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Parallel importation and the doctrine of exhaustion

Parallel importation is increasingly common in Australia's liquor, fashion and branded goods markets.

This article overviews legal considerations and sets out six pointers for management of legal risks faced by parallel importers.

Parallel importers seek sources for goods available on terms better than available from "official" sources. So it might be cheaper to import Corona from Indonesia rather than Mexico.

However, potential legal risks arise if an intellectual property owner claims imported goods are subject to copyright, trade mark, patent or other intellectual property rights.

In the spirit of promoting competition over protection of monopoly markets, the Australian Trade Marks Act (Cth) 1995 (“Act”), provides a defence for parallel importers.

Section 123 of the Act provides that use of a trade mark, in relation to goods or services in which the trade mark is registered, will not constitute an infringement of the Act, provided the trade mark was applied by, or with the consent of, the registered trade mark owner.

This defence reflects what is known in intellectual property law as the doctrine of exhaustion, whereby the first sale of trade marked goods “exhausts” some of the commercial rights of the trade mark owner, such as the right to subsequently control how others distribute, import and resell the goods.

There are no international standards or treaties for the doctrine. Each country's laws differ on the doctrine of exhaustion of intellectual property rights and parallel importation. The is complexity. The laws can be affected by so-called free trade agreements expressly prohibiting parallel importing in particular areas of intellectual property rights, such as patents. In those situations the doctrine is balanced against the norm of territorial protection granted for patents, copyrights, trade marks and other categories of intellectual property law.

Considerations for a section 123 defence

If you seek to legally trade as a parallel importer in Australia, here are some pointers from recent case law. They are a simplification, and do not replace the need for specific legal advice taking into account the circumstances of a particular case.

  1. Find out who is the registered owner in Australia of the trade mark. This is relevant to the application of section 123. The trade mark owner who applied, or consented to the application of, the trade mark on or in connection with the goods, needs to also be the registered owner of the trade mark owner in Australia.
  2. If the registered owner in Australia of the trade mark is different to the registered owner which applied the trade mark, then section 123 of the Act will not assist the parallel importer.
  3. You may be operating your parallel importation business from one or more countries and selling goods into them. It has been held that the transaction takes place in the domain of the end purchaser or recipient of the goods or service.
  4. e-commerce_packageIf your parallel importation business operates online, and your website, emails or other electronic communications actively target consumers in a particular country, then that alone may be enough to constitute use of the trade mark in that country. This is the case even if no sales have been made in that country.
  5. The variety and quality of stock of a branded product can vary from market to market. Check that the goods you are importing are of the same quality (broadly defined) or ingredients. For example, toothpaste manufactured in one country and packaged under an internationally known brand, is not necessarily going to be the same quality of toothpaste manufactured for the Australian market. Because of this market differentiation, the trade mark owner may seek to protect its reputation and standing in the marketplace and claim the parallel importer is trading in inferior quality product.
  6. It is up to the person seeking to rely on the defence under section 123 of the Act to raise the defence and assert the authorisation of the use of the trade mark. As a parallel importer, it is important to develop a mechanism or register to document your transactions with your supplier, so that you have your records of evidence regarding sources. You may one day be required to rely on that evidence to establish the chain of supply from the brand owner or manufacturer.

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