PARALLEL IMPORT – INTELLECTUAL PROPERTY RIGHTS

Navigating the Complexities of Parallel Imports and Intellectual Property Rights

Introduction

Parallel imports are one of the most intriguing and complex phenomena in international trade. On one hand, they adhere to market laws; yet on the other, the market laws are not the sole regulations governing this activity. While industrial producers often advocate for barriers to maintain price discrepancies across countries, consumers find such differences perplexing in a world moving toward more international trade and the dismantling of trade barriers. The solution to this issue remains elusive.

The term parallel importation refers to goods that are legally produced and sold, and later exported. As the English Patents Court in the Deltamethrin case rightly pointed out, there is nothing “grey” about these goods. The ambiguity lies in the distribution channels through which these goods reach the importing country. In the importing country, such goods can cause significant disruption, particularly for entrepreneurs selling identical goods obtained through different channels, often at higher prices. To eliminate this unwanted competition, intellectual property rights have sometimes provided protection. If products sold or imported by third parties fall under patents, trademarks, or copyrights valid in a particular country, such sales or imports are typically considered infringing. Intellectual property holders generally have the exclusive right to market their products. However, once the holder has marketed the product—either independently or with consent—there is little they can do to stop further commercial activities such as resales. For instance, even if a car is protected by several patents, once it is on the market, it is widely accepted that the manufacturer cannot prevent resale or leasing. The reasoning behind this has varied across different jurisdictions.

Intellectual Property Law: An Introduction to Parallel Importation

A parallel import is a non-counterfeit product brought into a country without the permission of the intellectual property holder. These imports are often termed grey goods or grey-market goods (US: gray goods). These goods are authentic or genuine, having been manufactured by or under the license of the brand owner. However, they may have been designed or packaged for a specific market, and later imported into a different jurisdiction than the one intended by the brand owner (e.g., a cigarette pack intended for sale in the Czech Republic being sold in Germany).

Parallel importers typically purchase products in one country at a lower price than they are sold in another. These goods are then imported and sold in the second country, usually at a price somewhere between the export and import price. Parallel importing laws vary across jurisdictions, with no universal approach. Neither the Berne Convention nor the Paris Convention explicitly forbids parallel importation.

A related concept is the exhaustion of rights, or the doctrine of exhaustion. This refers to the principle that intellectual property rights are “exhausted” after the first sale of the goods by the owner or with their consent. In this context, the owner loses the ability to control further sales of the product. For example, a trademark holder cannot prevent the resale of a product bearing their trademark once it has been sold. The exhaustion principle can apply nationally, regionally, or internationally, meaning that an intellectual property holder may not enforce their rights in another jurisdiction once they are exhausted in the initial market.

In this view, parallel imports can potentially harm the research and development capabilities of enterprises. This is because such imports undermine the ability of firms to exploit patents fully, especially when they originate from countries with lower product prices.

The only exception in U.S. law is the common control exception for trademarks. This allows the grey market if the national trademark holder coincides with the foreign trademark holder, or if both holders are affiliated or share common ownership. This exception is justifiable, as trademarks typically do not require the same level of protection as patents, which are crucial for maintaining research systems.

The U.S. Government’s stance is corroborated by a European Union study (NERA 1999). This study found that the EU’s exhaustion principle did not eliminate price disparities among EU countries. It also suggested that parallel imports from the U.S. and Japan could harm enterprises more than benefit consumers by reducing profits rather than curbing prices.

Theoretically, a system based on an international exhaustion principle appears beneficial, as it could reduce market segmentation and lower prices for consumers. However, studies on parallel imports often lack empirical evidence and are predominantly anecdotal.

Recently, there have been attempts to justify prohibiting parallel imports, particularly for pharmaceuticals. The primary argument is that parallel imports can undermine research efforts.

This shift may be linked to the recent economic crisis, as economic downturns often lead to a retreat from antitrust measures in favor of protectionist strategies aimed at safeguarding businesses and promoting dynamic efficiency.

Parallel imports present a dilemma between two types of economic efficiency: static efficiency, which involves reducing consumer prices, and dynamic efficiency, which focuses on promoting innovation. These efficiencies do not always align, and the optimal balance can only be achieved by ensuring adequate remuneration for intellectual property holders in the first market, while preventing excessive exploitation by patent holders.

