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The Parallel Universe

Date: 10 June 2011
Author: Joanne Martin
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Parallel Importation Law in Australia

Key Points

  • Trade mark law regarding parallel importation and the extent to which it constitutes infringement of an Australian registered trade mark is still uncertain, except in cases where the overseas trade mark owner (the source of the parallel imported goods) and the Australian trade mark owner are different and unrelated legal entities. 
  • When the Australian and overseas trade mark owners are unrelated entities, "consent" to the application of the trade mark to the parallel imported goods cannot be said to be either expressly or impliedly given. 
  • The opportunity to bring proceedings for infringement for parallel importation depends on the legal form of the relationship between the trade mark owners and their distributors; the key strategy which has been used to date is the practice of conditional assignments.
  • The philosophical approach of the Australian government is pro-competition, and therefore no change to the Australian Trade Marks Act in support of rights of trade mark owners to prevent parallel importation, is likely.
     

Scope of this enquiry : inter-relationship between parallel importation and infringement

  1. Whether parallel importation of genuine product may be an infringement of trade mark rights in Australia;
  2. What are the relevant laws under which parallel importation of genuine product is considered to be infringement of trade mark rights;
  3. Whether a case of parallel importation of genuine product may not be considered infringement of trade mark rights because of lack of substantial illegality, and if so, what are the necessary conditions preventing trade mark infringement;
  4. What are the current recent cases of the Australian courts discussing infringement of trade mark rights on the basis of parallel importation of genuine product.

Definition

Parallel importation occurs when a trade mark is applied to products overseas, either by the owner of the trade mark in the overseas country, or with the owner's consent.  The products are then imported into Australia by a person other than the trade mark owner.  The products are genuine (not an imitation), and are manufactured and branded with the consent of the overseas trade mark owner.
 

Background

1. Pro-competition policy of Australian Government

The Australian government’s approach is to promote pro-competition policy, and parallel importation is encouraged on the basis that it increases competition, reduces protectionism, and provides economic benefits to the Australian economy and consumers.  Pro-competition policy is reflected in the provisions of the Trade Marks Act 1995 of Australia, that facilitates parallel importation by providing a 'defence' to infringement in certain circumstances.
 

2. Provisions of the Trade Marks Act 1995 (the Act) provide a defence to trade mark infringement for parallel imports

Section 123 of the Act  provides:
Goods etc. to which registered trade mark has been applied by or with consent of registered owner
123 (1) .... a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark.

 
Section 14(1) provides:
Goods are similar to other goods
(a) if they are the same as the other goods; or
(b) if they are of the same description as that of the other goods

 
Section 123 of the Trade Marks Act, therefore, provides that it is not an infringement to use a trade mark that has been applied to goods, by or with consent of the registered owner.  Where this has occurred, the trade mark owner cannot argue that the parallel importation of the genuine goods infringes its registered trade mark in Australia, as the trade mark was affixed to the goods with the registered owner's consent.
 

3. What amounts to consent for the purposes of s123

The meaning of "consent" is not settled or fixed, and is a doctrine which is variously interpreted based on the context of the case.  The cases decided in the courts show that consent can range from "acquiescence", that is, a tacit agreement, through to giving active permission.
In the relationship of a parent and subsidiary, consent of a parent in the activity of its subsidiary, in particular where there is knowledge or expectation by the parent company of the type of activity to be undertaken by the subsidiary, may mean that consent is assumed or implied.  The Brother case, discussed below, concluded that in the context of s123, consent between members of a corporate group needed to be a positive or active permission.  However in other cases such as the Revlon case discussed later, an implied consent was assumed between members of a corporate group.
 
The 2007 Brother case, Brother Industries, Ltd v Dynamic Supplies Pty Ltd 73 IPR 507, dealt with the issue of purchase, importation and sale, by Dynamic, of unbranded printer units which had been manufactured by Brother.  Dynamic packaged the units in packaging bearing the BROTHER trade mark.  The Court decided this use of the trade mark BROTHER amounted to infringing use.  While the Brother case is not directly concerned with parallel importation, one issue that was considered by the Court was relevant to parallel importation.
 
Dynamic argued that as the genuine BROTHER unbranded units were sourced from a member of the Brother corporate group, it could be implied that consent to brand with the BROTHER trade mark had been granted by Brother, the trade mark owner, such that Dynamic could rely on the defence of parallel importation provided by s123 of the Act.  However, the Court decided that even if another member of the Brother corporate group was part of the supply chain, Dynamic could not rely on s123 as no consent from the registered trade mark owner could be implied.
 

