1 October 2010Trademarks

Parallel imports in India

A parallel imported product is a non-counterfeit product purchased in country A and imported to country B for subsequent sale. Such noncounterfeit products are authorised for sale by the owner of intellectual property (trademark, copyright, patent) in country A, but may not be intended for sale in country B.

Parallel importation or parallel trade represents another form of arbitrage wherein a legitimate product is shipped from an authorised (by the IP owner) market to another market where it commands a higher price. Parallel imports are also driven by price differences in various countries that may result from retailer price discrimination, vertical pricing restraints or national differences in government price controls.

Trademark law

The Trade Marks Act, 1999 came into force on September 15, 2003 and governs trademark law in India. The following provisions from Section 29 of the act, which defines trademark infringement, are relevant to parallel importation:

“29. Infringement of registered trade marks

(1) A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trade mark.

(6) For the purposes of this section, a person uses a registered mark, if, in particular, he-

(a) affixes it to goods or the packaging thereof;

(b) offers or exposes goods for sale, puts them on the market, or stocks them for those purposes under the registered trade mark, or offers or supplies services under the registered trade mark;

(c) imports or exports goods under the mark; or

(d) uses the registered trade mark on business papers or in advertising.”

Section 29(1) of the act read with Section 29(6)(c) states that any import or export of goods under a registered trademark without the consent of the proprietor, amounts to infringement of the registered trademark.

However, Section 30 of the Trade Marks Act administers certain limitations and lists certain conditions under which a registered trademark is not infringed:

“30(1) Nothing in Section 29 shall be construed as preventing the use of a registered trade mark by any person for the purposes of identifying goods or services as those of the proprietor provided the use-

(a) is in accordance with honest practices in industrial or commercial matters, and

(b) is not such as to take unfair advantage of or be detrimental to the distinctive character or repute of the trademark.

30(3) 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 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.

(4) 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.”

This indicates that the sale of goods by a person (other than the proprietor of a registered trademark) in the market does not amount to infringement, if the goods have already been put on the market under the registered trademark by its proprietor or with the proprietor’s consent. Hence, it is generally inferred from Section 30(3) that parallel importation does not amount to trademark infringement.

However, this should be considered in light of subsection 4 of Section 30. This provides an opportunity to the trademark proprietor to oppose further dealings in its goods, for example, if the condition of the goods have been changed or impaired.

In 2006, in Bose Corporation v. Mehta, the High Court of Delhi stopped a retailer selling parallel imported Bose audio systems in India without any authorisation from Bose Corporation. The retailer made false representations to customers that the grey-market goods included a Bose product warranty, which in effect was not available in India.

Also in 2006, the High Court of Delhi issued an ex-parte order in General Electric Company v. Mr. Altamas Khan, restraining traders from dealing in General Electric (GE) dehumidifiers without authorisation.

The defendant was found to be trading as GE Dehumidifiers and to be misrepresenting itself as a GE dealer. The imported products at issue were not supposed to be sold in India and the accompanying warranties were useless, since GE did not sell dehumidifiers in India.

"The importers argued that the equipment was legally and validly imported, and sold without any alterations. They highlighted that the goods were genuine and originated from the plaintiff company, albeit second-hand."

The judge delivered the judgment on December 12, 2008 and passed a decree of recovery for Rp1 million against the defendant. The judge said that even though GE was not itself selling dehumidifiers in India, customers were likely to think the products were sold with the company’s authorisation, and would be likely to expect the warranty and after-sales service to be valid.

If it were not, customers would probably blame GE, the court found. Another case before the Delhi High Court saw Xerox Corporation attempt to restrain importers, resellers and photocopying shops from unlawfully importing second-hand office equipment such as photocopiers under the ‘Xerox’ brand, which were then refurbished in India and sold directly to photocopying shops or to resellers.

The plaintiffs alleged that the importers were breaking the law. Xerox said that each of the machines had inbuilt software for operating the hardware. When the machines were turned on, the flash screen displayed a distinctive ‘X’ logo for which the plaintiffs claimed copyright.

The importers claimed that they were entitled to import second-hand machines with the brand name Xerox, and to sell them to resellers and directly to photocopying shops. They argued that the equipment was legally and validly imported, and sold without any alterations. They highlighted that the goods were genuine and originated from the plaintiff company, albeit second-hand.

They also made it clear that the goods were second-hand when selling them. The photocopying shops contended that they purchased the machines knowing them to be second-hand. However, during the suit and in the course of arguments, the parties agreed to settle the disputes in the following manner:

1. The defendants, who are importers and resellers, shall affix the following disclosure on each of the second-hand Xerox machines imported/sold by them:

(i) Second-hand and used machine not imported directly from Xerox Corporation or any of its affiliates;

(ii) Not serviced or maintained by Xerox Corporation or any of its affiliates;

(iii) This machine has been sold exactly as received by the importer/reseller. It has not been altered in any way or examined for operability or completeness by the importer/reseller. No part or any accessories have been added or removed by the importer/reseller;

(iv) This machine is not covered by any guarantee or warranty from Xerox Corporation or any of its affiliates.

2. The aforesaid disclosure shall appear prominently on each of the second-hand machines at a prominent place in the front of the machines where the word Xerox appears on the machines so that the same can be easily viewed by customers. The disclosures shall be permanently affixed on the machines.

3. The same disclosure shall also be incorporated in publicity materials, manuals, advertising and other communications to the public by the defendants in respect of the said Xerox machines.

4. In case, after importation, any changes to the said machines are made by the defendants, the mark Xerox shall be removed from them before further sale/use so as to indicate to the purchasers/users that the machines are not Xerox machines.

5. Once the said disclosure has been affixed on the machines by the importers and/or the resellers, the other defendants (jobbers/ photocopying shops) shall not remove or obliterate the same.

Thus, although the parallel import of goods under trademark of the proprietor may be permitted under the Trade Marks Act, 1999, it is subject to the proprietor of the mark not opposing further dealings with such products if it has any legitimate reasons for such opposition.

Himanshu Bagai is a senior associate at Luthra & Luthra Law Offices. He can be contacted at: hbagai@luthra.com

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