letter had been sent that he had misinterpreted the data taken from Sun's sales database. On review, he saw that the database referred to Bell because the six disk drives in question had originally been shipped to Bell in Canada but they were subsequently returned by Bell to Sun. These six disk drives were then used by Sun to fulfil a subsequent sales order placed by Advanced Computer Tecnology in Chile and they were shipped to Chile on 16 December 2008, as he elaborated in his second witness statement. Upon appreciating the error, he immediately informed Sun's solicitors and they in turn wrote to the defendant's solicitors on 24 June 2009 informing them of the correct position. In all these circumstances I am satisfied there is nothing in this point.
20. Second, M-Tech contends that Sun itself operates in the secondary market yet it has never said it has not placed the 64 drives on the market in the EEA via its authorised distribution networks. Since Sun controls some 40% of the independent sector, this, M-Tech contends, is a distinct possibility. In my judgment it is not right for a court to allow a case to go forward to trial simply because there is a possibility of something turning up or some further evidence arising which might assist M-Tech. For the reasons I have given, I am satisfied that the 64 disk drives were first put upon the market in China, Chile and the USA and not in the EEA. M-Tech has not put forward a shred of evidence to support the proposition that any of those disk drives were subsequently imported into and put upon the market in the EEA by or with the consent of Sun prior to their importation by M-Tech and sale to KSS Associates. Any suggestion that that was the case is, in my judgment, mere speculation and not sufficient to allow this matter to proceed to trial.
21. Third, M-Tech suggests that the particulars of claim reveal some impossible timelines. In particular, six of the disk drives were shipped by Sun to Midrange in the USA on 8 April 2009. However, according to the particulars of claim, some of these disk drives were offered for sale by M-Tech on 27 March 2009 and then sold to KSS Associates on 15 April 2009. Thus, M-Tech continues, for Sun to be right, M-Tech was offering for sale these disk drives 13 days before they were delivered to Midrange. In my judgment this point has no more merit than the others. First, it only applies to six of the 64 disk drives but, more substantively, I do not accept that the timelines are impossible in any event. As I have mentioned, the disk drives were shipped to Midrange on 8 April 2009. There is therefore no reason why they should not have been sold on to KSS Associates on 15 April 2009 and subsequently shipped on 21 April 2009. What is more, there is no reason why M-Tech should not have been advertising disk drives for sale before it had actually taken possession.
22. For all these reasons I conclude that this first ground of defence has no real prospect of success at trial.

Articles 28 to 30 EC

23. Before elaborating the defence under Articles 28 to 30 EC I must first explain the factual platform on which it is based.
24. At the outset, M-Tech points to the size and nature of the secondary market in computer hardware. The market, it says, is worth in excess of US$260bn per annum, of which some US$160bn is accounted for by brokers and dealers who do not form part of the authorised networks of the computer manufacturers. Moreover the market is a global one in the sense that hardware is durable and may be traded many times over the course of its life, shipment costs are low compared to the cost of the hardware itself and the trade is carried on primarily through brokers, who are frequently web based and publish details online of potential buyers and sellers who are often located in different jurisdictions. The trade in Sun hardware in the EEA has formed a substantial part of this secondary market. It had a value of US$1.07bn in 2007, of which US$0.64bn was achieved by the independent sector. The success of this independent sector has been attributed to its ability to deliver Sun hardware at cheaper prices and more quickly than the authorised Sun network.
25. It is a consequence of the size and nature of this secondary market in Sun hardware that it is practically impossible for brokers or traders who are outside the Sun authorised network to discover whether any particular item of Sun hardware was first marketed by Sun inside or outside the EEA and, if the latter, whether it has subsequently been imported into and put upon the market in the EEA by Sun or with its consent. Such is not apparent from the hardware itself, nor is this information likely to be available from the broker or trader from whom it is bought. All of these matters are recognised by Sun which says on its website in a "Frequently Asked Questions" section:

"Q. What is meant by "unlawfully imported product"?

A. Sun Microsystems is entitled through the enforcement of its trademark rights to control into which market products are placed and must remain. Only with the explicit permission of Sun, as the trademark owner, can product bearing Sun's trademarks be migrated between markets. Therefore, any Sun product brought into the UK from outside the European Economic Area without Sun's explicit permission is considered to have been unlawfully imported.

