Maintaining control over grey imports

22-05-2018

Jan Maarten Laurijssen

Maintaining control over grey imports

Jan-Otto / iStockphoto.com

Any strategy for tackling IP infringement should consider how to restrict parallel imports, which can affect a range of rights. Jan Maarten Laurijssen of Pointer Brand Protection & Research delves deeper into the issue.

Parallel imports, also known as grey market goods, exist when genuine goods containing IP rights are imported for sale on markets and territories without the brand owner’s explicit consent. A simple example would be an item bearing a trademark which is sold on, and intended for, the US market but is then imported from the US to the EU without the trademark owner’s permission. In that case, even though the goods are genuine, the act of importing to a country for which the rights owner has not given its explicit consent would constitute IP infringement.

What is important to mention is that parallel importation could occur for products protected by copyright, trademarks and patents. The rules in relation to parallel imports depend on the territorial application of the rights in question. From an EU law viewpoint this act is prohibited as the Court of Justice of the European Union (CJEU) has established in case law.

Limitations to parallel imports

IP owners’ rights are limited by the principle of the first sale doctrine. This means that once a product containing IP—be it a DVD with a copyright-protected movie, or a technology product containing a patented component—has been sold, the IP owner cannot prevent the buyer further selling the item in the same territory. The first sale of the product ‘exhausts’ the IP owner’s rights.

There are national differences on what is considered the first sale. Some jurisdictions consider a first sale to be one made anywhere (international exhaustion, applied for example in the US and Australia). Other jurisdictions consider the IP rights to be exhausted only when the product has been sold in that particular territory (national or regional exhaustion).

The latter is the case in the EU, which applies regional exhaustion. Article 15 of the EU trademark directive states: “A trademark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the EU under that trademark by the proprietor or with the proprietor’s consent.”

"There are national differences on what is considered the first sale. Some jurisdictions consider a first sale to be one made anywhere."

For example, if one buys a watch in Germany and resells it in Romania, the brand owner cannot prevent the second sale, since both Germany and Romania fall under the EU’s jurisdiction. If, however, the watch has first been sold in China, the rights owner’s rights have not been exhausted in the EU and parallel import rules can be relied on.

How does parallel importation threaten brand owners?

There are several ways in which brand owners can be affected by such an IP infringement. Parallel imports often limit a brand owner’s capacity to exercise control over its products and, ultimately, its brand.

Price

Parallel imports often occur where brand owners have decided to apply diverging pricing strategies in different regions. Allowing parallel importers to import branded goods from a lower price-level jurisdiction into a higher price-level jurisdiction can undermine the legitimate and authorised sales in the second jurisdiction, and the whole pricing strategy.

Distribution

There may be various reasons for a brand owner to decide to provide goods to a certain market but not another. There could be strategic business, competitive, or legal reasons which lead the brand owner to decide not to sell specific products in specific markets.

Quality and service

Brand owners may also choose or be required to apply different quality and service levels in specific countries. Allowing parallel importers to import the goods where they are not meant to be sold also undermines a brand owner’s ability to provide the level of quality or service desired or needed in that market.

Safety

Some products such as technology products can contain features (for example voltage or compatibility features) which may lead to malfunction of the products or safety risks when used in a region for which the product is not intended.

Reputation

Being able to control the above aspects has a direct effect on the brand value and reputation of the brand. For example, being able to control the price level of the product directly affects a brand’s positioning among consumers. Similarly, allowing exclusive or luxury goods to be sold on unreliable or shady marketplaces affects consumers’ perception of the brand’s exclusivity. It can also lead to consumers confusing genuine products with fakes or knock-offs.

A December 2017 CJEU judgment, Coty Germany v Parfümerie Akzente, confirmed that luxury brand owners can prohibit their resellers from selling their products on online marketplaces under certain circumstances.

How can online brand protection solutions help?

Advanced brand protection and monitoring software, such as Pointer Brand Protection’s, can scan hundreds of online marketplaces 24/7. The system filters out cases of illegal parallel imports, displays them in a dashboard, and allows the brand owner or our team of experienced brand protection analysts to send out notice and takedown emails to shut down the infringing listings with just a few clicks.

 

Jan Maarten Laurijssen is a co-founder of Pointer Brand Protection & Research. He manages the brand protection team and ensures that it has the tools and information it needs. He engages with platforms where infringements are taking place to build and develop relationships that are beneficial to all parties. He can be contacted at: j.laurijssen@pointerbp.com

parallel imports, Jan Maarten Laurijssen, Pointer Brand Protection & Research, trademark, IP infringement, Court of Justice of the European Union, patents

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