In the landmark Syfait case, the European Court of Justice ruled that parallel imports of pharmaceuticals could proceed, but manufacturers were allowed to refuse to supply wholesalers if their orders were excessive compared to normal sales volumes.

Parallel Importation and Trademark Laws

One of the earliest cases regarding parallel imports was Albert Bonnan vs. Imperial Tobacco Co., under the Indian Merchandise Marks Act of 1889. Although the issue of exhaustion of rights was not directly addressed, Section 30(2) of the Trade and Merchandise Marks Act of 1958 clarified that the lawful acquisition of goods bearing a registered trademark does not infringe the trademark when sold or resold by the buyer or someone claiming through them.

Similarly, Section 30 of the Trademarks Act 1999 provides limits on the effect of a registered trademark. According to this, the sale of goods bearing a registered trademark is not an infringement if the goods were lawfully acquired, even if the trademark was later assigned to a different party. However, the trademark owner can oppose further sales if the goods have been altered or damaged after reaching the market.

In the Xerox Corporation vs. Shailesh Patel case, the court ruled that second-hand Xerox machines could be imported provided they were in original condition and accompanied by proper documentation. If the machines were altered, they could no longer be marketed under the Xerox trademark.

Although earlier Indian laws did not explicitly address the exhaustion of rights, courts did not consider parallel imports to be infringing. In contrast, under the 1999 Trademarks Act, courts have issued injunctions against parallel imports, citing the risk of public confusion or harm to the plaintiff’s reputation due to misrepresentation.

Legal Issues in Parallel Import: Take Of The Delhi High Court

Authorisation of parallel imports as held by the Division Bench of Delhi High Court in the recent judgement of Samsung Electronics Co. Ltd. v. Champion Computers has begun the process of editing and altering the shape of trademark law in India. The Indian courts are now in a problematic situation in which they have to strike a balance between the conflicting interests of the parties in question. On the other hand, for the developing countries like India, parallel imports are not less than a boon for the distributors and consumers. However, in this due process, the trademark law in India is trying to find its true preamble.The Indian trademark law has witnessed notable changes over the past decade. The recent Samsung Case, which was judged by the division bench of Honble Delhi High Court, has flashed some more changes in the trademark law. The bench overruled the findings of a single bench, which clearly stated that parallel imports are not authorised under the Indian trademark law.

Parallel imports in general terms signify the importation of a non-counterfeit product from another country without the permission of the owner, who owns the intellectual property attached with it.  The division bench has clearly upheld that parallel importation is permitted under the Trademarks Act, 1999 and it does not violate the rights of the proprietor. The division bench has highlighted that Champion Computers has been rightful enough to import the original Samsung printers through a parallel chain. The core concerns, which arose in this case, may be highlighted as under.

• Genuine Products at Cheaper Rates (Section 30 (3) of the Trademarks Act, 1999)

The first issue which came up was whether it is entirely justified to buy genuine products from the so called grey markets or places where such products are available at cheaper rates. From consumer view point it a heartening scenario but for a manufacturer/producer view point is taken, it is a discouraging prospect. As discussed by division bench, the preamble of trademark law does not guarantee any regulation on sale of goods; it simply highlights how the registered trademarks can be used.

The division bench clearly stated that Section 30 (3) of the Act does not guarantee any monopoly right to the proprietor on the notion that he can claim infringement if some other person, within the same market segment, acquires the goods legally (becomes the owner of the said goods by buying them) and sells them. This section recognises only national exhaustion and hence, restricts the registered proprietor to control the commercial exploitation of goods put on the domestic market.

• Evasion of Product Surplus (Authorisation of parallel imports under the Trademark Act, 1999)

As Champion Computers won the case against Samsung, the judgment was well supported by the All Delhi Computer Traders Association or ADCTA. The legitimacy behind the parallel imports has disturbed the international companies such as Samsung Electronics Co. Ltd. not only on the lines of trademark infringement, but also due to high evasion of the product surplus.

Product surplus, as per the economic terms, means the surplus which the manufacturer or producer acquires on the selling and distribution of goods through the authorised route. The mechanism of product surplus is worked out by the owner in a way where he increases or decreases the price per product as per the expected consumer participation for products so launched. The surplus is created on the foothold of a highly demanded consumer segment that is willing to pay more for the genuine and gorgeous gadgets. The prices in Africa will be higher as compared to the product pricing in countries like India due to the hyper-active participation of consumers.