...

Q. How do I know if a reseller who is offering me Sun product is authorised by Sun to do so?

A. Sun UK maintains a full list of all UK and Ireland based resellers who are authorised to sell the full range of Sun Microsystems products. This list can be …. If the name of the party offering you Sun product is not on that list and they are a UK and Ireland based company then they are not authorised by Sun to sell Sun product. Please contact your local Sun Sales Office to obtain validation of a Sun reseller based inside the EEA.

Q. What other hidden dangers are there in buying grey market Sun product?

A. Apart from the issues of the product not being on the market in the UK lawfully and the validity (or otherwise) of all software licences there are other factors to consider. Sun will not place grey market product on a Sun support contract so you would not benefit from Sun's world-class hardware and software support infrastructure. Sun does not in any way guarantee the quality of any Sun product purchased from an unauthorised source. Unlike within Sun's authorised reseller network, Sun has no knowledge of how its products are transported, handled and stored within the unauthorised broker network. Sun has seen instances where Sun product offered for sale in the grey market has been stolen and also situations where Sun product has been "upgraded" with 3rd party and/or counterfeit parts. All these factors add to the significant business risk associated with obtaining Sun product from unauthorised sources.

…

Q. How can grey market brokers offer Sun product much cheaper than the authorised resellers?

A. Much of the new product offered for sale by unauthorised brokers has been unlawfully imported by the brokers from other global markets. Sun Microsystems, like all vendors with a global sales and distribution model, is entitled to ring fence those markets from each other. It is the price differential between these markets, that is being unlawfully exploited by the brokers and allows them to offer seemingly cheap products for sale. It is also worth noting that the price of a Sun product from a grey market broker may seem cheaper than that available from an authorised reseller but there are many hidden costs associated with the grey product - lack of warranty support, no support eligibility, invalid Solaris licence, etc.

...

Q. What is Sun doing to kerb the unlawful activities of some of the unauthorised brokers?

A. Sun Microsystems globally monitors the activities of unauthorised brokers and does act when appropriate to protect its IP rights and its reputation as a supplier of high quality and reliable computer products. Sun has taken legal action against some brokers involved in unlawful activity and won all the cases it has embarked on. Sun takes these measures to protect its customers from unscrupulous brokers and to protect its IP rights as a global supplier.

…

Q. What is an "EU serial number"?

A. Many brokers, trying to allay the concerns of their potential customers regarding the source of their product, use the term "EU Serial number". The term is designed to make the customer feel that the product is on the market in the UK legitimately and that it has not been unlawfully imported. Usually the basis for this assertion is either where the product was manufactured (e.g. "Made in Ireland") or where the broker obtained the product (e.g. another broker within the EU). Neither of these factors gives any protection against the likelihood that the product has been unlawfully imported. Sun manufactures product in a number of plants in the EU but the product those plants produce is just as likely to be placed on the market by Sun outside the EU as it is to be sold inside the EU. Therefore, an unauthorised broker is unlikely to know the true provenance of Sun product they obtain from other unauthorised brokers, even if those brokers are within the EU."

26. It emerges particularly from the last question and answer that Sun maintains that an unauthorised broker is unlikely to know the true provenance of Sun products it obtains from other unauthorised brokers, even if those brokers are located within the EEA. In any event, traders jealously guard their own sources to avoid being cut out.
27. By contrast, Sun is in a position to find out whether any particular item of hardware was first marketed in the EEA by or with its consent by referring to its internal database. Indeed, that is how it could identify the source of the disk drives the subject of these proceedings. Hitherto, Sun has, however, refused to supply this information to independent traders. Instead, M-Tech submits, it meets a request by such traders for assistance with an aggressive response requiring them to provide the identity of their sources and a detailed account of their stock. The ostensible reasons for Sun's concerns about the unauthorised secondary market emerge in part from the questions and answers set out above. In addition, it has been suggested that another reason for Sun's refusal to publish its database or to provide source information is that it does not wish to incur the administrative burden of keeping the independent sector informed about the provenance of Sun hardware. M-Tech says that these may indeed be some of the reasons, but a yet further reason is that Sun wishes to secure the whole secondary market to itself and its authorised dealer network.
28. The final element of the factual platform upon which M-Tech relies is that Sun is now vigorously enforcing its trade mark rights against any trader in the independent sector of the secondary market which is discovered selling Sun hardware which has not been put upon the market in the EEA by Sun or with its consent. M-Tech contends that the adoption of this strategy has the object and effect of shutting down the grey market, not just in Sun products which have not been put upon the market in the EEA by or with Sun's consent, but also in those which have. Traders are unable to distinguish between the two and so cannot deal in any Sun hardware for fear of an infringement action. In short, independent dealers are "running scared", as reported in a number of articles in the trade press. I need only refer to one by way of example. In the February 2007 edition of the trade publication called MicroScope it was said:

