PARALLEL IMPORT IN INDIA: BLACK, WHITE OR GRAY?

lawzmag.comParallel importation is a legitimate act of acquiring genuine goods from the rights holder and selling them through unauthorised trade channels in the same or different market at lower prices. The difference in price is due to the fluctuations in the currency rate and tax differentials in different markets which allows resale of goods by a third party in a more expensive market, at a profitable rate. A conflict therefore arises when parallel importation results in a misrepresentation of the source, reputation or quality of the trademarked goods.

Parallel imports are also referred to as ‘grey-market’ goods because although the goods may be genuine, they are sold through unauthorised trade channels. Parallel imports are one of the most iridescent and enigmatic phenomena of international trade. As parallel importation is essentially a trade practice, it is regulated under both IP law and competition law. The Indian judiciary has recently attempted to clarify this ‘grey’ area.

International Laws on Parallel Imports

Since the ‘Paris Convention’ and the ‘Berne Convention’ are silent on the issue of parallel importation, other international treaties may influence domestic law on this point. The most important one in the field of intellectual property is the Agreement on Trade-Related Aspects of Intellectual Property Rights concluded in 1994 as a package together with the GATT/WTO Agreement. Indeed, it would be expected from a treaty covering all aspects of intellectual property rights that the matter of parallel importation is also included. Not so. Although it was recognised that parallel importation would indeed fit nicely within the objective of international free trade advocated by GATT, agreement could not be reached to allow generally for parallel importation. In order to overcome this stalemate situation, Art. 6 of the TRIPs Agreement now provides that for the purposes of dispute settlement under this Agreement, … nothing… shall be used to address the issue of exhaustion of intellectual property rights. The dispute settlement mechanism in general allows every member to bring an action against another state if there is insufficient compliance with the principles of the GATT/WTO Agreement in general. Yet according to Art. 6, whatever national stance is taken on the matter of exhaustion, no complaint can be heard in this respect. While this certainly means that no country can be put in the dock for deciding for or against international exhaustion, it does not necessarily mean that the TRIPs Agreement as such would not favour either one or the other position.

Indian Law on parallel imports

In India, parallel importation is intricately linked to the principle of exhaustion of rights under the Trademarks Act, 1999. The principle of exhaustion of rights is enshrined in Article 6 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), which states that “nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights”. Hence, each state is entitled either to prohibit or to allow parallel imports within its own legal framework.

One of the first cases concerning parallel importation and trademark law in India was Cisco Technologies v Shrikanth 2006 (31) PTC 538, in which the Delhi High Court granted an ex parte injunction in favour of the plaintiff and restrained the defendant from importing computer hardware and hardware components under the trademark CISCO (which was registered in India). The plaintiff argued that:

CISCO products such as routers and switches are mission and human critical hardware components used in network infrastructure; that the product of the Plaintiff is used in critical networks such as railways, air-traffic control, hospitals, air defenses etc.; that malfunctioning/failure of the product of the Plaintiff would result in huge losses due to failure of these networks; that keeping in view the critical importance of the product in question, it becomes imperative to ensure that neither counterfeit sales nor sales by misrepresentation take place… and that public interest has to be kept in mind while determining the issue whether ex-pare ad interim relief should flow to the Plaintiff at this stage.

In accepting the plaintiff’s arguments, the court also observed that:

It is the obligation of all statutory and governmental authorities to ensure that laws are not violated by any person in this country. For persons who hold benefit of registered trademarks, Section 140 of the Trade Mark Act, 1999 makes statutory provisions where under the Collector of Customs could prohibit the importation of goods if the import thereof would infringe Section 29(vi)(c) of the Trade Marks Act. I see no reason why the statutory authorities should not prohibit import of such products, import whereof would result or abet in the violation of the proprietary interest of a person in a trademark/trade name.

The court also issued directions to Customs to notify at all ports that no consignments, other than those of the plaintiff, should be permitted to be imported in respect of routers, switches or cards bearing the CISCO trademark and/or the bridge device.

In Kapil Wadhva v Samsung Electronics, 2013 (53) PTC112, the Delhi High Court Division Bench reinforced the legality of parallel imports and held that the Trademarks Act enshrines the principle of international exhaustion of rights. In other words, it held that the exclusive right of a trademark owner over its goods is exhausted once the goods have been put on the market either by the trademark owner or with its consent. The court held, among other things, that the word ‘market’ used in the statute implies a global market, and that the preparatory works to the Trademark Bill 1999 clearly indicate the intent of the legislature to recognise the principle of international exhaustion of rights to control further sales of the goods once they have been put on the market by the trademark owner.

In Marlboro case, while upholding the international exhaustion principle, The Delhi High Court lays the burden of proving that the initial purchase of the trademarked good was legal on the importer: “The importer/defendant has to prove that the impugned goods, bearing a particular trademark, were placed in any market worldwide by the registered proprietor of the said trademark or with its consent and thereafter, the defendant lawfully acquired them therefrom.”

Indian Customs Law on Parallel Imports-

Indian customs law also includes provisions on parallel importation. According to the 2012 Central Board of Excise & Customs Circular on Enforcement of Intellectual Property Rights on Imported Goods, parallel importation is not prohibited unless:

  • the goods bear a false trademark as specified in Section 102 of the Trademarks Act; or
  • the goods bear a false trade description within the meaning of Section 2(1)(i), in relation to any of the matters connected to the description, statement or other indications of the product, excluding those specified in Sections 2(1)(ii) and (iii).

This marked a clear departure from the Intellectual Property Rights (Imported Goods) Enforcement Rules 2007, which provided that where a trademark owner notified the customs authorities in the prescribed format requesting that clearance of goods suspected of infringing its rights be suspended, and this notice was duly registered by the customs authorities, the import of all goods bearing the infringing trademark would be suspended and proceedings for confiscation of the goods would be initiated under Section 111(d) of the Customs Act. The confiscated goods were eventually required to be destroyed or disposed of outside normal channels of commerce with the trademark owner’s consent.

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. 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.

 

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