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COMMENTARY ON THE JUDGMENT OF THE COURT OF APPEAL DELIVERED ON 06 APRIL 2017

The English Court of Appeal handed down their judgment in this case on 06 April 2017.

The case concerned phenytoin sodium, an anti-epileptic drug (“AED”). Prior to September 2012, all phenytoin sodium capsules supplied in the UK were manufactured by Pfizer who supplied the product in the UK and Europe under relevant marketing authorisations under the brand name Epanutin. The price Pfizer could sell Epanutin for was controlled by the PPRS and in September 2012 that price was around £3 per bottle of 84 100mg capsules. In 2012, the UK marketing authorisations for the Product were transferred to Flynn Pharma Limited (“Flynn”), a company separate from Pfizer with the intention of genericising the product in the UK so that the PPRS did not apply and the price could be increased.

The narrow therapeutic index of AEDs had caused the MHRA to start preparing guidance highlighting its concerns that even if two products had the same active ingredient and are presented in the same form, different sources or the active ingredient or different places or methods of manufacture might result in subtle differences in the product such that they might not be therapeutically the same. When Flynn applied to the MHRA to change the name of the product from Epanutin to its INN - phenytoin sodium, the MHRA’s response was therefore to request that the product be called “Penytoin Sodium Flynn” to aid different sources of the product to be distinguished. In September 2012, Flynn launched Phenytoin Sodium Flynn and the price per bottle of 84 100mg capsules rose to around £66.50, a 20-fold increase. The CMA found that Flynn’s pricing arrangements constituted an abuse of a dominant position by both Pfizer and Flynn in breach of UK and EU competition law.

DrugsRUs Ltd and the other appellant (“DrugsRUs”) are part of a group of companies that trade in parallel imported products (one was the licence holding company and the other the importer). Following Flynn’s acquisition of the UK marketing authorisations DrugsRUs applied for their PL/PI to be amended to permit marketing of the product under the name the INN – phenytoin sodium. The MHRA said that they could only market under the name Phenytoin Sodium Flynn or Epanutin. The second of these options was not commercially viable and Flynn sought to prevent the former on the basis that FLYNN is a registered trademark and it is Flynn’s enforcement of this trade mark that is the subject of the proceedings between the parties.

In the first instance High Court proceedings before Mrs Justice Rose, DrugRUs’ contention that restricting importation by use of Flynn’s trade mark rights constituted a disguised restriction on trade between Member States contrary to Article 36 TFEU was rejected. Rose J concluded that DrugsRUs could only rely on Article 36 to defeat Flynn’s claim of trade mark infringement if they could show that the Epanutin that they wished to import was placed on the market in the exporting member state by the same entity was now seeking to prevent its import into the UK. Rose J went on to consider the connection between Pfizer and Flynn including the various commercial agreements they had entered into and concluded that Flynn had no control over the Epanutin Pfizer placed on the market in the member state of export or on the Epanutin trade mark and Flynn took responsibility for the product as MAH.

DrugsRUs’ main submission focused on the balance in Article 36 TFEU between the enforcement of a trade mark right and free movement, and the proposal that enforcement of the trade mark would create a barrier to trade between member states. DrugsRUs also submitted that Flynn’s use of the trade mark was unusual as there was no practical way that Flynn could also alter the composition of the product supplied by Pfizer, or go to another source of supply. It had been significant to Rose J that control of the product did not coincide with control of the mark. Pfizer retained control of the product, and Flynn of the trade mark. DrugsRUs argued that Rose J had been overly impressed by the fact that regulatory responsibility for the product in the UK lay with Flynn, when that was simply a consequence of the assignment of the marketing authorisation.

The Court of Appeal dismissed the appeal holding that the resolution of the case required a dual enquiry. Firstly, were the goods that the alleged infringer wished to import goods that had been placed on the market by the trade mark owner or with his consent? Secondly, even if the answer to the first question was “no”, was the party who did place the goods on the market under a trade mark also in effective (”unitary”, as used in Case C-9/93 IHT Internationale Heiztechnik GmbH v Ideal Standard GmbH [1994] ECR I 02836) control of the trade mark which is sought to be enforced? If the answer to the second question was also “no”, it would be difficult to see how the enforcement of the trade mark could be for any purposes other than to protect the origin function of the mark.

In this case, the questions were therefore whether Flynn had control over the goods it sought to oppose before they were placed on the market in the exporting state, and whether the links between Flynn and Pfizer were such that use of the trade mark FLYNN should be regarded as being under the (unitary) control of Pfizer.

The Court of Appeal agreed with the High Court judge that Flynn had no control over the Epanutin sold by Pfizer and which DrugsRUs sought to import.

The Court of Appeal also agreed with Rose J that Flynn’s use of the mark Phenytoin Sodium Flynn was not under Pfizer’s control. The specification of the product was determined by Flynn and Pfizer was obliged to make the product in compliance with that. There was nothing in the agreements between the two companies to entitle Pfizer to stop Flynn changing the product or controlling the trade mark it applies.

Therefore, Flynn had a legitimate interest in the enforcement of its mark against goods that it had not placed on the market under that mark and over which it had no control. Pfizer was also not able to control the use which Flynn made of its trade mark rights. Sales of the imported product affected the guarantee of origin which the FLYNN mark entails as, for example, a defective batch of Epanutin sold by DrugsRUs could rebound on Flynn. DrugsRUs would also be taking advantage of the reputation of the FLYNN mark in selling their products.

The Court of Appeal also observed that the harm that Flynn was pointing to in this case was different in character to that which trade mark owners are able to point to in repackaging and rebranding cases and which is limited through the BMS conditions, because in those cases the goods concerned were the trade mark owner’s goods.

The Court of Appeal appeared to reject the argument that the price increase achieved by Flynn following the assignment suggested the presence of economic linkage.  The Court found that it would be necessary to establish that the trade mark is being used to create an artificial barrier before one could attack the use of the trade mark on competition grounds.  However, the Court added:

“If it can be shown that Flynn is abusing a dominant position by charging excessive prices, or that the price level is as a result of an agreement or practice contrary to other provisions of the Treaty…”

The CMA in separate proceedings has, of course, found that Flynn/Pfizer have abused a dominant position (although the Decision is subject to an Appeal to the Competition Appeals Tribunal).  In addition there seems no good reason why the competition case brought by the CMA could not also have been brought under the Chapter I Prohibition under the Competition Act 1998 based on an agreement or concerted practice between Flynn and Pfizer to charge excessive prices.  However, this point does not seem to have been taken up by the Court of Appeal.

It is understood that DrugsRUs has applied for leave to appeal this judgment to the Supreme Court.