THERE is always a potential conflict between the terms of the EU Trade Mark Directive (2008/95/EC) (“TMD”) (O.J. [2008] L299/25) which endow a proprietor with certain exclusive rights to use his registered mark and those articles of the Treaty on the Functioning of the European Union (“TFEU”) which are concerned with freedom to trade and those that aim to prevent restrictions to competition in the EU. In particular, article 5 of the TMD endows the proprietor with the exclusive right to prevent a third party using his mark on identical goods. Article 7(1) of the TMD gives the proprietor the right to first market his goods under his mark in the EEA (“European Economic Agreement”) and article 7(2) gives him the right to oppose further marketing of the goods where there are legitimate reasons to do so. There have been cases where, when a proprietor has asserted these rights against a defendant, the defendant has in turn raised what has come to be known as a “Euro defence”. The defendant has alleged that the proprietor's marketing activities have breached articles 34-36 of the TFEU (dealing with quantitative restrictions and measures having equivalent effect on intra-EU trade) and/or article 101 of the TFEU (outlawing agreements which restrict or distort competition), and/or may, more generally, be an abuse of rights (at [6]). As a result, it has been argued, the proprietor may not enforce his rights under articles 5 and 7. Such was the situation in the case of Oracle America Inc. (Formerly Sun Microsystems Inc.) v M-Tech Data Ltd [2012] UKSC 27, which recently reached the Supreme Court.

The claimant, at the time of the events at issue, was known as Sun Microsystems. Sun manufactured computer systems, workstations and related goods. It was the proprietor of five relevant CTMs and two UK trade marks, which were registered, inter alia, for computer hardware. The defendant, located in Manchester, supplied both new and used hardware. In 1999, in a trap purchase arranged by the claimant, it supplied to KSS Associates 64 new Sun disk drives, originally supplied by Sun to purchasers in China, Chile and the US, but not the UK. The drives had been bought by M-Tech through a broker in the US and M-Tech imported them into the UK. It was agreed by all the parties that Sun had not consented to their importation into the UK. Thus, on the face of it, M-Tech had infringed Sun's marks as its rights had not been exhausted under article 7(1). M-Tech's defence was that Sun's trade mark rights were not enforceable because, inter alia, 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 34–36 of the TFEU), and that the effect of the enforcement of Sun's trade marks would constitute an abuse of rights, as that concept is understood in EU law in relation to article 101 of the TFEU (the “Euro-defence”). In particular, M-Tech alleged that Sun had indulged in two anti-competitive practices. First, it had withheld information which would enable a dealer in its products, both new and second-hand, from knowing whether they had been first marketed in the EU or brought into the EEA with Sun's consent. Secondly, Sun's behaviour was anti-competitive because the undertaking had been extremely pro-active in enforcing its trade mark rights when these had not been exhausted. As a result of these practices, M-Tech alleged that Sun had effective control of the second-hand market in its products in the EEA.

In the High Court, the defendant was found to have infringed Sun's trade marks and the claimant was given summary judgment. On appeal, the Court of Appeal suggested that M-Tech might have a valid defence under competition law. In particular, according to Arden L.J., Oracle's practices had more to do with restricting imports with the object of preventing price competition, than with the exercise of its rights under article 7 and that it was possible that article 101 TFEU might provide M-Tech with a legitimate defence to trade mark infringement. However, Lord Sumption, who delivered the leading opinion in the Supreme Court, disagreed. A particular problem for M-Tech was that on the facts of the case, it was not dealing with second-hand goods but with goods which Sun had first marketed outside the EEA. This fatally undermined its defence.

According to Lord Sumption, since the goods were never marketed in the EEA until they were imported and marketed there by M-Tech without Sun's consent, the only right at issue was Sun's right to first market the goods under article 7(1). He noted, “This is an exercise of rights which does not engage the principle of the free movement of goods between Member States embodied in articles 34–36 of the Treaty. It affects only the entry of the goods onto the EEA market, not the movement of the goods within it” (at [25]). Nor did he accept M-Tech's argument that Sun's refusal to disclose where particular goods were first marketed partitioned the market and that its “vigorous” defence of its trade mark rights should prevent it from relying on article 7(1). In Lord Sumption's view, if Sun were not able to prevent third parties from importing its products into the EEA, then “it would have no trade mark rights to enforce” (at [26]). Lord Sumption further rejected the third plank of M-Tech defence which was that Sun was using article 7(2) to partition the market. Lord Sumption considered the cases relating to article 7(2) and concluded that they are the authority for the proposition the a trade mark proprietor cannot claim a right to oppose further commercialisation of his goods, if to do so would “itself” unjustifiably impede the free movement of goods between Member States (at [26]). But this was not the case, as here, where the exercise on its own would have no impact on trade, even if it were accompanied by other acts which might. In Lord Sumption's own words: “The law responds to this situation by restraining the acts which do. It does not pull down the whole temple” (at [27]).

Furthermore, Lord Sumption did not accept the defendant's argument that withholding information about their products' provenance partitioned the market, since any such argument must apply throughout the EEA and in relation to any party, even industrial counterfeiters, and this would be an “extreme” outcome. Finally, Lord Sumption rejected the argument that the fact that Sun makes its network of authorized dealers agree to obtain their supplies only from Sun or authorized Sun dealers, which Sun accepted might be contrary to article 101 TFEU, undermined its right to rely on article 7(2) of the TMD. He noted that there were two difficulties with the defendant's case in this regard. First, there was not the relevant connection between the claimant's policy of withholding information about the origin of its goods by means of its distribution agreements and the distortion of competition. According to Lord Sumption: “The whole premise of the argument is that the policy of withholding information has no anti-competitive effect on the choices of Sun's authorised distributors” (at [32]). But perhaps, more importantly, he also found that there was no relevant connection between the claimant's policy of withholding information about the origin of its goods and its right to first market its goods in the EEA. He concluded that “neither the trade marks nor the rights conferred on their proprietor by the directive can be characterised as the subject, the means or the result of an agreement or concerted practice contravening art.101” (at [32]).

The key difference, as identified by Lord Sumption, between the decision in the Court of Appeal and that of the Supreme Court was that in the Court of Appeal, Arden L.J. was willing to accept the argument that Sun was using its trade mark rights to obstruct the trade between Member States in goods which were already legitimately on the market within the EEA. By contrast, Lord Sumption took the view that the dispute revolved around Sun's right to first market its goods within the EEA. As such, any other related behaviour which might, after the fact, have an impact on the freedom to trade was irrelevant. Another difference between the Court of Appeal and the Supreme Court was that while the former believed a reference to the CJEU was in order, the latter believed it was not. Lord Sumption acknowledged that at some point issues raised by the Euro Defence might call for elucidation by the CJEU. However, in this case a reference was not required since, on the facts, the defendant had been unable to establish a relevant connection between the exercise of Sun's right to control the first marketing of its goods in the EEA and any breach of the TFEU (at [36]). And on this latter issue the law was clear. As a result, the High Court decision which gave summary judgment to the claimant was the correct one. There is no doubt that proprietors of goods which may be vulnerable to parallel importation from outside the EEA (computer parts and pharmaceuticals spring to mind in this regard) will welcome the decision in Oracle, not least because it greatly undermines the attractiveness of the Euro defence.