"…

But with the pressure on dealers mounting, some are deciding to pull out of the second-hand market. Derby-based Xoptions is winding down its trade in second-hand Sun equipment. A spokesman said others might have to think about their position: 'For other brokers in the market selling second-hand parts the risk stands, no matter what vendor they are doing it with'

…

In the light of the settlement [a reference to a case by Sun against Amtec] Sun issued a statement insisting 'grey market trading can present resellers and customers with a host of long-term business risks. Effectively, any user investing in products from the grey market is playing a game of Russian roulette with the integrity of their business network'.

But one reseller of second-hand equipment insisted the vendor was continually blurring the lines between second-hand and grey, adding the absence of a serial number tracker was compounding the problem.

Charlotte Selby, partner and alliance sales director at Sun, said the vendor had a 'duty to enforce our channel model and our trademark rights."

29. In summary, M-Tech contends that the combination of aggressive litigation and the refusal to permit independent traders to identify Sun hardware which has been placed on the market in the EEA by Sun or with its consent has caused such traders largely to stop dealing in Sun hardware altogether. This is causing a flourishing market in Sun hardware largely to disappear.
30. M-Tech continues that the consequence of Sun's action has been:

i) to cause artificial partitioning of the legitimate market in Sun hardware in the EEA;

ii) to cause legitimate parallel imports of Sun hardware to reduce to marginal levels; and

iii) to permit Sun to control the secondary market in Sun hardware via its own authorised network and thus to maintain artificially high prices.

31. Article 28 EC reads:

"Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States."

32. Article 30 EC reads:

"The provisions of Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States."

33. M-Tech contends that in all the circumstances to which I have referred, the enforcement of Sun's exclusive rights in its registered trade marks is contrary to Articles 28 to 30 EC as its object and effect is to prevent the attainment of a single market in Sun hardware which has been marketed within the EEA by Sun or with its consent.
34. For the purposes of this application I am prepared to assume the factual basis upon which M-Tech's submission is founded. Nevertheless, in my view, the answer to the submission lies in the Directive and Regulation as interpreted by the ECJ. As the Court explained in Davidoff, these embody a complete harmonisation of the rules relating to the rights conferred by a registered trade mark. More specifically, Articles 5 to 7 of the Directive contain the rules laid down by the Community legislature as to the scope of the concept of Community exhaustion. These Articles make it clear that the placing of goods bearing a registered trade mark on the market outside the EEA does not exhaust the proprietor's right to oppose the importation of those goods without his consent; and the proprietor retains the right to control the initial marketing of those goods in the EEA. Moreover, consent to the marketing of the goods in the EEA cannot be inferred from mere silence, nor from the fact that the goods carry no warning of a prohibition against importation into and sale in the EEA.
35. To the general rule concerning exhaustion there is only one exception, namely that provided in Article 7(2) of the Directive. The rights of a proprietor are not exhausted in relation to goods which have been put on the market in the EEA by him or with his consent if there exist legitimate reasons for him to oppose the further commercialisation of those goods.
36. In my judgment, M-Tech's submission involves reading into Articles 5 to 7 a further qualification to the right conferred by a registered trade mark, namely a restriction on the right to prohibit the use of the trade mark in circumstances where the exercise of the right may affect the free movement of goods between Member States. But that is precisely what the Community legislature has chosen not to do. To the contrary, it has expressly given to trade mark proprietors the right to control the first marketing in the EEA of goods bearing the registered trade mark. If and in so far as M-Tech has a remedy in respect of failure by Sun to publish its database or provide sources of information to independent traders, then it must, in my judgment, lie in other provisions of competition law.
37. Nevertheless, M-Tech submits that its position derives support from a number of decisions of the ECJ, both before and after the adoption of the Directive.
38. I was taken to three decisions of the ECJ before 1988 to the effect that the rights of a trade mark proprietor conferred by national law must be circumscribed if their enforcement would cause a partition of the internal market. Thus, in Case 16/74 Centrafarm BV v Winthrop BV [1974] ECR 1183, the ECJ considered whether the exercise by the proprietor of a trade mark of the right which he enjoyed under the legislation of a Member State to prohibit the sale in that State of a product marketed under the trade mark in another Member State by him or with his consent was incompatible with the free movement rules of the Treaty. The ECJ ruled that it was and, in so doing, reasoned at [11]:

