Parallel Imports

A company sets different prices for its products for different countries as per the requirements. Parallel Imports come about when there is a Currency and Tax Difference between two countries as stated above, encouraging people to import products from one country and sell it off in the other country to earn a profit (For example a person importing iPhones from the USA at a lower price and selling those iPhones in India after breaking the codes or selling magazine editions of one country into other at a higher price). Now when we deal with Parallel Imports, the concept of ‘Principle of Exhaustion’ comes into consideration. It says that once the protected goods are sold to a consumer or buyer, the IP Rights associated with the same gets exhausted. It is also known as ‘Exhaustion Doctrine’ or ‘First Sale Doctrine’.

What now needs to be clearly understood is that the Trademarks have a particular Goodwill coupled to it and Parallel Imports may injure them if the products are not of satisfying quality standards in the Imported Country. The main benefit of parallel import is that it encourages competition, and Trademarked or Genuine goods are available to consumers at different prices.

Parallel Imports basically constitute the import of Non-Counterfeit or Genuine Goods from one country to another without the permission of the IP owner. The products are indeed legal but are unauthorized because they are imported without the permission of the Proprietor. The products thus imported are often termed as Grey Products (and not black, owing to the fact that they are Genuine). The Parallel Imports cases are closely related to Trademarks and Copyrights and also equal to the International Trade Market, practically observed when people import goods (for example books or mobile phones) which have Trademarks and Copyrights attached to them.

Parallel Imports Related to Copyright

Earlier the definition of ‘infringing’ copy under Sec 2(m) of the Indian Copyright Act was not broad, but since the Amendment, the meaning has been broadened which now clearly states “Provided that a copy of a work published in any country outside India with the permission of the author of the work and imported from that country shall not be deemed to be an infringing copy”[1].

Parallel Import Related to Trademark

Sec 30(4) of the Indian Trademarks Act very evidently states that “Sub-Section (3) shall not apply where there exist legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market.” This section allows the Trademark owner to control the circulation of goods.”[2]

The two major issues that are often discussed regarding the Parallel Imports and Trademarks in India are Whether Parallel Imports makeup Infringement under Section 29 of the Trademarks Act and Whether India recognizes the principle of ‘International Exhaustion of Rights’ under Section 30 of the Trademarks Act.[3]

Samsung Electronics Company Limited & Anr. .(Plaintiffs) Vs. Kapil Wadhwa & Ors (Defendants).

Plaintiff no. 1 is a company incorporated under the laws of Korea and plaintiff no. 2 is a company under the Indian companies’ act, plaintiffs also informed about their business in India which has been initiated in 1995 when the plaintiff No. 2 was formed. It has a registered trademark “SAMSUNG” under which it carries business worldwide. In March 2011, plaintiffs received information from market sources that defendants were distributing, retailing, and selling grey market printers of the plaintiffs in the market and not the ones supplied by the plaintiff No. 2.

The plaintiffs preferred an IA No.7774/2011 under Order XXXIX Rule 1 and 2 CPC which came up for hearing on 11.05.2011 and then on 03.06.2011. The court ordered, “The Defendants, their partners, and all others acting for and on their behalf are restrained from importing, exporting distributing, selling, offering for sale, advertising, directly or indirectly dealing in grey market ink cartridges/toners, or any other products of the plaintiffs under the mark SAMSUNG amounting to infringement of plaintiffs registered trademarks.”

The defendants filed a written statement and an application which is IA No.10124/2011 under Order XXXIX Rule 4 read with Section 151 CPC seeking vacation of the interim order passed on June 3, 2011.

Hearing the parties on 8.7.2011, the court was pleased to pass an order partially modifying the order dated 3.6.2011 passed in the local commissioner application and the goods were released to the defendants with few directions. Arguments raised by the defendant was that “It is a settled law that the import, sale or resale of genuine printers by the defendants does not amount to infringement, dilution and passing off. The plaintiffs cannot impose restrictions on the sale or resale of genuine products originating from the plaintiffs. The present acts of the defendants are permissible under Section 30 of the Act of 1999.”

