By, Mayank Barman
Known by names such as “Grey market imports” or “reimports”, parallel imports refer to the transnational distribution of goods produced legally. They are protected by Intellectual Property Rights such as Patents, Trademarks and Copyrights. There is nothing “grey” or “illegal” about them, prima facie, yet importation of such goods often creates confusion in the imports market because such goods are legal and at the same time “unauthorised”, since the consent of the IP proprietor is absent prior to importation.[i] The price for which these goods are sold in the importing country varies significantly due to distribution channel(s) and/or fluctuations in the currency.[ii]
The substance of parallel imports can be found under Section 30(3) and Section 30(4) of the Trademarks Act, 1999 (hereinafter, “the Act”). The provisions state that –
(3) 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.
(4) 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.
While the provisions use the expression “market”, the definition of the term is ambiguous. In order to expel ambiguity, the doctrine of exhaustion needs to be analysed.
The Doctrine of Exhaustion
Also known as the “First Sale Doctrine”, the doctrine of exhaustion is crucial in understanding whether the purchaser can re-sell the goods of the IP proprietor with or without his consent and what the jurisdiction of the same is. Article 6 read with Article 28 of The Agreement on Trade Related Aspects of Intellectual Property (The TRIPS Agreement) and Article 5(d) of the Doha Declaration, 2001 enable members to establish their own regime for exhaustion subject to the Most-Favoured Nation (MFN) clause and Articles 3 and 4 of the TRIPS Agreement.[iii]
The following are the doctrines of exhaustion in the IP regime –
- No exhaustion: According to the doctrine of no exhaustion, the rights of the IP holder are permanent, i.e. they never get exhausted.[iv]
- National Exhaustion: According to the doctrine of national exhaustion, once the product of the IP owner is channelled in the domestic market, he extinguishes his right to gain profits from the product.[v]
- International Exhaustion: According to the doctrine of national exhaustion, once the product of the IP owner is channelled in the international market, he extinguishes his right to gain profits from the product. Thus, territory is no bar as far as International exhaustion goes.[vi]
- Regional Exhaustion: The word “region” implies that the IP owner extinguishes his right once the product is legally sold in the market, in a specific region as opposed to a specific country or the entire world. The region may include a specific territory or a group of countries such as the Commonwealth or the European Union.[vii]
In India, the statutory framework did not clearly lay down as to which doctrine of exhaustion the country follows. However, in Samsung Electronic Co. Ltd. & Anr. v. Kapil Wadhwa & Ors.[viii], the Hon’ble Delhi High Court answered the question of doctrine of exhaustion applicable in India and how could parallel imports be restrained. The facts of the case revolve around an authorized dealer of Samsung products, Mr Kapil Wadhwa who was sued by Samsung for allegedly importing printers to India from a foreign market for its sale. These printers, according to Samsung, were sold for a lower MRP than the ones sold by Samsung. The learned Single Bench ruled that there was a prima facie case of infringement of the registered trademark under Section 29(1) read with Section 29(6) of the Act. The court strongly relied upon the statutory framework of other countries. In the European Union and the United Kingdom, the relevant statute uses the expression “market in the community” and “market in the European Economic Area” respectively to denote that the expression is confined to the European community. Brazil and Turkey follow the doctrine of national exhaustion, which is clear from the expressions “products placed on the internal market” and “the product has been put on the market in Turkey” respectively. On the other hand, legislation in Hong Kong and Singapore use expressions “put on the market anywhere in the world” and “goods which have been put on the market, whether in Singapore or outside Singapore” respectively, clearly indicating the usage of the doctrine of international exhaustion. Similarly, the United States of America generally follows the doctrine of International exhaustion, but only if the goods are structurally and materially similar to the goods authorized to be sold in the country.[ix] The order of the learned Single Bench was appealed to the Division Bench and the Division Bench overruled the previous order after a careful examination of Section 29 and 30 of the Act, and held that the expression “market” as used under Section 30(3) of the Act refers to International Market, and thereby, holding that India follows the Doctrine of International Exhaustion.
Thus, it can be inferred that parallel importation of goods differs substantially from country to country, largely depending on the intent of the lawmakers in such countries. However, the peculiarity in India, prior to the SAMSUNG judgement[x], was that the term “market” had multiple interpretations and therefore, the judiciary had to step in to clarify the legal position.
[i] Kapil Prajapati, Parallel Imports: Khurana & Khurana, Advocates & IP Attorneys, (Nov 28, 2019, 3:30PM), https://www.khuranaandkhurana.com/2015/07/17/parallel-imports/. – Citations are improper.
[ii] Priya Sampath, Parallel Imports in India: A Trade Mark Law Perspective, GameChanger Law Advisors, (Nov 28, 2019, 4:32 PM), https://www.gamechangerlaw.com/parallel-imports-in-india-a-trade-mark-law-perspective/.
[v] S.S. Rana & Co. Advocates, India: Legality Of Parallel Imports Vis-À-Vis Trade Marks Law, Mondaq, (Nov 28, 7:05 PM), http://www.mondaq.com/india/x/730286/Trademark/Legality+Of+Parallel+Imports+VisVis+Trade+Marks+Law.
[viii] 2013 (53) PTC 112 (Del.) (DB).
[ix] Lanham Act, 15 U.S.C. §§ 1051 (1946).
[x] Supra, vi.