"11. In fact, if a trade mark owner could prevent the import of protected products marketed by him or with his consent in another Member State, he would be able to partition off national markets and thereby restrict trade between Member States, in a situation where no such restriction was necessary to guarantee the essence of the exclusive right flowing from the trade mark."

39. Similarly, in Case 102/77 Hoffmann-La Roche & Co v Centrafarm [1978] 3 CMLR 506; [1978] FSR 598, the ECJ considered whether national trade mark rights could properly be exercised to prevent the importation of repackaged goods bearing a registered trade mark. The Court observed at [9] that the exercise of the national trade mark right might indeed constitute a disguised restriction on trade between Member States:

"9. It is, however, necessary to consider whether the exercise of such a right may constitute a 'disguised restriction on trade between member-States' within the meaning of the second sentence of Article 36. Such a restriction might arise, inter alia, from the proprietor of the trade mark putting on to the market in various member-States an identical product in various packages while availing himself of the rights inherent in the trade mark to prevent repackaging by a third person even if it were done in such a way that the identity of origin of the trade-marked product and its original condition could not be affected. The question, therefore, in the present case is whether the repackaging of a trade-marked product such as that undertaken by Centrafarm is capable of affecting the original condition of the product."

40. And it continued in the same vein at [10]:

"10. … Where the essential function of the trade mark to guarantee the origin of the product is thus protected, the exercise of his rights by the proprietor of the trade mark in order to fetter the free movement of goods between member-States may constitute a disguised restriction within the meaning of the second sentence of Article 36 of the Treaty if it is established that the use of the trade mark right by the proprietor, having regard to the marketing system which he has adopted, will contribute to the artificial partitioning of the markets between member-States."

41. Finally, in Case 144/81 Keurkoop BV v Nancy Kean Gifts BV, [1982] ECR 2853; [1983] FSR 381, the ECJ was concerned with the question whether the owner of an exclusive right to a design protected under the legislation of one Member State could rely upon that legislation to oppose the importation of products of the same design from another Member State where their marketing did not infringe any right of the owner of the exclusive right in the country of importation. This question required the ECJ to consider the "reconciliation" between the free movement requirements and the respect to which intellectual property rights are entitled, as it explained at [24]:

"24. Article 36 is thus intended to emphasise that the reconciliation between the requirements of the free movement of goods and the respect to which industrial and commercial property rights are entitled must be achieved in such a way that protection is ensured for the legitimate exercise, in the form of prohibitions on imports which are 'justified' within the meaning of that Article, of the rights conferred by national legislation, but is refused, on the other hand, in respect of any improper exercise of the same rights which is of such a nature as to maintain or establish artificial partitions within the Common Market. The exercise of industrial and commercial property rights conferred by the national legislation must consequently be restricted as far as is necessary for that reconciliation."

42. In a section of the judgment to which I must return, the ECJ continued that the exercise of an exclusive right may also be restricted under what was then Article 85:

"26. Furthermore, the proprietor of an exclusive right may not rely on his right if the prohibition on importation or marketing of which he wishes to avail himself could be connected with an agreement or practice in restraint of competition with the Community contrary to the provisions of the Treaty, in particular to those of Article 85.

27. Although a right to a design, as a legal entity, does not as such fall within the class of agreements or concerted practices envisaged by Article 85(1), the exercise of that right may be subject to the prohibitions contained in the Treaty when it is the purpose, the means or the result of an agreement, decision or concerted practice.

