Of Sun, Sumption and Sanity: the Supremes hit the high notes

Originally called Sun Microsystems Inc v M-Tech Data Ltd and another (noted by the IPKat here), the case of Oracle America Inc (formerly Sun Microsystems Inc) v M-Tech Data Ltd and Lichtenstein was marked out by the IPKat as a thunderously bad decision when the Court of Appeal reversed the decision of Kitchin J at [2010] EWCA Civ 997. The story however has a happy ending: today the Supreme Court (Lords Walker, Clarke, Sumption -- who delivered the judgment -- Reed and Carnwath) restored both the trial judge's decision and common sense in its ruling at [2012] UKSC 27.

The facts were as follows. Sun owned a series of UK and Community trade marks comprising or consisting of the word 'Sun' for computers, computer hardware, computer software and computer peripherals.  M-Tech, a UK company, supplied computer hardware in the "secondary market" for hardware originally sold by major manufacturers like Sun and its rivals. M-Tech bought 64 Sun disk drives from a US broker and sold them in the UK. Sun sued for trade mark infringement, alleging that M-Tech had put the drives on the UK market without Sun's consent. M-Tech maintained however that, since Sun hadn't shown where the drives had been first marketed, its attempt to enforce its trade mark rights was contrary to Articles 28 to 30 of the EC Treaty since its effect would be to prevent the attainment of a single market in hardware. Further, the enforcement of Sun's rights in this way was contrary to Article 81 of the EC Treaty and therefore prohibited.

Sun, maintaining that there was no evidence to suggest it had ever consented to the importation of these drives into the EEA, sought and obtained summary judgment, having furnished evidence that the drives had initially been placed on the market outside the European Economic Area (EEA). According to Mr Justice Kitchin:
* The court had to ask whether the claimant had a 'realistic' as opposed to a 'fanciful' prospect of success, one which carried some degree of conviction and which was more than merely arguable.

* In reaching its conclusions the court should not conduct a mini-trial, but had to take account of evidence that could reasonably be expected to be available at trial.

* The court should not be hasty to reach a final decision without a full trial where reasonable grounds existed 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.

* Summary disposition was not appropriate in any area of law that was still developing.

* 'Consent' -- the parallel importer's favourite defence to a trade mark infringement -- had to be a pan-European concept under harmonised European law. It was thus up to the European Court of Justice to supply a uniform interpretation of the concept of 'consent' to the placing of goods on the market within the EEA. In view of its serious effect in extinguishing the exclusive rights of proprietors of trade marks, consent had to be expressed in such a way that an intention to renounce those rights was unequivocally demonstrated. While such an intention would normally be gathered from an express statement of consent, it was conceivable that consent might be inferred from the facts and circumstances surrounding the placing of the goods on the market outside the EEA that unequivocally demonstrated that the proprietor had renounced his rights.

* Implied consent to the marketing within the EEA of goods put on the market outside that area could not be inferred from the mere silence of the trade mark proprietor, from the fact that the proprietor had not communicated his opposition to goods placed on the market outside the EEA being placed on the market within the EEA or from the fact that the goods carried no warning of a prohibition on their being placed on the market in the EEA.
The Court of Appeal, in a relatively short decision, granted the defendants permission to appeal, since M-Tech was entitled to argue that Articles 28 to 30 and 81 of the EC Treaty prevented Oracle from obtaining summary judgment for trade mark infringement. Reminding the parties that the fact that this application for permission to appeal was allowed didn't mean that M-Tech wouldn't have to substantiate its defences, the court directed Oracle to call for a case management conference as soon as possible, perhaps for the strange reasons that (i) it has the potential to establish an industry precedent and (ii) it looks like a good prospect for a reference to the Court of Justice of the European Union. Thus the court said (at para. 41):
“... This case clearly has important financial and economic implications not just for the parties but also for others involved in the grey market in Oracle, and possibly other, computer hardware and goods. The economic function of parallel imports and the grey market is controversial”,
adding ominously (at para. 42):
"If M-Tech's allegations are established, the trial judge will have to consider whether to make a reference to the Court of Justice to enable him to decide the issues in the action. In the absence of any material change in European Union law or in M-Tech's case, there would be a strong case for a reference by the trial judge. The point is not acte clair, and in this case where the issues involve questions of economic policy likely to affect the European Union as a whole and where this court has already considered the points of European Union law in issue, there would be a good reason to make a reference without waiting for the case to reach this court again".
The IPKat was unhappy about this. It was his view that, if the Court of Appeal was correct, the raising of Euro-defences under the Treaty or its renumbered successor in title the TFEU was not likely to be a strong candidate for summary judgment. If this is so, parallel traders could routinely plead Euro-defences and thereby avoid summary judgment, thus causing havoc among legitimate rights owners.

