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Court Must Reconsider EU Parallel-import Server Sales Ruling

A U.K. reseller of server systems will have a fresh chance to argue its right to sell parallel imports, after the U.K. Court of Appeals ordered a lower court to set aside a summary judgment in favor of Oracle.

The ruling could have implications for other IT hardware resellers, wrote Lady Justice Arden in her opinion for the U.K. Court of Appeals.

"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," she wrote. "The economic function of parallel imports and the grey market is controversial. ... [T]his case may not stop at our shores."

Parallel imports, or goods sold on the gray market, are goods intended by their manufacturer for use in one country, but imported and resold in another. They are often cheaper than goods for which the distribution channel is determined by the manufacturer.

The U.K. case revolved around Sun Microsystems' assertion of its trademark rights. Oracle inherited the case when it bought Sun.

The 2008 E.U. trademark directive gives manufacturers some rights to restrict or oppose resale of products bearing their trademarks if those products were first sold outside the European Economic Area (EEA), which covers the E.U., Iceland, Liechtenstein, Norway, Switzerland and Turkey. However, if products were first sold within the EEA, manufacturers may not oppose resale elsewhere within the area under the E.U.'s "single market" rules governing the free flow of goods.

Sun accused M-Tech Data of Manchester, England, of infringing its trademark rights by reselling 64 hard disk drives originally sold by Sun in China, Chile and the U.S. The parties did not dispute the origin of the components.

M-Tech wished to argue, however, that Sun's trademark rights are limited by other aspects of European law which forbid manufacturers from controlling prices. Sun applied for, and was granted, summary judgement in the case, so M-Tech never had the opportunity to argue that defense in a court hearing.

"There is a real prospect of success in the argument that Article 5 [of the Trademark Directive] does not exclude the defences based on Articles 28 and 30 [of the E.U. treaty on freedom of movement of goods] where it is shown that the proprietor of a trade mark has adopted practices which distort trade within the single market," Lady Justice Arden wrote in the Court of Appeals' opinion.

The Court of Appeals found that the lower court should not have denied M-Tech the chance to argue its case. The lower court must set aside its original ruling and assign a trial judge to hear the case, the Court of Appeals said in a 10-page decision issued Tuesday.

M-Tech no longer advertises sales of hardware from Sun or Cisco, promoting only equipment from IBM, Hewlett-Packard, 3Com, NetApp, Emulex and Nortel on its website.

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