Sony v Tesco

Out-Law Guide | 14 Nov 2007 | 11:28 am | 9 min. read

Sony obtained an injunction preventing Tesco from importing Playstations from France. Granting the injunction, the judge applied European case law relating to intra-Community parallel imports of pharmaceutical products to the IT industry.

Sony Computer Entertainments Inc. V Tesco Stores Ltd
[1999] High Court of Justice (Chancery Division)

  • Case No. MC1999 No. 3983.
  • LTL 4/10/99 (Unreported elsewhere)Citation 1

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Facts

Proceedings were commenced by Sony to protect its trade mark rights in its well known “PlayStation” product. PlayStvations are marketed in a large number of countries.  In so far as it is relevant, Sony market the product in the UK by a structure of authorised dealers and retailers.  It is also, of course, marketed in the European Economic Area and, for present purposes, through retailers in France.  Tesco had, before Christmas 1999, imported a number of PlayStations from France and were seeking to resell them in the UK.  No notice of this action had been given to Sony.  Sony was trying to stop Tesco reselling the products in the UK in this manner.

In order to make the product acceptable to the UK market, Tesco had to make a number of changes.  Given the emergency nature of the application made by Sony, many of the facts are not finally established in the judgment, but the following seemed to be the basis of the judgment.  Two changes to the French PlayStation were of particular relevance: firstly, power sockets in the UK are totally different from those in France and, secondly, the connection of the unit to the television in France is by means of a SCART connector, common in France, but still relatively uncommon in the UK thus necessitating a different connector as well.

With regard to the first modification, the plug, a moulded adapter had been attached to the original French plug.

With regard to the second modification, the connector, Sony’s evidence was to the effect that the connector supplied by Tesco for the UK was less suitable than others supplied here.  Sony’s evidence suggested that Tesco’s connection lead was of less good protection against interference and only allowed one connection at a time i.e. the consumer had to choose whether to plug in the PlayStation or the television aerial.

The packages offered by Tesco did bear notices about the product.  One notice was a general safety notice about plastic bags and went on to say that the “product has been opened to fit an adapter to enable it to be used in UK three pin power sockets and to include an optional RFU adapter repacked for Tesco Stores UK”.

Sony produced as evidence a Tesco sold PlayStation with the words “Sony PlayStation” on the connection adapter itself.  Sony owned two registered trade marks for PlayStation, one in any form, the other in a specific typeface.

Sony’s allegations of trade mark infringement included the use of the mark both on the packaging and on the adapter.  However, on this last point, Tesco said that as many as four different types of adapter were being used, three of these types not having the wording on them at which Sony took offence (instead it said “for use with Sony PlayStation”).

Tesco sought to argue that the use of the wording was only descriptive and in accordance with section 11(2)(c) Trade Marks Act 1996.

Judgment

Lloyd J referred to Bristol-Myers Squibb v Paranova on the question of parallel imports where the importer repackaged the product.  That case set out a number of conditions when a product is bought in another Member State where it had been put on the market with the consent of the trade mark owner.  If an importer wants to repackage the product and re-affix the trade mark, they must comply with certain conditions, including, firstly, that the repackaging cannot adversely affect the original condition of the product and, secondly, the importer must comply with certain obligations as to labelling and provision of samples.

Paranova also set out some ways in which the repackaged product might indirectly affect the original condition of the product, but did so in the context of the pharmaceutical industry.  The case decided that the condition of the product might be affected where the importer’s instructions might be inaccurate or omit important information or an extra article inserted by the importer did not comply with the method or use or dosages envisaged by the manufacturer.  Lloyd J had no difficulty in applying the general principles of these conditions outside of the confines of the pharmaceutical industry.  The condition of the product might also be affected where the new packaging did not give the product adequate protection.

Paranova also laid down some positive conditions that the importer had to comply with.  Such an importer

(i) had to indicate on the external packaging, in such as way as was easily visible, who repackaged the product and who manufactured the product

(ii) need not indicate that the repackaging was without the trade mark owner’s authorisation

(iii) must give the origin of any additional article so that there was no impression that the trade mark owner is responsible for it

(iv) must give the trade mark owner advance notice, and the trade mark owner may require a specimen in advance.

Lloyd J had difficulty in accepting Tesco’s argument to the effect that the notice provisions were applicable only in the special conditions of the pharmaceutical industry.  However, he did regard it as debatable.  However, he had no hesitation in rejecting Tesco’s arguments about the use of the PlayStation mark on the UK adapter.  This he described as looking like “the clearest possible breach of trade mark rights”.  The same did not go for the use on the packaging itself.

The learned judge admitted the difficulty on an interim application of deciding on the balance of convenience.  Tesco did not have to say explicitly that it had repackaged the product with an additional article, but he was not sure that it had done enough by the notice on the packaging to dispel the impression that Sony was responsible for it.  Overall Lloyd J thought that it was up to the importer to show that it had complied with this obligation.

In the result, Lloyd J was minded to grant an injunction in respect of the adapter (but not the power socket) to restrain the objectionable adapter which bore the clear trade mark infringement, while other sales could continue of different adapters provided the packaging made it absolutely clear that Sony was not responsible for them.

