Court of Appeal allows appeal in a case involving the importation of grey market computer goods

01 Sep 2010

Oracle America (Formerly Sun Microsystems) v M-Tech Data Ltd and Stephen Lawrence Lichtenstein

In an important case concerning the relationship between trade mark rights under the trade mark Directive and other provisions of EU law, the Court of Appeal on 24 August allowed an appeal by M-Tech, an independent trader in Oracle hardware, against a decision of Kitchin J who had granted summary judgment in favour of Oracle.

The market in second-hand computer hardware is worth approximately €260 billion, of which €160 billion is traded by independent resellers.  These independent resellers do not constitute part of authorised networks of computer manufacturers, but help ensure a competitive market for second-hand computer hardware.  Trade is global, and the hardware is often traded several times.  As a result, the location of the hardware or of the dealer is often not a guide to whether the hardware was first placed on the market in the European Economic Area (EEA) with the consent of the trade mark proprietor.  Oracle does not publish any information which would enable independent traders to identify whether a particular item of its hardware had first been placed on the market within the EEA by Oracle or with its consent, and had deliberately adopted a policy of not publishing its database in order to make trade in genuine EEA-first marketed goods as difficult as possible. It aggressively pursued independent resellers for trade mark infringement if they offered for sale any of Oracle’s hardware which was first marketed outside the EEA.

M-Tech had imported into the United Kingdom from countries outside the EEA computer hardware which used trade marks belonging to Oracle. Oracle issued proceedings against M-Tech alleging trade mark infringement. M-Tech contended that Oracle’s practices were in breach of Arts 28-30 of the EC Treaty on the freedom of movement of goods between EU Member States (now Arts. 34-36 TFEU), were an abusive exercise of Oracle’s rights under the trade mark Directive, Directive 89/104, as well as Art.81 EC (now Art. 101 TFEU) which prohibits agreements restricting competition. Oracle has made it a term of its agreements with resellers of its products that they must buy Oracle new and second hand equipment only from within its supply network.

Kitchin J had accepted Oracle’s argument, based on Case C-414/99 Zino Davidoff SA v A&G Imports Ltd  that the trade mark Directive embodied a complete harmonisation of the rules relating to trade mark rights and that accordingly Oracle’s rights under rights conferred by a mark were untrammelled by Arts. 28-30 TFEU. While Oracle accepted, for the purpose of the summary judgment application, that its agreements with its resellers in the EEA were contrary to Art.81 of the EC Treaty, Kitchin J found that there was no sufficient connection between the breach and the enforcement of its trade marks. He therefore granted summary judgment in Oracle’s favour.

The Court of Appeal accepted M-Tech’s arguments that there was a real prospect of M-Tech establishing that rights under the trademark Directive had to be interpreted by reference to Arts. 28-30 of the EC Treaty. Given Oracle’s failure to allow traders to find out which of its goods had been marketed within the EEA by Oracle or with its consent there was a real prospect that a breach of Art.28 would be established which was not capable of justification under Art.30 or under the trade mark Directive. They also accepted that a broad approach should be taken to the question of showing a connection between the Article 81 agreements and the trade mark proceedings and that, for present purposes, a necessary connection had been established.

Christopher Vajda QC (who was not instructed below) represented M-Tech Data Ltd in the Court of Appeal.