EU ruling loosens pharma companies’ control over brands

The judgment of the Court of Justice of the EU (CJEU) will be welcomed by parallel importers but it could negatively impact pharmaceutical manufacturers of original branded medicines as well as generic medicine manufacturers.

What were the cases about?

The CJEU proceedings stemmed from court proceedings raised in Belgium where pharmaceuticals manufacturer Novartis challenged the rebranding of generic medicines imported from the Netherlands for sale in Belgium by two different parallel traders.

Trade mark holders in the EU have the exclusive right to control when and where their goods are first placed on the EU market. However, rights holders cannot control subsequent distribution of the goods once the goods have been placed on the EU market.

Some businesses, particularly in the pharmaceuticals sector, buy goods placed on the market in one EU country and sell them in another, seeking to take advantage of the different market conditions, including often in relation to the pricing of the goods. Those businesses are known as parallel importers. EU law provides those businesses with qualified rights to engage in the free movement of goods.

In both cases considered by the CJEU, the generic medicines were marketed by Sandoz, a company within the Novartis group. The parallel traders imported the medicines from the Netherlands, repackaged and relabelled them, and then distributed them in Belgium using the brand names Novartis had given to the reference products that Sandoz’s products were based on. The products could be sold at a higher price in Belgium under the brand names adopted compared to the price that was associated with the generic product name in the Netherlands.

Novartis challenged the rights of the parallel importers to use its trade marks when repackaging the Sandoz generic medicines and selling them under the brand name it had given to the reference products, but the parallel importers argued that Novartis’ opposition to their activities contributed to the artificial partitioning of EU markets.

The legal context

The CJEU’s ruling focused on unpicking the circumstances in which a trade mark holder’s opposition to the marketing of relabelled products contributes to the artificial partitioning of markets between EU member states – prior EU case law has established, among other things, that such opposition from trade mark holders is prohibited if that is the case.

Other case law has established that a trade mark holder’s opposition to repackaging is considered to contribute to artificial partitioning of markets where the repackaging is necessary to enable the product imported in parallel to be marketed in the importing country.

Repackaging is considered to be objectively necessary if the circumstances in the country to which the product was being imported precluded the product being placed on the market in the same packaging as applied in the exporting state. Conversely, repackaging to secure a commercial advantage does not satisfy the necessity requirement.

Further, according to case law, where trade mark owners market identical medicinal products in different EU member states under different trade marks according to the member state in which the product is marketed then that activity will be considered to contribute to artificial partitioning of EU markets if the trade mark holder opposes the replacement of the trade mark used in the exporting country with that used in the importing country and the replacement is objectively necessary in order for that medicinal product to be marketed in the importing state by the parallel importer.

Beyond the issue of artificial partitioning, EU case law has established that trade mark holders cannot oppose parallel importers’ repackaging of their products and reaffixing of their trade marks to the new packaging if:

• the repackaging does not affect the original condition of the product inside;
• the new packaging clearly discloses the identity of the repackager and the name of the product manufacturer;
• the presentation of the repackaged product is not such as to be liable to damage the reputation of the trade mark and of its holder; and
• the importer has notified the trade mark holder before the repackaged product is put on sale and, where requested to do so, supplies the rights holder with a specimen of the repackaged product.

What the CJEU said

According to the CJEU, repackaging of generic medicines that involves rebranding under the name of the reference product cannot be opposed by trade mark holders if the parallel importer meets all the above criteria, the generic being repackaged is “identical in all respects” to the reference product, and the repackaging is necessary to enable the product to be marketed in the importing country.

The court provided guidance in its ruling on when two medicinal products would be considered identical. It said it is not enough for a generic medicine to be therapeutically equivalent; it may be contraindicated to replace a reference product if the products do not share the same chemical composition.

According to the court, products may be considered identical where “a reference medicinal product and a generic medicinal product [are] manufactured by the same entity or by economically linked entities” and the products are the same but simply “marketed under two different sets of rules”.

It added that the question of whether products are identical is not influenced in cases where health professionals or patients merely perceive differences between the products.

Remaining uncertainty

There is less clarity arising from the CJEU ruling on when repackaging of generic products rebranded under the name given to an identical reference product would be considered necessary to enable a medicinal product to be marketed in the importing country. This question centres on whether the repackaging is necessary to provide the parallel importer with effective market access.

The CJEU did say that if the sale of products in the importing country can be achieved by merely adapting the original packaging, then the trade mark holder can legitimately oppose full repackaging and rebranding.

It also said that trade mark holders’ rights will prevail if parallel importers’ repackaging is “exclusively motivated by the pursuit of an economic advantage”. It said this will be the case “where an economic operator seeks to take advantage of the reputation of the trade mark of a reference medicinal product or to place a product in a more profitable category”.

The CJEU further clarified that a parallel importer cannot be prevented from obtaining a licence to import generic medicines where the reference product is being marketed in the importing country. It said that this licensing issue does not, however, justify the rebranding of the generic product under the reference product brand name.

However, the CJEU judgment leaves open arguments over when repackaging and rebranding would be necessary.

Parallel importers could, for instance, claim that marketing their product under the generic name would not enable them to secure effective market access in some countries – particularly where reference products are dominant and their brand enjoys widespread recognition among health professionals and patients.

Trade mark holders will likely want to resist claims that use of their trade marks is necessary for securing effective market access. Further litigation around what proportion of market share constitutes effective market access could follow as a result.