This article is written  by Mayank Labh, a student of NALSAR, Hyderabad.

What is Parallel Importing?

Parallel Importing or “Grey” importing is where goods are brought from the different network than the authorised network and sold at cheaper price generally than the price by the authorised dealer. So for example, The Economist sells their magazines in different countries at different prices. Now if I buy The Economist Magazine from X country where it is cheaper than India and then sells it in India at a relatively higher price but not as high as the price of the price of authorised network. Now, if restrictions on parallel importing are applied, then I can’t import the Economist magazine from X country without the permission of The Economist. (By the way, The Economist is an ardent support for parallel importing.)

What’s so Grey about Parallel Importing?

The goods are produced and sold legally. After that, it is subsequently imported to be sold further in the importing countries. So, what’s so grey about that? Actually, it is not the goods but it is the distribution channels by which the goods find their way to the importing country. Such sale may create havoc for the entrepreneurs who sell their goods through the authorised distribution channel and perhaps more expensively. To block this unwelcome competition, they argue that if the products sold by third party come within their trademark, copyright, patents right then such sale is infringing their rights. For, according to them, the owner or licensee has the exclusive control to put such items on the market. However, on the other hand, there is a concept of ‘first sale doctrine’. The ‘first sale doctrine’ is a limitation on the copyright holder’s exclusive right of distribution. It basically means that once the owner of a product or services sells it in market, he/she loses his/her exclusive control to sell and distribute the product or services. Therefore, first sale leads to an “exhaustion” of rights of owner to exclusively control the sale and distribution of the product or services.

There is a legal dispute in India as to such exhaustion of right is national or international. If it is national exhaustion then parallel imports is illegal because right is exhausted only in the country where the first sale has been made. But if India recognizes international exhaustion then parallel imports is legal for as the name suggests right to exclusively control sale and distribution is exhausted on an international level.

There is no clear legislation as to whether India recognizes doctrine of national or international exhaustion. However, there are cases which suggest that India recognizes principle of international exhaustion and thus consider parallel imports as legal.

Landmark cases on parallel import

Kapil Wadwa v. Samsung

 Delhi High Court recognized the principle of International Exhaustion after interpreting Section 29 and Section 30(3) and Section 30(4) of the Trademark Act.

Section 29[1]: Basically, any unauthorised use of a registered trademark will amount to infringement under Section 29. The bench observed that sale of the imported goods without the permission of registered proprietor would be considered as “use of the mark”.

Section 30(3)[2]: The Section basically says that if a person has “lawfully acquired” a product  then he can sell the good in the “market” without infringing the trademark act  even if a) registered trademark has been assigned by proprietor to another and b) the goods has been put on the market by the registered proprietor.

The bench argued that lawfully acquired does not mean that you need to take the consent if you acquire it for the purposes of import. You need not.

Most importantly, the bench recognized that the scope of Section 30(3) is not limited to domestic market and the import does not require the consent of registered proprietor.

It also relied on external aids like Statement of Objects and Reasons of the Trade Mark Bill 1999, India’s communications at the Uruguay Rounds and report of the Standing Committee on the Copyright (Amendment) Bill, 2010 to infer that it was the legislative intent to recognize doctrine of international exhaustion.

Section 30(4)[3]: It states that if there are legitimate reasons like the goods are changed or impaired to oppose the sale and distribution of goods. The Bench while upholding the contention that deficiency in services by unauthorised dealer might affect the standing of the owner in the market but it did not find it a sufficient ground to impose restrictions on parallel importing.

Philip Morris Products S.A & Anr vs Sameer

It upheld the doctrine of international exhaustion if the good is lawfully acquired however it puts burden on the importer to prove that the purchase made by him was legal.

[1] http://indiankanoon.org/doc/84096/

[2] 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.

[3] 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