What Are Parallel Imports, and How Legal Are They?

Parallel Imports

The term “parallel imports” causes consternation among brand owners and the general public. In actuality, the phrase “grey market goods” is deceptive, as it indicates that the things are “illegal” or “not original,” when they are not, as the only difference is in the distribution channels and the source. Parallel importation can be defined as the importation of goods outside the distribution channels contractually negotiated by the manufacturer.

In plainer and more practical terms: Consider Mr. A, who works as an importer. In India, a hypothetical good, such as a book, costs INR 2,000, yet it costs INR 1,200 in Bangladesh. Mr. A imports the book from Bangladesh legitimately and sells it in India for a profit.

The preceding example exemplifies the fundamental principle of parallel imports. However, from a legal standpoint, the concept is far from straightforward. To understand the concept of “parallel importation” from a legal standpoint, we must first understand the concept of Intellectual Property Exhaustion of Rights Principle of Exhaustion.

world, packages, transportation, trademark, imports, parallel imports

The Principle of Exhaustion

Exhaustion refers to a “limit” to intellectual property in terms of item sale. The First Sale Doctrine is the name given to this restriction. This restriction is based on the idea that when the owner of a good “A” (whose name/logo is trademarked) loses control over its future sale, whether through further sale, rental, or other means, the brand owner “exhausts” its exclusive right to sell the said good “A.”

There are 3 kinds of exhaustion. International exhaustion means that once a god is sold, its rights belong to the buyer regardless of territory. National or regional exhaustion means that the buyers’ rights are limited to the territory the goods are bought in. Needless to say, things get very complicated here, especially considering new-age technology problems such as the exhaustion of Intellectual Property rights.

Between Exhaustion and Parallel Imports

Parallel imports are generally governed by the idea of exhaustion, which is applied differently in different nations. For example, in a country that follows the principle of national exhaustion, a brand owner has more leeway/freedom than in a country that follows the principle of international exhaustion, because the brand owner’s rights are exhausted “internationally,” and thus the brand owner theoretically would not be able to oppose the import of its products into other jurisdictions.

Section 30(3) of the Trademarks Act,1999 states that-

Where the goods bearing a registered trade mark are lawfully acquired by a person, the sale of the goods in the market or otherwise dealing in those goods by that person or by a person claiming under or through him is not infringement of a trade by reason only of—

(a) the registered trade mark having been assigned by the registered proprietor to some other person, after the acquisition of those goods; or

(b) the goods having been put on the market under the registered trade mark by the proprietor or with his consent.”

Section 30(4) states that –

“Sub-section (3) shall not apply where there exists 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.”

“Section 29(1) – A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trade mark.

Section 29(6) – For the purposes of this section, a person uses a registered mark, if, in particular, he –

(a) affixes it to goods or the packaging thereof,

(b) offers or exposes goods for sale, puts them on the market, or stocks them for those purposes

(c) under the registered trade mark, or offers or supplies services under the registered trade mark.

(d) imports or exports goods under the mark, or

(d) uses the registered trade mark on business papers or in advertising”

However, in the landmark case of Samsung Electronics Co. Ltd. & Anr. v. Kapil Wadhwa & Ors., the Delhi High Court substantially handled such problems of exhaustion and infringement, as well as our question concerning how to prevent parallel imports.

Samsung Electronics Case

In this case, Samsung had sued Kapil Wadhwa (a former Samsung approved dealer) for unauthorised importation and subsequent sale of authentic Samsung printers from a foreign market into India. Kapil Wadhwa’s printers were less expensive than those sold by Samsung in India.

In a single bench High Court decision in 2012, the Honorable Justice Manmohan Singh stated that because India follows the principle of national exhaustion, anyone who is not the right holder or is not authorised to make such imports is guilty of infringement. The High Court’s Division Bench, however, overturned the Single Bench’s decision. This revised division bench judgement parallels the current state of the law in the United States. However, an appeal against the Division Bench’s order has been filed with the Supreme Court of India, and it is still pending.

Alternative Remedies

In the case of Western Digital Technologies Inc. vs Mr Ashish Kumar & Anr, the Plaintiff obtained trade mark registrations as well as registering the said trademarks with the Customs Authorities under the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, under which the Plaintiffs are entitled to specifically prevent the import of infringing goods.

(1) Label on products and packaging: A clear, un-removable and prominent label on both the packaging and product itself informing customers that the hard disk drives of Ambitious Marketing are:

(i) Parallel imports from ________________country;

(ii) Not supported by Western Digital warranty services or customer care;

(2) Invoices: All invoices issued by Ambitious Marketing as also by third parties who sell the products must also contain (i) to (ii) above;

(3) Marketing materials: Any advertising, marketing, offers for sale etc. for the WD parallel imported products – whether on a third party e-commerce site or in physical premises or in print matter must contain (i) to (ii) above;

(4) Warranty and After Sales services:

(iii) After sales services provided by Ambitious Marketing to be prominently indicated in signage at physical stores(whether the stores are run by Ambitious Marketing or by any authorized agent) as well as on online portals (whether by Ambitious Marketing or by any third party) where the goods are sold;

(iv) Terms of service must be drafted so that there are no differences in services and warranties between products offered by Western Digital and Ambitious Marketing;

(v) Terms to be printed on all invoices as also displayed in the online market places where the goods are sold by the defendants;

(vi) The warranty should at least run for the same duration as Western Digital’s warranty;

The preceding case supports the conclusion that, even if a brand owner objects to parallel importation of real goods into India, the importer may continue to import and sell the goods in India by attaching the required labels to the goods.

Conclusion

In light of the foregoing, and in accordance with existing Indian law on the subject, parallel importation is permitted if certain conditions are met, as evidenced by the case of Western Digital Technologies Inc. versus Mr Ashish Kumar & Anr. However, if the goods being imported are not original or of such a kind that they harm the brand’s goodwill and reputation, a brand owner may take action.

Author: Debarati Mukherjee, Legal Intern at PA Legal.

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