Exhaustion in India: when is it a national issue?
A parallel imported product is, by definition, a genuine branded product imported from another country without permission of the IP owner. With the world becoming flatter and more connected, traders are easily able to access the price of branded products in different countries. Also, the life cycle of products, in particular electronic products, is getting shorter.
As the price of older models drops, goods move from developed to emerging economies where consumers are price-sensitive and amenable to accepting older versions of the product/brand. This is particularly relevant in the context of electronic products such as mobile phones, laptops, tablets, etc. Further, in some cases, the products are cheaper due to differences in duty structure, leading to movement of goods from one country to another.
The Indian market has seen an influx of imported branded goods from Asian and Middle Eastern countries in last five years. A host of factors is responsible for the sudden jump in parallel imports in the electronic, confectionery, tobacco, cosmetics and alcoholic beverages sectors, including rising consumerism and the Indian middle class becoming more brand-savvy; the Indian economy growing by more than 8 percent per annum; and the reduction of customs duty.
The brand owner’s perspective
Brand owners are obviously concerned about this growing problem: it eats into their profits and makes locally produced products less attractive from a price point of view. Brand owners argue that encouraging parallel imports is counterproductive, as local manufacturing generates employment and the collection of taxes.
Further, in each product a certain amount of customisation takes place locally, taking into account local preferences and demand, which are obviously lacking in an imported product. Brand owners also cite the lack of warranty on such products as a discouragement for consumers to buy them.
The trader’s perspective
Traders who deal in parallel imported, or grey market, goods argue that they benefit consumers and keep a price check on locally manufactured products. The traders rely on the principle of exhaustion to say that once the brand owner, or any party authorised by him, has sold a branded product, they cannot prohibit the subsequent resale of that product since their rights have been exhausted by the act of selling the product.
The traders also argue that parallel import is allowed under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement; in fact, TRIPS explicitly states that it does not address the issue of parallel import, thereby leaving countries free to determine their own policy in this respect.
Legal position To claim trademark infringement under Section 29(1) of the Trademark Act, the following needs to be satisfied: the use of a mark identical, or similar, to a registered trademark:
