Court holds that Euro-defence to grey import action is arguable

Oracle America (formerly Sun Microsystems) v M-Tech [2010] EWCA Civ 997

In a potential set-back for brand owners, the English Court of Appeal has ruled that M-Tech's Euro-defence should be tested at trial. The court also indicated that if M-Tech can establish the facts on which it bases its defence, questions should be referred to the European Court of Justice. Although this case was merely a refusal to grant summary judgment, it creates uncertainty for brand owners and is a potential encouragement for grey importers and parallel traders.

Facts and background

Oracle (formally Sun Microsystems) sued M-Tech after the latter had purchased Sun disk drives in the United States. The action was for trade mark infringement as the disk drives had not been put on the market in the EEA by Oracle or with its consent. Oracle was able to determine this by checking the serial number of the drives on its database. However, M-Tech had not been able to do this (as the database was not public) and so could not know with certainty if the drives were grey or not. At first instance, summary judgment was granted in favour of Oracle, the judge rejecting M-Tech's defences based on the EU principles of free movement of goods and competition law.

The allegations by M-Tech

M-Tech alleged that Oracle:

• had deliberately not published its serial number database in order to make trade in genuine EEA-first marketed goods as difficult as possible;
• aggressively pursued independent resellers for infringement;
• made it a term of its agreements with distributors and resellers that they must buy Oracle new and secondhand equipment from within its supply network unless a particular item cannot be supplied from that network, which was part of an overall scheme for excluding secondary traders from the market.

M-Tech also alleged that Oracle's practices have caused trade of Sun products in the independent network to largely disappear which is detrimental to competition.

As this was a summary judgment application, the case proceeded on the basis that M-Tech's allegations (which were not accepted by Oracle) were true.

The legal issues

M-Tech argued that Oracle's:

• practices were an unlawful restriction on the free movement of goods under EU law and an abuse of trade mark rights; and
• agreements breached EU competition law.

In order for M-Tech's appeal against the grant of summary judgment to succeed, it only had to show that these defences had a real prospect of success.

Decision

The Court of Appeal allowed the appeal and ordered that the case should go to trial. This was on the basis that the defences were arguable. If the facts alleged by M-Tech are established at trial, then the case ought to be referred to the European Court of Justice as the "point is not acte clair and … the issues involve questions of economic policy likely to affect the European Union as a whole". If the facts are not established, then the defence would fail.

Case comment

It was interesting that the Court has decided to allow M-Tech to argue the Euro-defences at trial in circumstances where it had imported the Sun-branded products from the United States. Although the non-EEA location of the seller or product does not necessarily mean that the products had not first been put on the market in the EEA by Oracle or with its consent, it does, in practice, seem to suggest that the goods were highly likely to be grey. For this reason, it appears that the facts of the case were not conducive to the outcome.

As Lady Justice Arden stated:
"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."

The trial is likely to be expedited and may perhaps take place during the first half of next year (if the case does not settle). If M-Tech establishes at trial the facts pleaded in its defence, the trial judge would be highly likely to refer questions about the pleaded Euro-defences to the European Court of Justice. It would then take at least a couple of years for the ECJ to deliver a judgment.

In the meantime, grey importers appear to have a potential argument which they can deploy in cases with similar facts if they are willing to take the risk that the trial court (and/or the ECJ) will not find in M-Tech's favour in due course. If brand owners wish to avoid the potential Euro-defence arguments altogether in such cases, they could consider (a) marking their non-EEA labels "Not for importation into the EEA" and/or (b) making their serial number database available to traders (but such a practice may not be advisable, at least until the Oracle v M-Tech case has been resolved, as this option may not prove necessary).

Lawyers Timothy Pinto, Jason Rawkins