However, when parallel imports are authorised, the market is flooded by two types of distribution chains, legally  the registered proprietor distribution chain and the parallel imports chain. When the parallel imports chain runs, it distributes the authentic products of the registered proprietor at a cheaper rate and so the very process of acquiring a high amount of product surplus is evaded. It could be thus analysed that the economic impact of legalising the parallel imports has a deterrent effect over the registered proprietor sales and distributions. A consumer, who is well aware of such imports chain, becomes highly active on buying the goods through this cheaper route.

One of the added advantages of being a consumer of the parallel imports chain is that despite being low in value as compared to the original chain, it is also non -counterfeiting in nature. Parallel imports are having entirely opposite impacts on two ends of the business  the consumer and the owner.

As per the United States Trademark jurisprudence, the true significance of trademark law is to signify the goodwill of the local business of the domestic owner. The trademark law does not act upon stating the origin of the manufacturing of the goods or services so involved in the process. In case of Indian trademark law jurisprudence, one of the important cases in the regard was Bose Corporation v. S Mehta where the defendants were restrained from selling the digital audio music systems of the plaintiff. At the earliest, parallel imports were held unauthorised and it was assumed that the Indian trademark law had a perfect picture. However, as the cases went, recent one being the multiple trademark infringement suits by Samsung initiated the process of ˜editing and altering the shape of trademark law in India. It could be seen that the Indian courts are finding difficulties in making a striking balance between the interest of the trademark owners and the consumers. The core concern in this issue is that with a developing economy like India, parallel imports tend to be favoured on the notion of best suit for the nation interest  since it reduces the buying price per product per consumer. On the other hand, if the disadvantages or deterrent effects of parallel imports are taken, they cause consumer confusion with regard to the trademark so associated with the goods in the chain.

It could be effectively concluded that the trademark law in India will be shaping itself through the turns of the cases as come by. Samsung case against Champion Computers is another witness in the regard. The Indian courts are now responsible to view trademark law on the notion of striking a balance between the interests of the parties, which are involved in such cases.

However Contrary to a Delhi High Court judgment prohibiting parallel importation of trade mark protected goods into India, the Government of India, through a circular issued by the Central Board of Excise and Customs, has clarified that the statutory wording of the trade mark law of India recognizes the doctrine of international exhaustion, as discussed later in this paper

PARALLEL IMPORTS AND EXHAUSTION: A PRIMER TO PATENT LAW IN INDIA

A patent is a bundle of exclusive rights granted to an inventor whose invention satisfies certain pre-requisitive such as novelty, non-obviousness and utility. Such exclusive rights include the right to make, use, sell and import the patented goods into such country.

The doctrine of exhaustion imposes certain limits on the patentee exclusive rights. According to this doctrine, a patented item initial authorised sale terminates all patent rights to that item. In other words, she cannot control the resale or re-distribution of the particular good that had already been sold once. Were it not for such exhaustion, of rights, a purchaser of a patented article or even using it since such sale or use implicates the exclusive rights of patentee.

The rationale behind the theory of exhaustion and the doctrine of first sale is that the patentee has already been rewarded through the first sale and should not be allowed to profit repeatedly on the same good by controlling its use, resale or distribution.However,the doctrine has been circumscribed by the following factors:-

1. Exhaustion kicks in only if the first sale is made by or with the authorisation of the patentee
2. Exhaustion in relation to a particular patented article does not impact any of the exclusive rights of the patentee with respect to her other patented articles. In other words, a buyer of a patented article does not acquire any rights over such other patented articles.

Legitimate˜parallel imports are but a natural corollary of the doctrine of exhaustion and imply the following:

1. An export of a patented good from country X (such as Bangladesh)
2. Import of such patented good into country Y (such as India)

A parallel importer essentially engages in price arbitrage and exploits the price difference between the exporting country and the importing country. Several countries therefore encourage such imports to ensure lower priced patented goods for their consumers.

It bears noting that third parties, who may or may not be related to the intellectual property owner. Are the ones that essentially effectuate parallel imports? As to whether or not the import of such goods into India can be stopped by the patentee by recourse to an Indian court will depend on the laws of India. Illustratively, since the laws of India provide for˜international exhaustion, such imports into India are legal. Contrast this with the US and EU, which do not provide for international exhaustion: any import of patented goods for Bangladesh to the US or any of the EU countries can therefore be prevented by the patentee, even if the patentee herself and placed the goods in the Bangladeshi market.

