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The Parallel Importation Myth

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The Parallel Importation Myth Fidus Law Chambers The parallel importation myth Brand owners have long felt the law to be The decision on whether to permit on the side of parallel importers. However, parallel importation of IP-protected products recent case law offers another perspective is a fine balancing act, and usually involves an extremely subjective determination by each country regarding the pros and cons of By Shwetasree Majumder and Eashan Ghosh, parallel importation relative to that country. Fidus Law Chambers On the whole, a national exhaustion regime which outlaws parallel importation is seen Parallel importation has increasingly become as fortifying rights holders’ freedom to sell a flashpoint for commercial entities that products in the host market on their own own intellectual property. In the trademark terms and giving them strong control over context, it refers to the act of importing into virtually every stage of the marketing process, and selling in the host market products that including pricing, product differentiation and were purchased legally in another market, but after-sales customer services. An international not from the trademark holder’s authorised exhaustion regime, on the other hand, is more distribution channels. laissez-faire, and permits parallel importers to offer stiff pricing competition to rights holders, Legislation in addition to promoting local peripheral Until October 2012, a definitive Indian businesses – although possibly, in cases trademark law position on the legality of parallel where the law is blurred as to the extent of importation was conspicuous by its absence. legality, at the cost of exposing consumers to This was brought into sharp relief by the fact confusion and quality-related risk, since they that other branches of intellectual property (eg, are now confronted with seemingly genuine patent and copyright) clearly and statutorily products sold outside the rights holder’s support the legality of parallel importation. traditional model of authorised sellers or Central to determining the legality of franchisees. It is no secret that even though parallel importation is the principle of the India is swarming with importers of authentic exhaustion of rights – that is, the question and legally imported products from abroad, of whether a rights holder can prevent the this parallel import channel is prone to abuse, importation of the product into a market raising concerns about product dumping and where it holds exclusive rights. For legal and product safety in the long run. Given these policy reasons, most countries take one of two complications, therefore, it is no surprise that broad stances: the World Trade Organisation, through Article • international exhaustion – a rights holder’s 6 of the Agreement on Trade-Related Aspects rights (eg, preventing the importation and of IP Rights (TRIPs), leaves the decision of what re-sale of its product) are exhausted once the kind of exhaustion of rights regime to follow product is sold anywhere in the world); and up to individual countries. • national exhaustion – a rights holder’s The Indian trademark law dealing with rights are exhausted only by sale in the parallel imports is captured in Section 30 market in which it holds rights. of the TRIPs-compliant Trademarks Act www.theipmediagroup.com India: Managing the IP Lifecycle 2013 63 Fidus Law Chambers Customs has consistently taken the position that as long as goods are genuine and all relevant taxes and duties have been paid, it will not seize such goods at the borders 1999, which sets down limitations on the that Customs is a division of the Ministry of exploitation of trademark rights by rights Finance, which obtains revenue from imports). holders. Early instances of trademark litigation However, a violation of the law pertaining to before the Indian courts regarding parallel packaging and labelling, weights and measures imports were largely uncontested injunction or food adulteration would render parallel orders, in which the courts appeared happy imported goods separately actionable with to issue orders stopping parallel imports by Customs, albeit not under the 2007 rules. small-time traders on the grounds that these imports involved the unauthorised use of Judicial interpretation various rights holders’ trademarks. The most prominent judgment on the legality Nevertheless, these early cases were notable of parallel imports under trademark law more for the fact that small-time traders was issued in October 2012 by the Division attempted to pass off the parallel imported Bench of the Delhi High Court in Kapil products as products imported or authorised Wadhwa v Samsung Electronics – a case that by the rights holders, rather than the courts was tailormade for testing the exceptions making any specific ruling on the substance of to trademark infringement provided under the legal provisions on trademark infringement. Section 30 of the Trademarks Act. The appellant Provisions relating to imported products purchased Samsung printers after their first were expressly included in the Intellectual sale in another country and then imported Property (Imported Goods) Enforcement Rules them into and sold them in India. Samsung 2007 and further notifications issued under the claimed trademark infringement on account rules, which for the first time permitted rights of the presence of the SAMSUNG trademark on holders to record their registered trademarks, products imported and sold by the appellant copyrights and patents with the commissioner without its authorisation. The Division Bench’s of customs, and thereafter request the ruling is interesting as it noted that even suspension of imported products suspected of the products sold by Samsung in India were infringing their IP rights. These rules, contrary imported; therefore, Samsung’s objection to popular perception, do not outlaw all types could be distilled down to “a difference in the of product bearing infringing trademarks; features of the compatible products”. rather, they specifically apply only to products The key holding of the Division Bench was bearing a false trademark or a false trade its interpretation of Section 30 as supporting description. Thus, Customs has consistently the principle of international exhaustion. This taken the position that as long as goods are was based on two grounds: genuine and all relevant taxes and duties have • a purely interpretive legal ground, to the been paid, it will not seize such goods at the effect that the section used the expression borders (an understandable position, given ‘the market’ in a manner consistent with 64 India: Managing the IP Lifecycle 2013 www.theipmediagroup.com Fidus Law Chambers the generic placing of products in the apply to goods which were stolen or smuggled commercial stream, and not in reference to a by the importer into the country from where it specific, geographically limited market; and is importing them into India. Such goods will be • reliance on the legislative history of the infringing goods from the outset, since lawful section to support the view that the market acquisition is an essential qualification for the at issue was indeed the global market. further handling of the goods. Another notable aspect of the Division Legitimate reasons to oppose parallel Bench ruling was a disavowal of the policy importation behind the decision to pick one type of Section 30(4) protects the rights holder’s right exhaustion regime over another, although to oppose further dealings in the goods bearing in addressing Samsung’s arguments on the its trademark. India recognises a rather broad benefits of national exhaustion, the Division ‘legitimate reasons’ exception to international Bench noted that national exhaustion may exhaustion, while specifically setting down a not necessarily encourage industry – as in ‘change or impairment’ exception. This is in the present case, a manufacturer abroad addition to the explicit exception that applies may simply get its trademark registered in a in instances where the importer changes or country and import goods manufactured by impairs the condition of the (parallel imported) it in a foreign country. Consequently, dual goods after the rights holder placed them on pricing may cause injury to the consumer, the market. The Division Bench’s decision as was exhibited in this case by the fact that embraced this position and highlighted what the functional equivalents of the products could be specific instances of legitimate reasons imported and sold by the appellant were to oppose parallel imports. The court observed: cheaper than Samsung’s pricing in India. it would be relevant to note that further The judgment was widely misunderstood dealing in the goods placed in the market in the IP community as encouraging the under a trade mark can be opposed where flooding of the Indian market with grey-market legitimate reasons exist to oppose further goods. However, the decision should be seen dealing and in particular where the condition as clarifying the unsettled legal position by of the goods has been changed or impaired. distinguishing between parallel imports which With respect to physical condition being are actionable and those which are not. changed or impaired, even in the absence of a statutory provision, the registered Tackling parallel importation – lessons for proprietor of a trade mark would have the brand owners right to oppose further dealing in those goods When viewing the issue from a rights holder’s inasmuch as they would be the same goods perspective, it must be remembered that improperly so called, or to put it differently, Indian trademark law provides for a range if a physical condition of goods is changed, it of exceptions to the principle under which a would no longer be the same goods. But, sub- rights holder can oppose parallel importation section 4 of Section 30 is not restricted to only – a fact recognised by the Division Bench. Such when the conditions of the goods has been exceptions are set out in Sections 30(3) and (4) changed or impaired after they have been of the Trademarks Act, as follows.
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