28. It is therefore for the national court to ascertain in each case whether the exercise of the exclusive right in question leads to one of the situations which fall under the prohibitions contained in Article 85 and which may, in the context of the exercise of exclusive rights to designs take very different forms, such as, for example, the situation where persons simultaneously or successively file the same design in various member-States in order to divide up the markets within the Community among themselves."

43. In my judgment, these cases, and the reconciliation they involve between intellectual property rights on the one hand and the free movement requirements on the other, have no relevance to the question before me which involves not a national right but rather a right conferred by the Community legislature. Moreover, it is, as the ECJ has made clear, an unqualified right conferred upon the proprietor of a registered trade mark to control the first marketing of goods bearing the trade mark in the EEA.
44. M-Tech then took me to three decisions of the ECJ after the adoption of the Directive. The first was the decision in Joined Cases C-427, C-429 and C-436/93 Bristol-Myers Squibb v Paranova A/S [2003] Ch 75. This case concerned the proper interpretation of Article 7 of the Directive in circumstances where the trade mark proprietor was seeking to prevent an importer from marketing pharmaceuticals which had been put upon the market in another Member State by that proprietor or with his consent but where the importer had repackaged the product and reaffixed the trade mark without the proprietor's authorisation. In considering this issue the ECJ sought to interpret Article 7 of the Directive in the light of what were then what were then Articles 30 to 36 of the Treaty, as the Court made clear at [27] to [28]:

"27. Like any secondary legislation, however, the Directive must be interpreted in the light of the Treaty rules on the free movement of goods and in particular article 36: see Établissements Delhaize v Promalvin SA (Case C-47/90) [1992] ECR I-3669, 3711, para 26; and Verband Sozialer Wettbewerb eV v Clinique Laboratoires SNC (Case C-315/92) [1994] ECR I-317, 335, para 12.

28. The answer to the first question in Case C-436/93 must therefore be that the reliance by a trade mark owner on his rights as owner in order to prevent an importer from marketing a product which was put on the market in another member state by the owner or with his consent where that importer has repackaged the product and reaffixed the trade mark without the owner's authorisation, is be assessed on the basis of the combined provisions of national trade mark law and article 7 of the directive, interpreted in the light of article 36 of the Treaty."

45. The ECJ then proceeded to interpret Article 7(1) and (2) in the light of the case law of the Court on Articles 30 and 36 of the Treaty.
46. M-Tech submits this decision makes it clear that the rights conferred upon a trade mark owner by the Directive must yield to the free movement rules embodied in Articles 28 to 30 EC. I disagree. It is my understanding that the ECJ interpreted Article 7 of the Directive in the light of the free movement rules. Nothing in the decision suggests the exercise of the rights conferred by the Directive must then be considered by reference to the provisions of Articles 28 and 30 EC upon a case by case basis.
47. Much the same emerges from Case C-349/95 Loendersloot v Ballantine [1997] ECR I – 6227 which again concerned re-labelling of parallel imports, in this case of alcoholic drinks. The proprietor sought to rely upon its trade mark to prevent the re-labelling of Scotch whisky undertaken with a view to removing identification marks allegedly used by the proprietor to monitor parallel imports and to detect shortcomings in its sales network. In this case the ECJ again emphasised that Article 7 of the Directive, like what was then Article 36 of the Treaty, is intended to reconcile the fundamental interest in protecting trade marks with the fundamental interest in the free movement of goods within the EEA, so that the two provisions, which aim to achieve the same results, must be interpreted in the same way.
48. That brings me to Case C-244/00 Van Doren + Q. v Lifestyle sports + sportswear [2004] All ER (EC) 912. This case concerned a rule of evidence under German law to the effect that if a defendant to trade mark proceedings contended that the rights of the trade mark owner were exhausted then, as a rule, he had to prove the conditions for such exhaustion. The Bundesgerichtshof took the view that this rule of evidence generated a risk that the trade mark proprietor could use the trade mark to partition national markets for two reasons: in general, a dealer would readily be able to show from whom he had purchased goods but he would not be able to make his suppliers reveal the previous supplier or identify other links in the distribution chain; moreover, even if he were able to trace the distribution channel back to the trade mark proprietor and to show that the goods were put on the market in the EEA with the consent of that proprietor, his supply source would be liable to dry up immediately.
49. The ECJ observed at [32] to [33]:

32. Articles 5 to 7 of the directive embody a complete harmonisation of the rules relating to the rights conferred by a trade mark and accordingly define the rights of proprietors of trade marks in the Community (see the Davidoff case, (para 39)).