Now, in a refreshingly short and direct speech of just 37 paragraphs, Lord Sumption put things right. The following snippets will give readers the flavour of the Supreme Court's reasoning
"11. It will be apparent that it is not good enough for M-Tech's purposes to establish a breach of the treaty. It has to show that that breach gives them a defence to an action for infringement of the marks. There is a principle of English public policy, which is common to the national legal systems of most member states, that a person may not profit from his own illegal act. The Court of Justice has held that it is open to member states to apply that principle to causes of action arising from directly applicable provisions of EU law, as indeed it has sometimes done itself ...".
Quite right, says the IPKat. It's good to see a little gleam of old-fashioned English public policy peeping through the dense cloud of European law. But that's not all. Specific harmonised IP rights trump mere general principles:
"13.... where a particular area of commercial activity engaging the principle of the free movement of goods is regulated by harmonising legislation of the EU, then that legislation supersedes the general provisions of articles 34 to 36 of the treaty. ..."
On this basis,
"15. Article 5 of the [trade mark harmonisation] directive provides that the proprietor of a trade mark "shall" be entitled to exercise certain rights, including the right to prevent the use by others of his own or an identical trade mark in connection with goods of the class for which the mark is registered. It is not qualified by any proviso relating to the free movement of goods within the EU, because it does not need to be ...".
On this basis, M-Tech's case, and the Court of Appeal's decision, appear to disintegrate:
"25. ...On the agreed facts, these goods were never marketed in the EEA until they were imported and marketed there by M-Tech without Sun's consent. It is therefore not in dispute that the only right derived from its trade marks which Sun is seeking to enforce by these proceedings is its right to control the first marketing of the goods in the EEA. This is an exercise of rights which does not engage the principle of the free movement of goods between member states embodied in articles 34 to 36 of the treaty. It affects only the entry of the goods onto the EEA market, not the movement of the goods within it. It is specifically authorised by articles 5 and 7.1 of the Trade Mark Directive, which are part of an exhaustive code that itself fully reflects the requirements of articles 34 to 36 of the treaty. M-Tech's argument to the contrary, and the decision of the Court of Appeal accepting it, are both substantially based on decisions of the Court of Justice under article 7.2 concerning the use of trade mark rights to obstruct the trading between member states of goods already legitimately in circulation within the EEA. That is a different, and for present purposes irrelevant situation".
That's not to say that Articles 34 to 36 don't exist; they do, but they're just irrelevant to M-Tech's case here:
"29. It may well be that M-Tech has a perfectly good cause of action against Sun based on articles 34 to 36 of the treaty for damages for preventing them from selling Sun products by their policy of withholding information about the previous history of the goods. I make no comment on that, because it is irrelevant to this appeal. We are not concerned in these proceedings with business that M-Tech have been prevented from doing, still less with business that other traders have been prevented from doing. We are concerned with business which M-Tech have done in infringement of Sun's trade marks. It is not a defence to proceedings brought on that basis that there is other business that M-Tech have been prevented from doing by Sun's arguably unlawful policy of withholding information".
This was not a case in which any reference need be made to the Court of Justice of the European Union either:
"36. Once the Court of Justice has laid down the relevant principles of law in terms which are clear, consistent, and sufficient for the decision of the case, it is the function of national courts to apply them. That there are obscurities in parts of this area of EU law is beyond question. But the particular legislative provisions and legal principles which make M-Tech's case impossible are in my judgment entirely clear. A reference is not required to elucidate them. M-Tech's real problem, under all three heads of their argument, is that they are unable to establish a relevant connection between the exercise of Sun's right to control the first marketing of their trade-marked goods in the EEA and any breach of the treaty".
Well done, says the IPKat, you've got it right!
Of Sun, Sumption and Sanity: the Supremes hit the high notes Of Sun, Sumption and Sanity: the Supremes hit the high notes Reviewed by Jeremy on Wednesday, June 27, 2012 Rating: 5

1 comment:

  1. "economically controversial but legally well-established" -- their Lordships taking care to point out the shooting ourselves in the foot stupidity of this policy right in line 1 of their judgement.


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