The Indian Legal Regime

As already mentioned, the Indian Patents Act explicitly recognises the principle of International exhaustion. The first statutory provision on parallel imports was introduced by the Patents (Amendment) Act, 2002.This section provided that the

Importation of the patented products by any person who is duly authorised by the patentee to sell or distribute the product, shall not be considered as an infringement of patent rights

However the above provision was considered restrictive in scope.

Owing to the same Section 107(A) (b) was amended by the Patents (Amendment) Act, 2005 to provide that there would be no infringement if there has been an importation of patented products by any person from person who is duly authorised under the law to produce and sell or distribute the product

In Xerox Corporation v. Puneet Suri the plaintiff owned the trademark Xerox and claimed that the defendant act of importing and selling second hand Xerox machines constituted trademark infringement. The defendants argued that their acts were covered under Section 30(3), which recognized the principle of international exhaustion. Justice Sanjay Kishen Kaul of the Delhi High Court agreed with the defendants, holding that the “import of [second hand] Xerox machines that have proper documentation is permissible under the Trademarks Act, provided that there is no change or impairment in the machine

Therefore, in contrast to the earlier provision in 2002, once the first sale of any product had been authorised by the patentee, a parallel importer could buy that product from any reseller and not necessarily from the one that had the express permission of the patentee to resell or distribute. In other words, such importer did not need to ensure that any of the subsequent sellers from whom she buys goods were expressly o impliedly authorised national exhaustion and therefore the second or third seller was duly authorized under the Bangladeshi law to produce and sell the product. To this extent, the 2005 amendments implement the principle of international exhaustion in its true spirit.

Another amendment in Section 107A (b), which bears noting is the addition of the word produce the…, importation of patented products by any person from a person who is duly authorised by the patentee to sell or distribute the product…was amended in 2005 to importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product.

This addition of the word ˜produce appears redundant, since a parallel importer, in the normal course of events, is likely to purchase goods from a person who is authorised to sell or distribute the patentees goods. It ought not to make a difference to such importer whether this person additionally had the right to produce those goods as well. Conversely, a mere right to produce without the right to sell would be meaningless in the context of exhaustion. One can envisage a situation where a patentee outsources manufacturing of a patented product to a third party who is authorised only to manufacture the goods for the patentee but not to sell or distribute the same to others. Therefore, unless such third party has authorisation to also sell or distribute goods, she cannot sell to the parallel importer.

Exploring The Ambiguities

As stated section 107A (b), this provisions plugs a loophole in the earlier provision and implements the principle of international exhaustion in its true spirit. However, it also results in another, probably unintended consequence. A literal reading of the section suggests that even the first sale need not to be authorised by the patentee. Such a reading virtually obliterates the exclusive right to import and runs the risk of contravening TRIPS

Section 107 stresses in pertinent part that any importation of a patented product from a person who is duly authorised under the law to produce and sell or to distribute the product is legal.

If law is read to mean Indian law, one is faced with a logical inconsistently. A parallel import involves an exporting country (e.g. Bangladesh) and an importing country (e.g. India). The producer of the goods or the seller/producer as referred in Section 107 is more likely to be based in Bangladesh and the importer (e.g. Cipla) is more likely to be based in India. Subjecting the legality of production or sale in Bangladesh to Indian law is therefore absurd, particularly when there is no patent in Bangladesh. In other words, was one to interpret law as Indian law, the ridiculous question that one is faced with is the: under Indian law, can Beximo produce and distribute the drug in Bangladesh? This could have been intention of the Parliament when it amended the law in 2005 to widen the parallel import provision

The term˜law has to mean the law of the exporting country i.e. Bangladesh in our hypothetical. And this leads to a question raised earlier: Would a mere drug authorization to sell, distribute and export from the drug authority in Bangladesh suffice to constitute due authorization in so far as Section 107A (b) is concerned? Such a literal interpretation makes the Indian parallel importing provision one of the most liberal in the world and is likely to hit at very essence of the exclusive right to import.