33 . Article 5 of the directive confers on the trade mark proprietor exclusive rights entitling him, inter alia, to prevent all third parties not having his consent from importing goods bearing the mark. Article 7(1) contains an exception to that rule in that it provides that the trade mark proprietor's rights are exhausted where goods have been put on the market in the EEA by the proprietor or with his consent (see the Davidoff case, (para 40))."

50. The Court then turned to the rule of evidence and continued at [36] to [37]:

"36. Such a rule of evidence is consistent with Community law and, in particular, with arts 5 and 7 of the Directive.

37 . However, the requirements deriving from the protection of free movement of goods enshrined, inter alia, in arts 28 and 30 EC may mean that that rule of evidence needs to be qualified."

51. This, the Court considered, must be so where that rule would allow the proprietor of the trade mark to partition national markets, for example, in situations where the trade mark proprietor marketed his products in the EEA using an exclusive distribution system. The Court accepted that in such situations, the imposition upon a third party of a requirement to adduce evidence of the place where the goods were first put upon the market by the trade mark proprietor or with his consent, would permit the trade mark proprietor to obstruct the marketing of the goods purchased and prevent the third party from obtaining supplies in future. The Court concluded at [41]:

"41. Accordingly, where a third party against whom proceedings have been brought succeeds in establishing that there is a real risk of partitioning of national markets if he himself bears the burden of proving that the goods were placed on the market in the EEA by the proprietor of the trade mark or with his consent, it is for the proprietor of the trade mark to establish that the products were initially placed on the market outside the EEA by him or with his consent. If such evidence is adduced, it is for the third party to prove the consent of the trade mark proprietor to subsequent marketing of the products in the EEA (see the Davidoff case, (para 54))."

52. In my judgment Van Doren provides no assistance to M-Tech. Indeed, as can be seen from paragraph [32] of the decision, the ECJ reiterated that Articles 5 to 7 of the Directive provide a complete harmonisation of the rules relating to the rights conferred by a registered trade mark. What had to yield was not the right conferred by the Directive, but the rule of evidence under German law which created the risk of partitioning of markets.
53. In summary, I find no support in any of these decisions of the ECJ for the notion that Sun is prohibited from exercising its rights conferred by Articles 5 to 7 of the Directive because such would be contrary to Articles 28 to 30 EC.

Article 81 EC

54. I can deal with the defence under Article 81 EC quite shortly. It runs as follows. The network of agreements between Sun and its authorised distributors contains a term which prevents those distributors from buying Sun hardware from independent distributors unless such hardware cannot be supplied from within the authorised network. As a consequence, these agreements have the effect of appreciably restricting or distorting competition in the secondary market for Sun hardware and thereby affecting trade between Member States. Further and importantly, the enforcement by Sun of its trade mark rights has the effect of reinforcing these agreements by preventing traders and end users from obtaining access to Sun hardware sold in the EEA by Sun or with its consent.
55. Sun is prepared to assume for the purpose of this application that the agreements which it has entered into with its distributors are indeed contrary to Article 81. Nevertheless, Sun submits that there is no nexus between this alleged breach and the enforcement of its trade mark rights to prevent the importation of Sun goods into the EEA without its consent. This raises the question whether, as explained in paragraphs [26] to [28] of the Keurkoop case set out earlier in this judgment, the enforcement of these rights is or could be connected with the agreements in breach of Article 81 EC.
56. In my judgment Sun is right. The disappearance of the independent secondary market in Sun hardware is not attributable to the offending network of agreements between Sun and its authorised distributors but to the inability of independent traders to ascertain the provenance of the Sun hardware in which they are dealing. Moreover, there is no connection between the enforcement by Sun of its trade mark rights which, as I have found, does not constitute a breach of Articles 28 to 30 EC and the requirement imposed by Sun on its distributors to buy hardware from within the network wherever possible. In my judgment the allegation that the exercise by Sun of its registered trade mark rights is prohibited by Article 81 EC has no real prospect of success.

Conclusion

57. It follows that Sun is entitled to judgment against M-Tech.