IT Lawyers’ Cases in Brief

October 27, 2010

Parallel Imports and Trade Marks: Oracle v M-Tech 

In Oracle v M-Tech [2010] EWCA Civ 997, the Court of Appeal held that, in a trade mark infringement case involving importation of Sun branded computer hardware from outside the EEA, M-Tech was entitled to argue that Articles 28 to 30 and 81 of the EC Treaty prevented Oracle from obtaining summary judgment for trade mark infringement. As Lady Justice Arden remarked in the judgment handed down on 24 August, ‘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’. 

Oracle (formerly Sun Microsystems) is the well-known manufacturer of Sun computer hardware. M-Tech is a UK company that is an independent trader in the computer hardware market. M-Tech purchased second-hand Oracle hardware from a US dealer, which Oracle alleged amounted to infringement of its registered trade marks. Under the Trade mark Directive, it is an infringement to import goods bearing a trade mark from outside the EEA into the EEA even if the goods are genuine.

M-Tech maintained that Oracle was not entitled to enforce its trade mark rights because it was impossible for independent traders to differentiate between genuine Sun goods first marketed in the EEA by Oracle and those first marketed outside the EEA. Oracle was able to differentiate such goods by reference to the serial numbers and their own internal database but deliberately chose not to make such a database available to traders. M-Tech maintained that such facts combined with an aggressive litigation strategy employed by Oracle against independent traders such as M-Tech meant that the independent sector was no longer dealing in any second-hand Sun goods regardless of whether they were first marketed in the EEA.  

M Tech maintained that such conduct by Oracle in enforcing its trade marks resulted in artificial partitioning of the internal market in Europe, which was contrary to Articles 28 to 30 EC (now Articles 34 to 36 TFEU) and therefore in breach of European law. In addition M-Tech maintained that Oracle’s actions were contrary to the emerging European doctrine of abuse of rights and that distribution agreements between Oracle and its authorised distributors whereby they were prevented from buying from the independent sector were anti-competitive (ie in breach of Article 81). These breaches, it was argued, could amount to a defence to the trade mark infringement action. 

Oracle had sought summary judgment on the grounds that the Trade Mark Directive was a complete code and there was no scope for Articles 28 to 30 and that, on the facts, there was no nexus between the Article 81 defence and the imports of the goods into the EEA. Mr. Justice Kitchin had granted summary judgment (see [2009] EWHC 2992 (Pat) accepting Oracle’s arguments.  

The clear and readable judgment of Arden LJ emphasises at many intervals that the overturning of the judgment of Kitchin J may not survive the establishment of the facts. Oracle disputes many of the M-Tech allegations about its conduct. But, if the M-Tech allegations are found to be justified, the case is likely to be referred to the Court of Justice. 

Gambling Restrictions in the EU 

In Germany, jurisdiction over gambling is divided between the federal State and the Länder. In most of the Länder, there is a regional monopoly for the organisation of sporting bets and lotteries, while the organisation of bets on horse racing and the operation of gaming machines and casinos are entrusted to duly authorised private operators. By the treaty on lotteries in Germany (Lotteriestaatsvertrag), the Länder created a uniform framework for the organisation of games of chance, apart from casinos. Following a judgment of the Budesverfassungsgericht (German Federal Constitutional Court), that treaty was replaced by the treaty on games of chance in Germany (Glücksspielstaatsvertrag) which entered into force on 1 January 2008. The latter prohibits all organisation or intermediation of public games of chance on the Internet.

In the series of cases where judgment was given on 8 September, various German courts had asked the Court of Justice to rule on the compatibility of the rules on games of chance in Germany with EU law.

The ECJ ruled as follows:

·         the German rules on sporting bets constitute a restriction on the freedom to provide services and the freedom of establishment

·         such a restriction may be justified by imperative reasons in the public interest provided that the measures adopted are suitable and limited to the restrictions necessary

·         Member States are free to establish public monopolies because such a monopoly is likely to overcome the risks connected with the gaming industry more effectively than a system under which private operators are authorised to organise bets subject to compliance with the relevant legislation.

However, the ECJ found that the German courts were right to take the view that the German rules do not limit games of chance in a consistent and systematic manner. First, the holders of public monopolies carry out intensive advertising campaigns with a view to maximising profits from lotteries, thereby departing from the objectives justifying the existence of those monopolies. Secondly, with regard to games of chance such as casino games and automated games, which do not fall within the public monopoly but carry a greater risk of addiction than games which are subject to that monopoly, the German authorities carry out or tolerate policies designed to encourage participation in those games. In such circumstances, the preventive objective of that monopoly can no longer be pursued, so that the monopoly ceases to be justifiable.

But the ECJ reinforces the view it has previously expressed that Member States have a broad discretion in determining the level of protection against the dangers emanating from games of chance. Thus, and in the absence of any Community harmonisation in the matter, Member States are not required to recognise authorisations issued by other Member States in that area. For the same reasons, and having regard to the risks posed by games of chance on the Internet in comparison with traditional games of chance, Member States may also prohibit the offering of games of chance on the Internet.

Software Resale: US Appeal Ruling

In Timothy S Vernor v Autodesk Inc, the US Court of Appeals for the Ninth Circuit has overruled a first-instance decision that made a radical suggestion on the nature of software ownership: it suggested that a shrink-wrap licence may not prevent resale of software a person ‘owns’. Judge Callahan and his fellow judges in Seattle were not impressed with this step away from precedent. In a case remarkable for the range of amicus curiae briefs arguing on policy grounds, and which had the potential for radical change in the treatment of software, it was observed that:

‘our precedent from Wise through the MAI trio requires the result we reach. Congress is free, of course, to modify the first sale doctrine and the essential step defense if it deems these or other policy considerations to require a different approach’.

Judge Callahan summarised the case as follows:

Timothy Vernor purchased several used copies of Autodesk, Inc.’s AutoCAD Release 14 software (‘Release 14’) from one of Autodesk’s direct customers, and he resold the Release 14 copies on eBay. Vernor brought this declaratory judgment action against Autodesk to establish that these resales did not infringe Autodesk’s copyright. The district court issued the requested declaratory judgment, holding that Vernor’s sales were lawful because of two of the Copyright Act’s affirmative defenses that apply to owners of copies of copyrighted works, the first sale doctrine and the essential step defense.

Autodesk distributes Release 14 pursuant to a limited license agreement in which it reserves title to the software copies and imposes significant use and transfer restrictions on its customers. We determine that Autodesk’s direct customers are licensees of their copies of the software rather than owners, which has two ramifications. Because Vernor did not purchase the Release 14 copies from an owner, he may not invoke the first sale doctrine, and he also may not assert an essential step defense on behalf of his customers. For these reasons, we vacate the district court’s grant of summary judgment to Vernor and remand for further proceedings.