Sauce for the goose and sauce for the gander

Date: 17/04/1997

By Ian S Forrester Q.C

What do a packet of Valium and a bottle of Ballantine's whisky have in common, other than a tendency to induce relaxedness or stupor? The answer is that each has been the subject of important EC trademark litigation.

During the 1970s and 1980s, a revolution in European trademark law occurred. Up until 1974, a trademark, governed by national law, permitted its holder to challenge the sale of goods bearing that mark even if it had legitimately been affixed in another country.

Thus cross-border commerce in trademarked goods was difficult, although not always impossible, without the approval of the local trademark holder.

The same was broadly true for patents. If the trademark holder wished to prevent unwelcome competition from another member state, he could do so.

In actual practice, cross-border trade was not seriously affected, except for one industry in particular: pharmaceuticals.

The price of pharmaceuticals is set by government action either directly (price controls) or indirectly (level of reimbursement). Prices of an identical drug may vary from member state to member state by as much as 300&percent;.

As a result, a manufacturing group has an interest in keeping drugs sold in a “cheap” member state out of an expensive one, and traders have an interest in exploiting this difference by buying products in, for example, Greece and reselling to pharmaceutical wholesalers or retailers in Germany.

In a series of judgements involving the Dutch pharmaceutical trader Centrafarm, the European Court of Justice radically changed the law concerning the use of national trademarks and patents to block the unwelcome importation and sale in one member state of genuine goods put on the market in another member state by the same corporate group. It would indeed have seemed rather absurd if perfectly genuine Valium sold in the UK by Roche UK could be seized if offered for sale to pharmacists in the Netherlands on the grounds that the right to the Roche or Valium trademarks in the Netherlands was held by Roche Netherlands.

So the earliest judgements were widely applauded. The ECJ got round the fact that intellectual property rights were (and still largely are) creatures of national law by holding that the right holder had a bundle of rights.

Some of these were core rights which could not be taken away. Called the “specific subject matter” or “essential function” of the rights, these included the right to prevent piracy, unauthorised copying and so on. Those rights survived the scrutiny of Articles 30 and 36 of the EEC Treaty. However, these same articles precluded the right to prevent cross-border trade in goods which had been marketed elsewhere in the common market by a member of the local right holder's group.

The concepts of specific subject matter, essential function and other arcana were the subject of many university exam questions and much dense analysis.

In truth, they were a good example of adroit judge-made law which gave a theoretical underpinning to a result which was deemed desirable for economic and political reasons: in a common market committed to the elimination of national economic frontiers, it would be unacceptable if a manufacturer could use trademarks to prevent free trade in genuine goods between countries.

Then the challenge to trademark rights went a bit further.

Centrafarm wanted to do more than merely sell the drugs in the same packaging as they had originally been marketed: Centrafarm wished to repackage them in new boxes, or relabel them, or change the number of pills in the box, so as to adapt the goods to the market in which it wished to sell them.

The ECJ said repackaging and relabelling was permissible, subject to specified conditions.

It became common for a pharmaceutical trader to buy 10,000 20-dose packets in Greece, cut up the blister packs (or take the pills out of the bottle) to change the dosage per box, print new packaging, and affix to the new box the manufacturer's name, the trade name or the drug and the parallel trader's name, then resell 12,500 16-dose packets in Germany.

The rewriting by the European Court of national trademark rules was interesting rather than controversial, since the pharmaceutical firms are wealthy enough, consumer choice is of little relevance in the case of prescription drugs and parallel trading has always been a hugely favoured economic activity in European law.

Application of the Court's relabelling doctrines was limited to the pharmaceutical industry. However, trademark lawyers have complained that classic trademark law was being rewritten.

A new case threatens to cause agitation in a very different industry. A Mr Loendersloot is a parallel trader whose business is said to involve buying Ballantine's Scotch whisky and relabelling it with identical-looking labels which differ from the originals in omitting the manufacturer's codes. These codes allow the tracing of how a particular bottle fell into the hands of parallel traders.

Ballantine is very unhappy. Normally, trademarks can be affixed only by the trademark holder. However, it seems that it will be difficult for the ECJ to deny Loendersloot the right to do what is commonplace for pharmaceuticals. Could the next step be rebottling and relabelling with whisky labels in the local language?

The case indicates that when legal principles are stretched or created to achieve a particular result, the consequences can sometimes be surprising and unwelcome.

This article reflects the personal views of the author.