K Effective Options for Grey Imports in Emerging Markets

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K Effective Options for Grey Imports in Emerging Markets Building trademark expertise since 1986 GREY IMPORTS K EnforcingEnforcing outsideoutside thethe trademarktrademark IN SUMMARY boxbox – The rules on grey imports in emerging markets are highly varied K – Creative enforcement strategies can Effective options for grey help address the challenge and imports in emerging markets improve brand protection By Lisa Peets, Victoria Hanley and Siobhán Fisher of AUTHORS Covington & Burling LLP Lisa Peets (left) leads the European IP oday’s global economy offers brand governing grey imports in emerging Practice at Covington & Burling. Her owners increasing access to so- markets, coupled with the lack of expeditious practice focuses on intellectual property called “emerging” markets. This and effective judicial processes, necessitates a and information technology, and T embraces both legislative advocacy and new openness also means that national customised approach to the problem. This IP enforcement. borders rarely impede the unauthorised article first explores the challenges of grey movement of goods – including grey goods – market trademark enforcement in four Victoria Hanley (middle) is an associate in emerging markets. As a result, brand developing regions – emerging EU markets, in Covington & Burling’s Brussels office. owners may find themselves with brand non-EU CEE markets, Russia and China – Her practice covers European Union intellectual property, communications protection issues in far-flung markets, and then outlines possible approaches to and competition law, and focuses on including those in which they have not yet address these challenges. policy reform and legislative advocacy. contemplated commercial operations. Emerging markets may be culturally and Emerging markets in the European Union Siobhán Fisher (right) works with the legally diverse, but they are almost European courts at the highest level have European IP Practice at Covington & universally disposed to fostering grey confirmed that brand owners may rely on Burling. Her practice focuses on intellectual property, and centers on IP business practices – practices that erode a trademark rights to prevent the sale of grey enforcement, lobbying and IP policy rights owner’s control over their brand and imports from outside the European reform in Central and Eastern Europe, damage the brand’s integrity. Enforcement Economic Area (EEA) (comprising the 27 Russia and the CIS. options for grey imports and product EU Member States along with non-EU diversion vary significantly from market to markets Iceland, Norway and Lichtenstein). market, but the consistent themes are that Once a good has been put on the market in the civil court systems move slowly, IP cases the EEA with the brand owner’s consent, are not prioritised, and the threat of civil (or however, the right is “exhausted” and the even criminal) enforcement may not carry good can travel freely across national the same weight as in developed markets. borders. The varied nature of the legal regimes This rule flows from the 1989 Trade www.ipworld.com Trademark World #220 | September 2009 | 45 K GREY IMPORTS Building trademark expertise since 1986 Marks Harmonization Directive (“the imposes a blanket restriction to enforcing state of play in Croatia and international Directive”). With limited exceptions, in order trademark rights on brand owners who have exhaustion in Serbia, for example, it is to promote the free movement of goods and put their product on the market anywhere in inadvisable to rely on a one-size-fits-all services within the common European the world, effectively permitting grey strategy. What is consistently crucial to take market, Article 7(1) of the Directive prohibits imports entry into the EEA via Romania. into account is how the relevant local brand owners from invoking trademarks to Even in the new EU Member States whose authority views grey imports and their prevent the distribution of goods that have national law adheres to the EU principle of willingness to take enforcement measures. already been put on the market in the regional exhaustion, national authorities may European Community with their consent. not consider grey goods as harmful and Russia Until last year, however, it was an open hence may be reluctant prevent their Grey market imports seemingly flourish in question as to whether this regional importation. In Estonia, for example, on Russia, and even careful vetting of partners exhaustion of rights applied only to the 27 paper the legal regime conforms to EU and robust distribution agreements may EU Markets, or whether EEA markets were principles; in practice, however, law leave a brand owner facing product diversion bound by a regional exhaustion rule as well; enforcement agencies are generally unwilling problems. Recent changes to the trademark as a result, Norway served as a legal route to take action. Some Member States consider enforcement regime have only served to for parallel imports to enter the EEA. grey goods to be a consumer friendly price further complicate enforcement options for The European Court of Justice (ECJ) and control regulator, as is the case in Bulgaria. brand owners. the EFTA court, which together with the Hopefully, as European regulators forge In practice, historically, Russian customs EFTA Surveillance Authority is responsible ahead with efforts for closer cooperation, it authorities and courts have treated grey for ensuring that Norway, Iceland and should only be a matter of time before the imports as an administrative offence. More Lichtenstein respect their obligations under practices in emerging Europe fall in step with recently, however, courts have moved away the EEA Agreement, have now aligned their the practices in older Member States. from this view. The Code on Administrative diverging views on the interpretation of Furthermore, pending changes in EU Offences requires that goods must be Article 7(1). In the 1997 Mag Instruments legislation may provide brand owners with “unlawfully” marked with a trademark to case, the EFTA court ruled that Article 7(1) additional tools to fight grey market give rise to an infringement; because grey permits the EEA markets to introduce or activities. EU Regulation 1383/2003 (the goods are original (rather than fraudulent), maintain the principle of international “Regulation”) enables right-holders, with the courts have concluded that the marks are not exhaustion – thereby sanctioning Norway’s help of national customs authorities, to unlawfully affixed to the goods per se, and principle of international exhaustion and prevent counterfeit goods from crossing the thus there is no administrative cause of providing an entry point into the EU’s external border; the Regulation does action. Unhelpfully, the long-awaited Community for grey imports. Just over six not, however, provide brand owners with a Resolution of the Russian Supreme Court months later, the ECJ, in the Silhouette case, cause of action in relation to genuine and Arbitration Court reinforces this view, ruled the contrary, concluding that national products, or grey goods. In a move to further despite earlier drafts of the Resolution laws providing for the international harmonise the customs actions that can be having indicated that grey imports are exhaustion of rights are contrary to Article taken by brand owners, the European administrative offences. 7(1). This was subsequently confirmed by the Commission is currently considering Prior to these decisions and the ECJ in the 1999 Sebago case, which extending the scope of the Regulation to Resolution, the Russian customs authority established that Member States’ national laws cover grey imports from outside the was empowered and generally willing to cannot provide for the international Community, which ideally would further align seize grey goods if a brand owner had exhaustion of trademark rights. Nearly a divergent practices among Member States. registered its marks in Russia and filed decade later, in the 2008 L’Oréal case, the seizure requests with the Federal Customs EFTA Court finally aligned its view with Emerging European markets outside the EU Register. The new view embodied in the that of the ECJ and confirmed that there is A number of the EU’s bordering countries in Resolution, that grey goods de facto cannot no justification to interpret Article 7(1) Central and Eastern Europe (“CEE”) are be counterfeit, throws this practice into differently in EEA law and EC law. As a already candidates (Croatia, the former limbo and it remains to be seen whether the result, Norway can no longer be considered Yugoslav Republic of Macedonia and Turkey) customs authority will be rendered impotent to be a legal gateway for grey imports to or potential candidates (Albania, Bosnia and with respect to the seizure of grey goods. enter into the EU. Herzegovina, Kosovo, Montenegro and Brand owners may take solace in the fact This string of cases also makes it doubly Serbia) for future accession to the EU. The that the same reasoning is unlikely to be clear that regional exhaustion and trademark ongoing negotiations over the intellectual applied to civil trademark enforcement. rights should be the guiding principle property chapter of the accession agreements Based on the general interpretation of the throughout the entire EEA and that its should ultimately result in candidates’ national Civil Code, which states that placing a mark Contracting Parties (which include the now laws conforming to EU principles of on goods for the purpose of import into 27 EU Member States)
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