Parallel importation refers to the act of purchasing genuine goods sold legally in one country, and exporting the same to another country for re-sale, usually for a price lower than what is prevalent in the importing country. The ability to sell such goods at a lower price in the importing country may arise from fluctuation in currencies and/or the distribution channel. Parallelly imported goods are often confused with counterfeit goods, which are not the same.

In this blogpost, we seek to examine the concept of parallel imports in India, in light of the Trade Marks Act, 1999.

Parallel Imports and the Exhaustion Doctrines

The principle of exhaustion followed by a country determines such country’s threshold at which the exclusive right of the intellectual property right holder (“Right Holder”) over a product is “exhausted”. Article 6 of TRIPS (Trade-Related Aspects of Intellectual Property Rights), 1995 read with foot note 6 of Article 28 and Article 5(d) of the Doha Declaration, 2001 provides its signatories with the right to determine the principles of exhaustion they want to follow.

The following are the different doctrines on exhaustion:

No Exhaustion: As per the doctrine of no exhaustion, the rights of the Right Holder on the intellectual property (“IP”) does not exhaust at any point.

National Exhaustion: As per the doctrine of national exhaustion, the buyer of an article bearing IP (“Buyer”) can lawfully resell or transfer the same within the country itself. Such resale or transfer within the country without the permission of the Right Holder would not amount to any infringement since the Right Holder has exhausted his rights to the goods within the nation, upon the first sale of the goods. However, since the Right Holder’s IP rights would revive once the goods are exported to a different country, the Buyer does not have the right to resell the goods in a different country without the permission of the Right Holder.

Regional Exhaustion: As per this doctrine, the Buyer of an article bearing IP can lawfully resell or transfer the same within countries belonging to a specific region. In this case, the Right Holder exhausts his rights in all countries belonging to a region by putting the goods in the market of any one of the countries of such region. However, the Buyer cannot resell the same in a country outside of the region, since the Right Holder’s IP rights would revive once the goods are exported to a country outside the region. The European Union has adopted the doctrine of regional exhaustion.

International Exhaustion: As per this doctrine, the moment goods are put in the market anywhere in the world, the Right Holder’s IP rights in relation to such goods are exhausted. In this case, the Buyer of such goods, then, is free to resell the goods in any other market, as long as the Buyer does not tamper with the goods.

Legality of Parallel Imports in India

The Indian legal regime provides for different legislations pertaining to each kind of intellectual property right. For instance, the Trade Marks Act, 1999 governs trademarks; the Patents Act, 1970 governs patents and so on and so forth. Each of these legislations provide for parallel imports differently.

For the purpose of this post, we will examine the provisions of the Trade Marks Act, 1999 (the “Act”).

Section 30 (3) & (4) of the Act states that –

(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 a trade by reason only of—

  • the registered trade mark having been assigned by the registered proprietor to some other person, after the acquisition of those goods; or
  • 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 the there exists legitimate reasons for the proprietor to oppose further dealing in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market.”

The above-mentioned section deals with the exhaustion of trademark rights of the Right Holder after first sale of goods. It states that dealing with goods after sale by the Right Holder would not constitute infringement as long as the goods are not tampered with after the same has been put on the market. It is important to note that this section deals with the rights of a “registered proprietor” i.e. a Right Holder who has a trade mark registered in India.

However, the Act does not clarify the meaning of the term “market”. The ambit of the term “market” used in this section will determine whether India follows the doctrine of national exhaustion or the doctrine of international exhaustion. In other words, if the term “market” in this section refers to the domestic market of India, then the doctrine of national exhaustion would apply and if it refers to the international or global market, then the doctrine of international exhaustion would apply.

In October 2012, the term “market” used in this section was interpreted by a division bench of the Delhi High Court to mean “global market”, in the case of Kapil Wadhwa v Samsung Electronics thereby validating the international theory of exhaustion in India.

However, the only condition imposed by the court on parallel imports, in relation to trademarks, is that the imported goods should state that they have been imported, and that after sales service and warranty is not provided by the Right Holder and rather by the Buyer.

Samsung has appealed against the judgment of the Delhi High Court in this case before the Supreme Court of India. The Supreme Court is hence, now seized with the task of deciding on the legality of parallel imports, and on whether the Indian trade mark law recognizes the doctrine of international exhaustion or national exhaustion.

Indian Customs Law on Import of Infringing Goods

As per the provisions of the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, a Right Holder may apply to the Commissioner of Customs at a port where the goods infringing his IP rights are likely to be imported.

If the Custom authorities arrive at the conclusion that the goods being imported are infringing in nature, they can confiscate the goods under as per the provisions of the Customs Act, 1962.

The Central Board of Excise & Customs has issued a circular dated May 08, 2012 on “Enforcement of Intellectual Property Rights on Imported Goods” clarifying that parallel importation is not prohibited unless

  • the goods bear a false trademark; or
  • the goods bear a false trade description in relation to any of the matters connected to the description, statement or other indications of the product

Conclusion

Stakeholders and think tanks are awaiting the Supreme Court’s verdict on the Samsung case for some clarity on the applicability of the doctrine of international exhaustion and legality of parallel imports in India.

While we wait for the Supreme Court judgment, it is important to remember that adoption of the doctrine of international exhaustion would promote free trade and competition. The application of the doctrine of international exhaustion on parallel imports in India would also provide the customers with the benefit of purchasing genuine goods at a cheaper price, though with the risk of not availing the benefits of after sale service and warranty from the manufacturer.

However, on the other hand, adoption of the doctrine of national exhaustion would be more beneficial to the Right Holder and tackle grey market operations that result in confusion amongst the consumers with respect to the source of goods.

It would also be helpful if the Supreme Court addresses the need for harmonization of laws relating to parallel imports, in the event of the importing and the exporting countries following different exhaustion principles, to avoid conflict between the two.