Trade Mark Legislation and the Pharmaceutical Industry

Lane, S. and Phillips, J.

Monograph
May 1999

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A trade mark is, in its most basic sense, a badge of identity. Its most essential characteristic is its capacity to distinguish one undertaking's goods or services from those of another. This function is reflected in the legal definition of a trade mark in the law of the European Union (EU) and its Member States, which states:

'...a 'trade mark' means any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings.'2

From an economist's point of view, trade marks

'...facilitate and enhance consumer decisions...and create incentives for firms to produce products of desirable qualities even when these are not observable before purchase.'3

The gist of this argument is that, in the marketplace there are often no observable differences between products. In these conditions, unobservable differences may be the determining factor in consumer choice. In the absence of trade marks, however, consumer choice is a lottery, since the consumer cannot identify the product with the hidden qualities he desires. From a producer's point of view, in the absence of trade marks that enable the consumer to identify his product, there is little incentive to put anything extra into it.

In economic terms, a trade mark ranks highly amongst the factors encouraging a producer to maintain consistent quality. Although there is no requirement in trade mark law to maintain that particular quality, it is generally advisable for a producer to do so. Past experience colours future choice, and a producer who reduces quality will soon find that his customers vote with their wallets.4 Trade marks have intrinsic value and, if a producer devalues his product, he eventually devalues his trade mark.

Neither the succinct legal definition of a trade mark nor the standard economic analysis of its role does much to convey the significance of trade marks in society today. Modern consumers are bombarded with trade marks, many of which have achieved global status. Coca-Cola, Pepsi-Cola, Nike, Adidas, Rolls Royce, Mercedes, Nescafe, Bacardi and Kodak spring to mind at once. Indeed, such is the power of a trade mark that its monetary value may far exceed the value of a company's tangible assets.5

The pharmaceutical industry is a high-profile user of the trade mark system. Although the industry relies heavily on patent protection, the period of exclusivity is not long and is substantially eroded before the product is launched because of the time taken to acquire regulatory approval.6 Once protection expires, manufacturers face keen competition from rivals. When customer choice is critical, a well-known trade mark may make the difference between identical products.

The recent harmonisation of trade mark law in the EU, which resulted in the UK's Trade Marks Act 1994 ('the 1994 Act'), presents a fresh opportunity to explore pharmaceutical trade mark law. The aims of this monograph are

• introduce the 1994 Act and its European dimensions; and

• explore its impact on the pharmaceutical industry.

 

A simplified summary of the processes for obtaining UK or Community trade marks is set out in Figure 1 and is discussed in the following chapters. The text is aimed at lawyers and non-lawyers alike. It covers over the counter (OTC) medicines as well as prescription only medicines.

The structure of this report is as follows. Chapter 2 identifies those features of the pharmaceutical industry which set it apart from other industries in terms of the demands it makes upon trade mark law. Chapter 3 draws attention to the sources of law which shape UK and European trade mark practice and highlights some of the key features of UK trade mark law. Chapter 4 examines issues of nomenclature specific to the pharmaceutical industry which may prevent a product name or brand name obtaining protection as a registered trade mark. Chapter 5 describes the legal parameters which determine what may be regarded as a registrable trade mark, taking into account not only brand names but also the protection of a product's colour, appearance and packaging. Chapter 6 focuses on those grounds upon which a trade mark may not be eligible for registration even if no other pharmaceutical company is using it. Chapter 7 deals with the interface between trade mark registrability and the need to protect the interests of registered proprietors and users of existing marks. Chapter 8 records the extent of the power which trade mark registration accords to owners of trade marks with respect to the control they exercise over the use of their trade marks. Chapter 9 describes and explains the range of options available to those whose commercial activities appear to infringe a registered trade mark. Chapter 10 concludes with some pertinent observations upon the impact of the recent changes on the pharmaceutical industry.

The law as stated is current to 1 March 1999.

2 Article 2, the European Community's First Council Directive on the Approximation of Trade Mark Laws 89/104/EEC, the 'Harmonisation Directive'.
3 Economides, The Economics of Trademarks Vol.78 TMR 523, 1988.
4 For a further economic analysis, see Landes and Posner, The Economics of Trade Mark Law Vol.78 TMR 267, 1988.
5 In 1986, the Coca-Cola Company was valued at approximately $14 billion, of which only $7 billion could be attributed to tangible assets. In 1993, Financial World business magazine valued it at £33.4 billion. In 1988 Kraft, whose trade marks include Kraft cheese, Miracle Whip and Breyers, was sold for four times the value of its tangible assets; Rowntree, which owned Kit Kat, After Eight, Quality Street and Rolo, sold for more than five times its book value (sources: Drescher, The Transformation and Evolution of Trademarks - from Signals to Symbols to Myth Vol. 82 TMR 301, 1992; Annand and Norman, Blackstone's Guide to the Trade Marks Act 1994, 1994 p. 10).
6 The normal maximum period of patent protection is 20 years, subject to a short extension under a supplementary protection certificate.