Roundabout trade avoids trademark infringement, says court

In Eli Lilly and Co v 8PM Chemist Ltd ([2008] EWCA Civ 24), the Court of Appeal of England and Wales has overturned an interim injunction granted by the Chancery Division of the High Court against 8PM Chemist Ltd.

Eli Lilly and Co - a major international pharmaceutical company - owns the Community and UK registrations for the CIALIS, LILLY, EVISTA, HUMALOG and HUMULIN word and device trademarks. 8PM, a UK company, runs a pharmacy business.

Eli Lilly's products sell well in the United States, where patients often try to buy genuine goods more cheaply abroad, generally by using the Internet. To facilitate such purchases, 8PM put in place the following system:

• US patients obtained a doctor's prescription for the product;
  
  
• They ordered the product from a Canadian company, which placed an order with a Turkish company (which had genuine stocks of the drugs concerned, packaged in boxes bearing Eli Lilly's trademarks and containing instructions and information leaflets in Turkish);
  
  
• The order was then checked by a pharmacist, who reviewed the dispensing label;
  
  
• The appropriate label was stuck on to the side of the Eli Lilly box;
  
  
• The product was placed in a brown box which was sealed and given a label containing only the patients' names and addresses;
  
  
• Each brown box was air-freighted to 8PM in the United Kingdom, where the box remained sealed and the relevant trademark was not revealed; and
  
  
• Boxes were posted to the patients in the United States.

8PM's activities were carried out under an authorized customs procedure which enables products to be processed or dealt with in the United Kingdom without incurring the obligation to pay duty or value added tax. The goods were under 'inward processing relief suspension' and, accordingly, were not released for free circulation in the European Union.

Eli Lilly sued for trademark infringement. In an application for interim relief, the Chancery Division of the High Court held that there was an arguable case of infringement and granted an interim injunction. 8PM appealed.

The Court of Appeal allowed the appeal. The reasoning of the court was as follows:

• In Class International BV v Colgate-Palmolive Co (Case C-405/03), the European Court of Justice (ECJ) made it plain that a trademark owner's 'non-Community' goods are to be regarded as not having entered the European Union for trademark infringement purposes, regardless of the fact that these goods have a physical presence.
  
  
• Use of a mark in the course of trade requires the introduction of the goods into the European Union for the purposes of putting them on the market there. As long as the requirements of the customs-approved treatment or use - other than release for free circulation - under which the goods had been placed were satisfied, the mere physical introduction of the goods into the territory of the European Union did not constitute import and did not entail using the mark in the course of trade.
  
  
• The key issue was whether there was an interference with the right of first marketing within the European Union. Genuine trademarked goods which were never released for free circulation did not interfere with that right.
  
  
• The essential function of Eli Lilly's EU trademarks was not jeopardized by 8PM's activities, as no consumer in the European Union saw the trademarks. In those circumstances, it was unlikely that there would be infringement.
  
  
• There was no use of the marks in the course of trade. 8PM's acts were all in relation to goods subject to customs control and none of the goods became Community goods. It followed that the marks were never used in the course of trade in the European Union. The giving of an impression to US consumers that the goods emanated from the United Kingdom - if it could be proved - did not make the case arguably different from that in the case law of the ECJ.

The reasoning of the Court of Appeal cannot be faulted, but a business appraisal of it leads one to suspect that any set of rules that requires such a roundabout business model in order to comply with the formal rules on trademark infringement is itself creating the impression that something that is technically illegal is being done.

Jeremy Phillips, IP consultant to Olswang, London