Exclusive Right to Import under Section 48

By permitting the import of goods manufactured in Bangladesh and other countries (where there are no patents and where the goods are not placed in the market by the patentee), the very essence of the exclusive right. to import is eviscerated. In fact, some might even argue that this comes very close to rendering the very patent grant itself a nullity: a third party who cannot manufacture or sell a patented good in India has only to relocate to Bangladesh, manufacture the said good, and import it to India.

One may argue that the above consequence is not as severe as it seems. For one, a literal reading of section 107A would suggest that it is a defence only in so far as the exclusive right to import is concerned. In other words, the other exclusive rights guaranteed under section 48, such as the right to sell and distribute are not covered by the section 107A (b) exemption. If therefore, after importing, the good is distributed or sold in India, this could be prevented by the patentee. Such interpretation gains credence when one compares the Patents Act with the Trademarks Act, which endorses the right to sell by the parallel importer, once the rights have been exhausted internationally.

However, given the legislative history of section 107A(b)(that makes it clear that the section was introduced with a view to introduce parallel imports of patented products and to ensure availability of the patented product in the Indian market at minimum international market price), it is likely that a judge will likely construe the term import in this section to include subsequent sales as well. Particularly when the absence of the word sale appears more as an oversight than a deliberate attempt to curtail the scope of the international exhaustion principle envisaged under section 107A(b)[25]. If so interpreted, section 107A would result in a drastic impairment of the exclusive rights guaranteed to a patentee under section 48.

In short, any interpretation of section 107A (b) that legalises generic supplies from Bangladesh in our hypothetical is likely to hit at the very essence of the right to import under section 48. Further, such a construction also has serious TRIPS implications

TRIPS Compliance

Article 28 of TRIPS mandates that every patentee shall have the exclusive right to make, use, offer for sale, sell, or import the patented product or process in question. However, footnote (6) to Article 28 adds a small caveat to the exclusive right to import, by clarifying that This right [i.e. the right of importation], like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6.

Article 6 in turn states that nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. The meaning of Article 6 is made clear by Article 5(d) of the Doha Declaration which states that the effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each member free to establish its own regime for such exhaustion without challenge …

It is therefore clear that TRIP permits Member States to limit the exclusive right to import guaranteed by Article 28 to the extent that such limitation relates in some way to the concept of exhaustion. It is important to note that in our hypothetical example of Cipla producing generic versions of Tarceva in Bangladesh and exporting to India, there is no first sale by the patentee (Roche) and consequently, no exhaustion of Roche rights. This lack of exhaustion means that Article 6 (which only confers flexibilities around determining the scope and extent of exhaustion) cannot apply in the case of the Indian provision. And since Article 6 does not apply, it is likely that section 107A(b) will be held to violate the exclusive right to import under Article 28. Further, such a provision virtually eviscerates the patentee exclusive right to import.

Therefore it might be very difficult to argue that it is a limited exception to a patent right falling within the scope of Article 30 of the TRIPS Agreement, which provides that Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties. 

Interpreting Section 107A(b)

From the discussions above, it is clear that a plain literal reading of section 107A (b) detrimentally impacts a patentee exclusive rights under section 48 and also runs the risk of violating TRIPS.

• Indianising The Law

One suggestion could be to interpret the term law in the section, to mean Indian law. To recapitulate, section 107(A)(b) states that any importation of a patented product from a person who is duly authorized under the law to produce and sell or distribute the product is legal (emphasis by authors).The key problem is that with such an interpretation is that one is faced with a logical inconsistency. A parallel import involves an exporting country (e.g. Bangladesh) and an importing country (e.g. India). The producer of the good or the seller/distributor as referenced in section 107A(b) (e.g. Beximco) is more likely to be based in Bangladesh and the importer (e.g. Cipla) is more likely to be based in India. Subjecting the legality of production, sale or distribution in Bangladesh to Indian law appears incongruous. In other words, was one to interpret law as Indian law, one is faced with an absurd question: Under Indian law, can Beximco produce and distribute the drug in Bangladesh? Therefore, any reasonable construction of section 107A(b) would suggest that law as used in the section has to mean Bangladeshi law.

• Expanding the Locus of the Patent

A better alternative would be to argue that in order to harmoniously construe section 107A(b) with section 48, the term patented product could be interpreted to mean a product patented in both the exporting country (Bangladesh in our hypothetical) and the importing country (India).To recapitulate section 107A(b), it exempts from infringement an importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product.Naturally, the term patented product envisages a patent in India that covers such product if this were not the case, then an importer does not need to seek refuge under section 107A (b) at all. Rather, since there is no patent in India, she is free to import into India or even manufacture and sell in India.