The defendants went into appeal and appeal was partially allowed. Impugned judgment and order dated February 17, 2012, is set aside insofar the appellants have been restrained from importing printers, ink cartridges/toners bearing the trademark Samsung/SAMSUNG and selling the same in India. The counsels for Plaintiffs (Respondents) submitted before the Court, that an ordinary customer, who is provided with the warranties and after-sales service by the Defendant (Appellant) may form a bad impression of the product of Plaintiffs (Respondents), which can lead to damage of reputation of Plaintiffs (Respondents). The Division Bench while setting aside the order of the Learned Single Judge directed the Appellants/Defendants to prominently display in their showrooms that the products sold by them have been imported from abroad and that the Respondents (Plaintiffs) do not give any warranty qua the goods nor provide any after service and that the warranty and after-sales service is provided by the appellants personally.

Hindustan Lever Ltd. vs. Briju Chhabra

In the above-mentioned case, the Plaintiff (Hindustan Lever Ltd) is the Registered Proprietor of the Trademark ‘LUX’. The Defendant used to import LUX soaps manufactured in Indonesia into India without the permission of Hindustan Lever Ltd when the imported LUX soap was for sale only in Indonesia (as indicated on the soap). It was argued by Hindustan Lever Ltd that such import of soap into India amounts to Infringement of its rights and that there shall be no guarantee that the product will be genuine. The High Court of Delhi agreed with the submissions of the plaintiff and ruled in their favor, since it was of the view that if the Imports had not stopped, then the plaintiff could suffer a huge loss due to the defendant’s act of misrepresentation.

International Laws on Parallel Imports

Since the ‘Paris Convention’ and the ‘Berne Convention’ are silent on the issue and are not explicitly prohibiting the same, every country has resorted to having their own method of managing Parallel Imports. According to the TRIPS Agreement (Article 6), “for the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4, nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.”[4]

Countries on parallel imports

Australia: it permits the parallel import of certain products except for books, cars, however software CDs, and music CDs can be imported.

USA: Parallel import is legal in the USA. It was made legal by establishing a legal precedent. “In the case of Kirtsaeng v. John Wiley & Sons, Inc., the US Supreme Court held that the first-sale doctrine applies to copies of a copyrighted work lawfully made abroad, thus permitting importation and resale of many product categories.”[5]

Hong Kong: Parallel importation is legal or permitted in Hong Kong under the trademark and copyright before the amendment came on July 6 of 2007.

Japan: “Japan‘s intellectual property rights law prohibits audiovisual articles marketed for export from being sold domestically, and such sale of “re-imported” CDs are illegal.”[6]

Conclusion

From what can be understood, the main detriment of Parallel Import is that it promotes Free Trade and encourages competition, other than facilitating Trademarked or Genuine goods to be available at different prices, allowing the consumers to have an option to buy genuine goods at a cheaper price. What can also be understood is that if Parallel Imports are done away with, the manufacturers will have their own business monopolies, leading to goods being available at higher prices. Also, consumers must note that Parallel Imports may assure lower-priced products but they may not get the quality, service, or satisfaction which they had in mind while buying the particular product, also another known fact being that Parallel Imports leads to a huge loss of revenue to the Trademark Holder due to the import of ‘grey goods’.

The Government definitely here must intervene in this matter so as to maintain a balance between the interests of the Consumers and Trademark Holders, so that no one is at a higher risk. Whereas obtaining an Interim Injunction with an Anton Piller order is still the most effective option when it comes to ways of tackling Parallel Imports.

Ultimately the bottom line is that the decision on whether to allow Parallel Imports is a choice between quality control and price control; between the economic rights of trademark owners and consumer access; between trade monopolies and free trade.[7]

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