FLYNN PHARMA LTD V DRUGSRUS LTD

[2017] R.P.C. 18 709 FLYNN PHARMA LTD v DRUGSRUS LTD1 COURT OF APPEAL Sir Geoffrey Vos L.C. and Kitchin and Floyd L.JJ: 28 February, 1 March and 6 April 2017 [2017] EWCA Civ 226, [2017] R.P.C. 18 H1 Trade marks – Pharmaceuticals – Parallel imports – Re-branding – Trade mark use – Trade mark proprietor not the manufacturer of the imported products – Whether prevention of imports a disguised restriction on competition – The BMS conditions – Whether trade mark proprietor’s consent to placing on the market a precondition to applicability of pleaded defence – Whether re-branding necessary to gain access to relevant market – Appeal to Court of Appeal H2 Trade Marks Act 1994, ss.11(2)(b), 12 Directive 2008/95/EC (“Trade Marks Directive”), art.7 Treaty on the Functioning of the European Union (“TFEU”), arts.34, 36 This was an appeal in an action for infringement of UK and Community registered trade marks comprising the word mark FLYNN. The respondent (“Flynn Pharma”) specialised in the manufacture, marketing and distribution of a number of generic and speciality pharmaceutical preparations which were no longer the subject of any patent protection. In particular, Flynn Pharma marketed and distributed in the UK a pharmaceutical preparation in capsule form and of which the active ingredient was phenytoin sodium in various strengths under and by reference to the name PHENYTOIN SODIUM FLYNN. Phenytoin sodium, which was used primarily in the treatment of epilepsy, had originally been sold by the Pfizer group under the brand name EPANUTIN and at prices regulated under the pharmaceutical price regulation scheme (“PPRS”), which applied to branded pharmaceuticals. Flynn Pharma had acquired the UK marketing authorisation for phenytoin sodium capsules from Pfizer in early 2012 and PHENYTOIN SODIUM FLYNN capsules were manufactured by Pfizer and supplied to Flynn Pharma under a series of written agreements. Phenytoin sodium in non-capsule formulations continued to be marketed and sold by Pfizer under the brand name EPANUTIN in the UK and in both capsule and non-capsule formulations in other EU Member States. The first appellant (“Drugsrus”) was a parallel importer of pharmaceuticals and had purchased EPANUTIN capsules from elsewhere in the EU and imported and sold them to UK wholesalers in packaging to which the words “Phenytoin Sodium Flynn” had been affixed. The second appellant (“Tenolol”) was a company in the same group as the first defendant and held the relevant product licences for parallel imports. Parallel imports made up about 80% of the turnover the appellants’ group of companies. The background facts were largely uncontentious. In particular, it was accepted that it was a feature of the UK market that prescriptions which had been written for “Phenytoin H3 H4 1 It is understood that an application for permission to appeal to the Supreme Court has been refused. Ed. [2017] R.P.C. ß Crown copyright 2017. This article contains public sector information licensed under the Open Government Licence v3.0 (http://www. nationalarchives.gov.uk/doc/open-government-licence/version/3/) 710 H5 H6 FLYNN PHARMA LTD v DRUGSRUS LTD Sodium Flynn” had to be filled with product bearing that name, whereas a prescription written under the generic term phenytoin sodium could be fulfilled by either a branded product or a generic one. Phenytoin sodium had a narrow therapeutic index such that relatively small differences in efficacy could potentially have adverse effects and there was accordingly concern amongst patients and healthcare professionals about switching between products from different sources and as to continuity of supply. For this reason an application by Flynn Pharma to change the name of the authorised product from EPANUTIN to phenytoin sodium, the generic term, had been declined and it had instead been agreed that the product should be called “Phenytoin Sodium Flynn”. Flynn Pharma had taken steps to educate both patients and healthcare professionals that PHENYTOIN SODIUM FLYNN was exactly the same as the product they had formerly known under the brand name EPANUTIN (“the information campaign”). Once PHENYTOIN SODIUM FLYNN capsules had replaced EPANUTIN capsules on the UK market, there had been a 20-fold increase in price as the capsules were no longer treated as falling within the PPRS. At the trial of the action, the appellants had argued that the imported products complained of did not infringe the registrations relied upon because (i) there was no use of the word “Flynn” as a trade mark and they had a defence to infringement under s.11(2)(b) of the Trade Marks Act 1994 (“the 1994 Act”) in that the term “Phenytoin Sodium Flynn” was an indicator of characteristics of the product in relation to which it was being used and such use was in accordance with honest practices, and (ii) because Flynn Pharma’s reliance on its trade mark rights under domestic legislation amounted to a disguised restriction of trade and was contrary to the free movement provision of the Treaty on the Functioning of the European Union (“TFEU”). Ultimately the main issue at trial had been whether, as the appellants contended, they had a defence to infringement of the registered trade mark FLYNN by virtue of arts.34 and/or 36 of the TFEU on grounds that it was necessary to re-label the imported capsules as “Phenytoin Sodium Flynn” in order to gain effective access to the market in the UK and irrespective of whether the goods in issue has been placed on the market in the EU by or with the consent of the registered proprietor of the mark relied upon such that Flynn Pharma’s rights therein had been exhausted. A prohibition on this would “hinder effective access” to part of the relevant market, which was that part of the market for EPANUTIN which was met by goods bearing the PHENYTOIN SODIUM FLYNN name, this being a substantial market segment. The appellants contended that the use of different trade marks in different Member States otherwise prevented substitution of product and had nothing to do with guaranteeing the origin of the goods, which was the purpose of a registered trade mark. The use of the “Phenytoin Sodium Flynn” name would enable the appellants to gain access both to the market for prescriptions written for “Phenytoin Sodium Flynn” and the wider market of prescriptions written by reference to the generic name, phenytoin sodium. The appellants had also argued that if, contrary to their primary case, they had to establish that Flynn Pharma had consented to the marketing of the relevant goods in the EU, they could succeed in establishing this on a proper analysis of the contractual arrangements between Flynn Pharma and Pfizer. In particular, they contended that the relationship between Flynn Pharma and Pfizer was more in the nature of an ongoing exclusive distribution agreement for Pfizer’s product than a sale and that Flynn Pharma remained firmly locked to Pfizer for the source of its supplies (...truncated)