Apart from the above ordinary meaning, the term patented product could also be interpreted to envisage a patent over the imported product in Bangladesh. Since a parallel import envisages an exporting country and an importing country, it would be logical to assume that the patent status of a product that is subjected to such parallel import has to be measured with reference to both the place of export and the place of import.

This interpretation does not detract unduly from the patentee exclusive rights under section 48, complies with TRIPS and fits well within the overall framework of the section. Also, this interpretation furthers Parliamentary intent i.e. to permits international exhaustion and the buying of low priced patented goods, once the patentee has already sold them anywhere else in the world.

DEBATE ON PARALLEL IMPORTS

There has been ongoing debate between the proponents and opponents of the first sale principle constituting international exhaustion.

It has been argued that parallel import restrictions (PIRs) strengthen IP holders control over distribution channels, thereby permitting market segmentation and leading to price discrimination. The third party (unauthorised) has an incentive to operate parallel imports due to the feasibility of price arbitrage. Producers have argued that price discrimination, as compared with uniform price, benefits consumers because it encourages production in different segmented markets. Price discrimination permits access to the consumer who could have been deprived under the uniform (relatively high) price mechanism. Also, higher output allows producers to reap economies of scale and, thus, lower the costs. Monopoly profit is used to finance further research and development. Thus, parallel import restrictions (PIRs) benefit consumers.

However, restrictions on parallel imports go against the spirit of free trade that has been the core principle of multilateral and regional trade treaties. Trade restrictions lead to undesirable economic side effects. Market democracy rather than entrepreneurial dictatorship should be the rule of the future,

The principle of international exhaustion opens up trade channels that benefit consumers. Further, PIRs adversely affect the operations of authorised IP licensees in developing countries because they are not permitted to export their production to other countries. Producers do not prefer such international trade since it affects their geographic market segmentation and limits their ability to charge different prices in different markets. Market segmentation is likely to increase producer surplus but lower consumer welfare.

PARALLEL IMPORTATION AND COPYRIGHT

The provisions restricting the parallel importation of books that are the focus of this study are contained in the Copyright Act 1968. In this chapter, the Commission first outlines the relevant legal provisions and then discusses the objectives of both the Act and the Parallel Import Restrictions (PIRs). Other government policies and objectives that may bear on an assessment of the PIRs are discussed in the final section.

The Parallel Import Restrictions

The terms of reference do not request the Commission to undertake a wholesale review of Australia copyright system, but rather to review the specific effects of the parallel importation laws for books. Subject to certain conditions, Australian copyright law provides for an almost total ban on Australian retailers importing books from overseas if a version of the book has been published locally. Under the Copyright Act 1968 (s. 37), it is an infringement for an Australian bookseller to parallel import copies of a book to sell in Australia without the permission of the copyright holder, even if those copies have been legitimately published in another country.

However, in 1991, the Act was amended to permit Australian booksellers to parallel import one or more copies of a book without the permission of the Australian copyright holder if Australian publishers do not meet certain conditions.

The 30 day release rule

Prior to 1991, publishers could buy the Australian rights to a foreign book and delay the release of the title indefinitely. Now, under section 29(5) of the Copyright Act, the holder of Australian copyright for a new book has 30 days to supply copies of the book to the Australian market after its release in another market. If the copyright holder fails to meet this requirement, Australian booksellers become free to import non-infringing copies of the book from any overseas supplier. Australian publishers therefore have an incentive to release titles promptly to preserve the PIRs on their titles.

The 90 day resupply rule

Section 44A contains the 90 day resupply rule, which places an onus on Australian publishers to maintain a supply of the books they publish to Australian booksellers. An Australian publisher forfeits parallel import protection over a publication if:

• A bookseller has requested the publisher to supply a book, but the publisher has not responded within 7 days advising they will supply the book within 90 days, or
• The publisher has not supplied the book to the bookseller within 90 days.

Under the current law, it is not clear whether a publisher loses parallel importation protection permanently if unable to supply a book within 90 days, or only until supply is restored. This lack of clarity continues partly due to the fact that there has been very little parallel importation through forfeiture of protection under the 90 day rule.

