Parallel Imports & Trademarks

The fake goods and counterfeit market in India has been growing substantially in the last few years. India’s luxury market currently is at $8billion out of which 5% is fake or counterfeit. (http://trak.in/tags/business/2014/04/21/counterfeit-luxury-goods-sold-ecommerce-india/). In March of this year, the Mumbai Mirror reported that an authorised snap deal vendor was selling fake toners and cartridges. (http://www.mumbaimirror.com/mumbai/crime/Authorised-Snapdeal-vendor-caught-selling-fake-toners-cartridges/articleshow/46720290.cms). The Indian courts have come down heavily on such counterfeit distribution. However, the story is quite different for parallel imports or genuine products resold without the owner’s authority.

The controversy surrounding parallel imports and its effect on trademarks has been debated in the Courts for several years. Parallel imports occurs due to differential pricing of the same goods in the same or different markets. Essentially, when patented and/or trademarked goods are marketed and sold in a country with lower prices, be it due to competition, lower manufacturing costs, smaller economy or other market conditions, but then resold in a richer country at the same lower cost, it would be considered a parallel import.

For example, if a pharmaceutical company in the U.S were to sell drugs in Africa at low rates, anyone could import such drugs from Africa at these marginalised rates without the consent of the original pharmaceutical company. This would therefore undercut the profits of such pharmaceutical company.

When such import occurs without the consent of the trademark owner, it is essentially creating a trade channel that is parallel to the authorised channel of the trademark owner. As these goods operate in a non authorised area, such goods are considered to be in the “grey” market.

The TRIPS Agreement refuses to regulate this matter and permits nations to decide the law domestically.

India is said to follow what is called an “international exhaustion regime” wherein if the goods are purchased in accordance with all the laws of the country of India, the purchase is deemed valid, and the sale would not infringe the registered trademark. Kapil Wadhwa v Samsung (2012) was the landmark judgment wherein first the Delhi High Court held that if the goods bore a similar trademark to that of a registered trademark, whether the goods were genuine or not, it would be considered infringing, but later a Division Bench on appeal overruled this decision and held that parallel imports were not considered to be violative of trademark rights.

Section 30 (3) of the Indian Trademark Act was interpreted  by the Division Bench to mean that once goods bearing a registered trademark have legally entered the market i.e with the consent of the trademark owner, the subsequent sale of such goods does not lead to infringement. The Division Bench further explained that the proprietor of the trademark could oppose the subsequent sale of goods under its trademark, only if the goods were materially or physically altered so that it would change the nature of the goods. The Court did however order that the parallel importers must prominently state that the goods that are imported and they themselves are providing the warranty and maintenance services as opposed to the trademark owners.

The Government of India has prohibited parallel imports in other ways by enforcing the Intellectual Property Rights (Imported Goods) Enforcement Rule 2007 (the Rules‟) vide Notification No. 47/2007-Cus. (N.T.) dated 8 May 2007.  The proprietor of the trademark under these rules is permitted to give Customs a notification in the prescribed format requesting suspension and confiscation of infringing goods. The burden of proof shall fall on the proprietor in such a case.

But there is little or no remedy available under the Trademark Act and it would be interesting to see how the Supreme Court interprets Section 30(3) when the Samsung case comes before it in appeal. In the meantime, the only legal course available to a trademark owner in such circumstances is if the parallel importer compromises the reputation or goodwill of the trademark.

Author Lynn Bout Lazaro is an IP counsel

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