When we visit foreign countries, mostly what we do is we purchase new goods which are either not available in our country or region or are available, but at a higher price. While all this procurement may be for our personal consumption, it gives rise to a concept known as parallel imports. Parallel imports in relation to trademark laws means the procurement of goods from the people who own the trademark or the authorized personnel through authorized trade channels in a different market. Thereafter comes the importation of these goods without the knowledge of the trademark owners of these products for sale to the general public in a different market.
It is also known as ‘Grey Market’ sales because of the reason that the imported goods are sold in a different country through trade channels not specifically permitted by the trademark owner in such markets. The products are legal but are unauthorized because they are imported without the permission of the trademark owner. While such products and goods are not counterfeit or duplicate products, they are offered for sale in a market place through trade channels which are not authorized by the trademark owners. This kind of activity can cause a loss to the trademark owner and can lead to unjust enrichment of the traders or buyers at the cost of these trademark owners.
Parallel importation has both legal and economic consequences. Economically, it facilitates the availability of trademarked products and goods at different prices, which prevents monopoly in the trade. In the absence of cheaper alternatives of these products, consumers would be bound to purchase products at the price set by the monopolist. In a parallel import-free market monopoly could lead to inflated prices of the products sold by the trademark owner. This could have an unfavorable effect on the overall market. Legally, it helps to prevent deception and confusion in the consumer’s mind regarding the source or quality of the product, and to protect the economic interests of trademark owners. If the parallel imported products are materially different from those sold directly by the trademark owner then he can file a suit, including for passing off and infringement.
The positive impact of parallel importation is that it helps in reducing the price and provides consumers with goods at lower prices. Parallel imports prevent trademark owners from exercising their exclusive right to dominate the markets and thus actually facilitates free and smooth trade. The negative impact is that the ability of manufacturers to monitor the quality of trademarked goods is restricted. Parallel imports can give the unauthorized trader or seller unjust benefit of the reputation and goodwill of the trademark owner which can lead to an action for passing off.
DOCTRINE OF EXHAUSTION:
Doctrine of Exhaustion means that an owner of a particular good does no longer control over his exclusive right after sale of his goods once he has made a valid transaction of sale with an authorized trader through a legitimate trade channel. This means, if the trademarked goods are once put on the market by the owner of the trademark or by his consent and is purchased legitimately, the trademark owners cannot prevent further sale of such goods, as the exclusive right to sell those goods is ‘exhausted’ by the first sale and cannot be exercised twice. This doctrine is also known as the doctrine of first sale.
Doctrine of exhaustion is divided into two types:
1. Doctrine of National exhaustion
Doctrine of National Exhaustion states that once the products are legally sold by the trademark owner or his authorized trader in a domestic market such sale leads to an exhaustion of the exclusive right of the trademark owner to prevent further sale of such products anywhere in the domestic market, but he still has a right to prevent any parallel import of such products bearing his trademark in any other domestic market.
2. Doctrine of International exhaustion
Doctrine of International Exhaustion states that once the products are legally sold by the trademark owner or his authorized traders in any international market such sale leads to an exhaustion of the exclusive rights of the trademark owner to prevent further sale of such goods anywhere in the international market.
What makes Parallel imports illegal?
Parallel imports can be both legal and illegal depending on the doctrine that the country follows. Here is an example which shows an illegal parallel import. Suppose the famous watch co. Casio has launched a new watch Edifice in India and not in UK and suppose UK follows national exhaustion rules. In that case if a seller in UK buys the new watch from India and tries to sell it in UK it violates the doctrine of national exhaustion and the exclusive right of the trademark owner and he can be sued for trademark infringement or passing off.
The views are that of author’s own and not necessarily the views of IPTSE Academy. This blog is a platform for academic discussions and hence authors have been given flexibility to convey their thought process.