The Act also sets out some other situations in which booksellers may parallel import books. For example, booksellers are able to parallel import a single copy of a book to satisfy a written customer order or to supply books to a library.

Also, the 1991 amendments to the general prohibition on parallel importation did not directly affect the pre-existing rights of consumers to purchase books for personal use from overseas.

Objectives of The Parallel Importation Restrictions

Like the Copyright Act as a whole, the objectives of the PIRs are not explicitly detailed in the Act. However, the construction of the Act can help in gaining an understanding of those objectives.

The Australian PIRs are implemented as an extension of the publication and reproduction rights — that is, those who hold those rights in Australia can prevent the importation of overseas editions of a book. By adding to what the holder of the publication and reproduction rights can control, the PIRs thus potentially add to the value that those rights might have in the marketplace. The Australian Copyright Council noted this point in its submission, stating:

The parallel importation provisions are thus not an additional incentive, but rather a means of maintaining the incentive provided by the exclusive right of reproduction.

In relation to the 1991 amendments to the general prohibition on parallel imports, the intended objective is more straightforward. The terms of reference state that ˜these changes were intended to address concerns about delays in obtaining copies of overseas books. The reforms were designed to provide Australian publishers with a commercial incentive (namely, forfeiture of territorial protection and thus exposure to the threat of parallel imports) to undertake the timely and continuous supply of the titles they publish to the benefit of Australian book consumers.

PARALLEL IMPORT SAGA: LAWS ARE LEGITIMATE

The Central Board of Excise and Customs (CBEC) has issued a circular dated May 8 2012 that aimed to dispel the uncertainty resulting from the conflicting views that emerged from the Samsung and Dell cases in relation to the import of genuine goods procured without the consent of the registered trademark owner.

The circular clears the decks for the free movement of parallel-imported goods in India, stating that they are genuine goods that are allowed under the Trademarks Act 1999. The Customs Department, which comes under the Ministry of Finance, sought clarification from the Department of Industrial Policy and Promotion (DIPP), which comes under the Ministry of Commerce (the entity responsible for operational and policy matters in relation to the Trademark and Patent Office), and the latter seems to have interpreted the relevant section of the Trademark Act as meaning that parallel imports are allowed, in sharp contradiction to the ruling in Samsung.

The main points that emerge from the circular are as follows:

1. When deciding whether a particular consignment of imported goods infringes the rights of an IP rights owner, the Trademarks Act 1999, the Designs Act 2000, the Patents Act 1970, the Geographical Indication of Goods Act 1999 and the Copyright Act 1957 are to be taken into consideration.
2. These acts are broad and do not exclusively deal with imported goods. Therefore, only those provisions which have been expressly mentioned in the Intellectual Property (Imported Goods) Enforcement Rules 2007 and subsequent notifications are to be taken into consideration. In this regard, the provisions of the Trademarks Act that are mentioned in the 2007 Rules are Sections 102 (goods bearing a false trademark) and 2(i) (goods bearing a false trade description). Therefore, consignments can be seized only if the conditions under either of these two provisions are satisfied.

• In its comments on the issue of parallel importation, the DIPP – the nodal authority with regard to all matters pertaining to the Trademarks Act, the Designs Act and the Patent Act – has held that Section 107A(b) of the Patent Act allows parallel imports in relation to patents. In addition, Section 30(3) of the Trademarks Act provides for the principle of international exhaustion of rights, and suggests that parallel imports are allowed as long as the goods are genuine and have not been materially altered or impaired. In relation to designs, parallel imports are expressly prohibited under Section 22 (1)(b) of the Design Act.

1. Field officers should follow the above principles when deciding whether a particular consignment is to be stopped or released.
2. The circular brings clarity as to Customs’ position on parallel imports, highlighting that the authorities will no longer stop such consignments. However, this does not augur well for brand owners, who might argue that parallel imports render locally-produced goods less attractive from a price point of view. Encouraging parallel imports seems counterproductive, as local manufacturing generates employment and taxes. In addition, imported products do not take into account local preferences and demand, and do not carry warranty.

In terms of enforcing IP rights, the circular should thus make the situation more difficult for brand owners: they will need to monitor parallel imports and gather intelligence at the market level to seek redress from the courts on the basis of the Samsung ruling.

By Shraddha Singh