It has long been established that the parallel importation and repackaging (often into a local language) of trademarked pharmaceutical and medical products from one member state of the European Union to another is lawful under European free movement of goods law where the trademark owner does not consent provided certain conditions are satisfied, including a requirement that the parallel importer gives prior notice to the trademark owner of his intentions. The purpose of the notice provision is to give the trademark owner an opportunity to check the repackaging before the product goes on sale and to afford him a better possibility of protecting himself against counterfeiting.
In a recent case before the Patents County Court (Hollister Inc and another v Medik Ostomy Supplies Ltd) Medik admitted importing a large number of HOLLISTER and DANSAC products into the UK and there was no dispute that Medik did not give sufficient notice of this activity to the claimants in order to satisfy the notice condition. Accordingly, Medik admitted infringement and the claimants sought an account of profits.
The claimants argued that the sums due on the account were Medik’s gross profits, amounting to over half a million pounds. Medik rejected this on two grounds:
- The sum payable should be zero or at most only a token; the acts of infringement were due solely to the failure to give adequate notice, and the claimants had not suffered any damage.
- Alternatively, if the sum due were to be assessed by looking at Medik’s profit, the relevant profit was the net profit made by Medik, taking into account properly attributable costs. This gave a profit figure of about £110,000.
An account of profits under English law is generally assessed on principles including the following:
- The defendant is treated as if he conducted his business and made profits on behalf of the claimant.
- The court should determine what profits have been caused by the defendant’s wrongful acts. In particular, a distinction must be made between profits caused by infringement and those made on the occasion of such infringement.
- Profits attributable to the non-infringing parts of the defendant’s business were not caused by the use of the relevant intellectual property even if the use of that intellectual property was the occasion for the generation of those profits.
- A claimant must take a defendant as he finds him and cannot say that the defendant could and should have generated higher profits.
Applying these principles, the judge accepted Medik’s argument that a proper proportion of fixed, centrally incurred overhead costs should be deducted. A proper share of Medik’s premises costs, repackaging costs, general staff and overheads should be allowed, to be apportioned by units sold. Notional charges for directors and the staff costs of a sister company were disallowed.
The judge accepted that had the sales of the repackaged products not taken place, the claimants would have earned a substantial profit. He also accepted that the claimants had not suffered any damage relating to the purposes for which the notice provision was provided. There was no evidence of any issue of counterfeiting in this case which had been affected by the failure to give notice.
The judge rejected the suggestion that he should award only a small sum; this would not produce a financial remedy that was effective and a sufficient deterrent to ensure that traders did give the proprietor notice. However, it was not right to award the total sum derived from the account for the following reasons:
- This was not a case in which the purposes for which the notice provision was created had been engaged. There was no evidence that any anti-counterfeiting strategy of the claimants was hindered by the lack of notice from Medik.
- In this case the claimants knew Medik was repackaging or relabelling their goods; there had, in effect, been only a minor breach of the notice provisions.
- The right approach was to award a fraction of the profits arrived at on the account that was a fair and proper fraction in all the circumstances, bearing in mind the extent of damage to the trademark owner and proportionality. The above factors pointed towards a lower fraction, but this needed to be balanced with the need for the remedy to be effective and a sufficient deterrent.
On this basis the court awarded the claimants half of Medik’s profits which were to be recalculated by the accountants for the parties on the principles set out above.
Despite the details of the principles set out by the judge in this case and their apparently careful application, the final decision appears to be a fairly arbitrary 50% “fine” calculated by reference to the defendant’s profits. As was contended by the defendant in this case, it is difficult to see how the claimants truly suffered loss – they were given insufficient notice of the intended importation and repackaging, but nothing was wrong with the products themselves and the underlying rights of the claimants in their brands were not in peril.
© Taveners 2012