Commentary

The interest of this case lies in the fact that it is thought to be the first English case under the Trade Marks Act 1994 in which the jurisprudence of the European Court of Justice concerning intra-Community parallel imports has been applied to non-pharmaceutical products.

So far as registered trade marks are concerned, parallel imports from other Member States of the European Community are governed by Article 7 of the EC Trade Marks Directive which has been implemented by section 12 of the 1994 Act.  Section 12 provides:

“(1) A registered trade mark shall not be infringed by the use in relation to goods which have been put on the market in the European Economic Area under that trade mark by the proprietor or with his consent.

(2) Subsection (1) does not apply where there exist legitimate reasons for the proprietor to oppose further dealings in the goods (in particular, where the condition of the goods has been changed or impaired after they have been put on the market).”

Although section 12(1) prohibits trade mark proprietors from relying upon trade mark rights to prevent parallel imports of goods which have been placed on the market anywhere in the EEA by them or with their consent, section 12(2) makes it clear that this prohibition is not absolute: proprietors can rely upon their trade mark rights if they have “legitimate reasons”.  This begs the question, what constitutes a legitimate reason?

Guidance on the answer to this question is provided by the jurisprudence of the ECJ.  This includes a long series of cases concerning the extent to which proprietors of national intellectual property rights such as trade marks can rely upon those rights to stop parallel importation of goods from one Member State to another.  In Centrafarm v Winthrop (case 16/74) [1974] ECR 1183 the Court held that it was incompatible with the community’s rules on free movement of goods to exercise trade mark rights so as to prevent the sale in one Member State of a product which had previously been marketed in another Member State by the trade mark proprietor or with his consent.  As is it now put, the trade mark proprietor’s rights are “exhausted” by placing, or consenting to the placing of, the goods on the market in the Community because the “specific subject matter” of a trade mark consists of the proprietor’s right to use the trade mark for the purposes of putting a product into circulation for the first time so as to guarantee the product’s origin under the control of the proprietor (see Hag II (Case C-10/89) [1990] I-ECR 3711).

In Bristol Myers Squibb v Paranova (Joined cases C-427/93, C-429/93 and C-436/93) [1996] I-ECR 3457 the ECJ held that Article 7 of the Directive comprehensively regulates the question of trade mark rights for products traded in the Community, but like any secondary legislation Article 7 must be interpreted in the light of the Treaty rules on the free movement of goods, particularly Article 30 (ex 36) of the EC Treaty.  The Court went on to summarise and elaborate its jurisprudence with respect to parallel imports of pharmaceutical products, stating that the trade mark proprietor may legitimately oppose such parallel imports where the importer has repackaged the goods unless five conditions are satisfied (often referred to as the “Paranova guidelines”).

In Sony v Tesco Lloyd J accepted that the Paranova guidelines were applicable at least to some extent to non-pharmaceutical products.  In particular he held that it was arguable that the notice requirement applied to non-pharmaceutical goods which had been repackaged by the importer.  Surprisingly, Lloyd J does not appear to have been referred to Loendersloot v George Ballantine & Sons (Case C-349/95) [1998] ETMR 10, where the ECJ confirmed that four of the Paranova guidelines, including the notice requirement, were indeed applicable to all goods.  The only one that was not stated to be applicable was the condition that the new packaging should state who repackaged the product and the name of the manufacturer and that, if any extra article is included which does not emanate from the trade mark owner, that must be indicated in such a way as to dispel any impression that the trade owner is responsible.  It seems probable, however, that this condition was omitted because Loendersloot was a relabelling case rather than a true repackaging case.  It is therefore of some interest that Lloyd J regarded this condition as applicable to non-pharmaceutical goods.

It appears from the judgment that Lloyd J took the provisional view that Tesco had failed to comply with the Paranova guidelines in three respects.  Firstly, some of the connection adapters which Tesco had inserted into the packs were marked “Sony PlayStation” (rather than “for use with Sony PlayStations”).  This plainly created the impression that Sony was the source of those adapters.  Secondly, even where the adapters were not marked in that way, Tesco had not sufficiently indicated on the packaging that the extra components it had inserted were not Sony or Sony-approved products.  Thirdly, Tesco had failed to give Sony advance notice.  On the other hand, he did not consider that minor quality differences between Tesco-sourced components and the Sony equivalents were likely to damage Sony’s reputation.

It should be noted that a point which was not in issue in Sony v Tesco, but which often crops up in other cases, is whether it was necessary for the importer to repackage the goods at all.  The first of the Paranova guidelines states that it must be shown that the exercise by the proprietor of his trade mark rights would contribute to artificial partitioning of the common market, such as where the repackaging of the product is necessary to enable it to be marketed in the Member State of importation (see on this point the recent case of Pharmacia & Upjohn v Paranova (Case C-379/97( [1999] All ER (EC) 865).  Sony appears to have accepted, however, that repackaging was necessary because of the differences between French and UK television sets and electrical circuits.

In conclusion, the case stands as a warning to parallel importers (and their advisors) in all sectors.  Unless considerable care is taken to comply with the Paranova guidelines, they risk a finding of trade mark infringement.