Parallel Imports And Its Legality Under The Trade Marks Act, 1999
Introduction
Parallel Imports refer to the act of purchasing genuine goods sold legally in one country and exporting the same to another country for resale usually for a price lower than what is prevalent in the importing country. This ability to sell the imported goods at a lower price comes from the fluctuations in the currencies or the nature of the distribution channels between the country from where the goods are exported and the country to where the goods are imported.
A very popular misconception about the parallel-ly imported goods is that they are counterfeit or unoriginal. It is pertinent to mention here as also stated while defining parallel imports at the beginning, that the goods which are sold at a lower price after importing them from different places are always genuine.
[Image Sources : Shutterstock]
Doctrine of Exhaustion
A very important concept that needs to be understood while we delve into this topic of Parallel Imports is the doctrine of exhaustion. The doctrine of exhaustion states that once any product bearing IP rights are sold, the owner of the product cannot object on any resale of the same until and unless any distortions or changes are made in the product. This also means that the only right that is transferred to the purchaser of the product is the possessory right over the physical unit and not the IP rights.
The Doctrine of Exhaustion is of three types:
National Exhaustion– National exhaustion means goods sold in one part of a country are imported in another part of the same country and are resold without any distortions or mutilations.
Regional Exhaustion– When goods which are originally sold in one part of a region are sold in a different part of the same region, for ex. when a product is sold in one part of the European region and is put up for resale in another part without any changes made in it, it will be called regional exhaustion.
International Exhaustion– The countries where the principle of international exhaustion is followed go by the concept of international markets. Here, if first sale is made in any country all over the world, the purchaser as long as they do not make any alterations in the IP rights of the owner, are free to make a resale of the goods in any country they wish.
Doctrine of Exhaustion is important to discuss while we are talking about parallel imports because when we look at it, the right to parallel-ly import a genuine product only arises when the rights of the original owner of the product are exhausted and an option to make further sale arises. Therefore, exhaustion is a pre requisite to parallel imports.
Are Parallel Imports Legal In India?
The validity of parallel imports in India can be understood by analysing section 30 sub sections 3 and 4 of the Indian Trade Mark Acts, 1999. It is known that section 29 of the Trade Marks Act talks about infringement while section 30 of the act sets out some exceptions to such infringement.
To be very clear, neither of the sub sections of Section 30 talk about parallel imports directly but some inference can be drawn on a closer reading. Section 30 (3) says that once a person lawfully acquires a product and deals with that product by selling etc., it is not illegal. Thus, this makes it clear that the act of parallel-ly importing genuine goods, once purchased and reselling them is not an infringement and also legal.
Now for parallel imports to happen and be legal, the kind of Doctrine of Exhaustion followed in India is to be determined. This can be understood by analysing the word “market” in Section 30 (3). There is no prefix or suffix present with the word market and in such an absence, it can be understood that there is no limitation as to the scope of the market, the market is global and thus, it can be reasoned out that India follows the principle of International Exhaustion.
Sub section 4 of Section 30 of the act, says that sub section 3 of the said section will not apply where the owner of the mark has legitimate reasons to oppose such action and in particular, when the condition of the goods has been changed or impaired after they have been put on the market.
That being the case, it is safe to say that the practice of parallel importation is perfectly legal in India, as long as the products are not being hampered in a negative way which derogates the reputation and value of the original proprietor and such an import can be done from anywhere around the world where the first sale of the product has been legally made.
A landmark case where a division bench of the Delhi High Court talked about the legality of parallel imports in India as well as the type of Exhaustion followed in India is the case of Kapil Wadhwa vs. Samsung Electronics (FAO(OS) 93/2012) wherein the division bench while hearing the case on appeal, went through the concept of parallel imports and what the Indian laws say about the same. The Court took note of Section 30 sub sections 3 and 4 of the Indian Trade Marks Act, 1999 and held the practice of parallel-ly importing goods into India and putting them up for resale is no illegal as per the construction of Section 30 of the mentioned act. The Court also held that India follows the principle of International Exhaustion and going by that principle, products, when being sold anywhere or put to sale, can be brought into India and can be resold in India. The decision of the Court was not completely in favour of the appellant and a caveat was put up by the Hon’ble Court which asserted that though parallel importation is not illegal in India, the products are to be sold as it is and the quality or the trade mark of the products should not be impaired. Also, it was made mandatory that a disclaimer has to be given on the banner of the appellant’s shop making it clear that the products are not from the authorised dealer and if the products are sold in different packaging, etc. by the authorized dealer, the liability will not be on the original proprietor of the company or mark.
An appeal from the decision of the division bench file by the respondents Samsung Electronics is pending before the Supreme Court of India yet as long as the matter is not decided the judgement given by the division bench is valid and very much a precedent to be taken note of.
Conclusion
Looking at the points highlighted in the above paragraphs, it is crystal clear that as long as the products and trade mark of the original proprietor are not hampered or played with, the right to resale a genuine product at whatever price or place resides in every person and can be exercised accordingly.
The owner of a good still always have the opportunity and right to stop such resale as and when they find that their rights in the intellectual property of the products are being hampered.
Author: Rishija Tripathi is a 4th Year B.A. LL.B. (Hons.) Student at KIIT School of Law, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
REFERENCES
- Kapil Wadhwa v. Samsung Electronics (FAO(OS) 93/2012);
- The Trade Marks Act, 1999, § 29, No. 47, Acts of Parliament, 1999 (India);
- The Trade Marks Act, 1999, § 30, No. 47, Acts of Parliament, 1999 (India)