4. Doctrines of "exhaustion of rights" and "territoriality"

These are two competing theories, neither of which have priority of application under Australian trade mark law.  The doctrine of exhaustion posits that the trade mark owner's exclusive right to the trade mark is "exhausted" by the first act of placing the goods on the market, so that the trade mark owner has no control over subsequent dealings in the goods. The territoriality principle provides that a trade mark owner's rights in one country should not exhaust the rights or have any bearing on the owner's trade mark rights in another country. 
 
Because of the conflict between these two doctrines and the ambiguity of their application in any particular circumstances relating to parallel importation, the circumstances surrounding each importation needs to be addressed in order to determine its legality or illegality.
 
The issues described in the items 1, 3 and 4 discussed above, have an impact on the decisions of the Australian courts in "infringement by parallel importation" cases, and outcomes vary depending primarily on the interpretation of consent and the application of exhaustion of rights or territoriality principles.

 

When does parallel importation occur?

Parallel importation may occur under these different situations:
 

1. The overseas trade mark owner and the Australian trade mark owner are identical

In the situation where the same company owns the trade mark registration overseas and in Australia, it is clear from the Australian cases that parallel importation does not infringe the Australian registered trade mark.  This is because technically the importer is not "using" the trade mark, and the s123 defence is available to the importer.  The parallel importer is merely importing and re-selling product which has been trade marked by the trade mark owner.  In this scenario, generally the doctrine of exhaustion applies.
 
The key decision dealing with this scenario is the 1999 Montana decision, Transport Tyre Sales Pty Ltd v Montana Tyres Rims Tubes Pty Ltd 43 IPR 481.  In this case, Montana, the parallel importer, imported Ohtsu tyres that were marked with various trade marks including OHTSU, at a time when the trade marks were registered in both Japan and Australia in the name of Ohtsu Co.  These tyres were manufactured in Japan, and trade marks applied to them in Japan by Ohtsu Co.  The tyres were acquired by Montana in Singapore, and exported to Australia.
 
Transport Tyre Sales, who was Ohtsu Co.'s distributor in Australia, argued that the OHTSU trade mark had been applied by Ohtsu Co. in Japan, and the tyres were intended for sale in another country and not Australia.  Thus, the argument was that there had been no application of the Australian registered trade mark by or with the consent of the trade mark owner as required for the defence of s123 to apply. 
 
This argument was rejected by the Court on the basis that it would be impractical to distinguish between goods bearing the identical trade mark as being either goods for the Australian market or being for the Japanese market.  The application of the trade mark to goods in one country by or with the consent of the overseas trade mark owner allowed the operation of the s123 defence.  The intention of the trade mark owner regarding distributorship of the goods in Australia was irrelevant.
 

2.The overseas trade mark owner and the Australian trade mark owner are different entities but part of the same corporate group

In this situation the trade mark owners are different companies, but part of the same corporate group.  This scenario has not been considered in case law in Australia, but has been the subject of decisions in the United Kingdom, a key case being the Revlon case, Revlon Inc v Cripps & Lee Limited (1980) FSR 85.  In that decision, the registered owner of the REVLON FLEX trade mark sought to prevent parallel importation of REVLON FLEX product into the UK, which product had been manufactured for the US market and purchased in the US by the parallel importer.
 
The UK Judges said that every company in the corporate group must be regarded as having "consented" to the trade mark being used as a group mark to designate the products of the Revlon group.  The Revlon group had impliedly consented Revlon USA's use of REVLON FLEX on goods that could be freely dealt with within the United States, so no objection could be made to the parallel importation of those US branded products into the United Kingdom.  Therefore, the UK Court concluded that Revlon USA's use had to be treated as if it were use by the UK registered owner.
 
Relevant issues in this case were that the Revlon companies were seen as a global group, the REVLON FLEX product was seen as a global product, and Revlon could not demonstrate any disadvantage to the UK market by the parallel importation, for example as there was no question of inferior product quality.
 
This situation has not been tested in the Australian courts, and it cannot be assumed that an Australia court would take the same approach to the concept of an "global corporate group", or the issue of a trade mark being recognised as a "global trade mark".  That is, there is a possibility that an Australian court would recognise separate trade mark rights of different registered trade mark owners in each country. 
 
The question has been dealt with tangentially in Australia in Brother Industries, Ltd v Dynamic Supplies Pty Ltd.  The court considered the relevance of the claim by the parallel importer that the goods in question had originated from another company in the same corporate group as the trade mark owner, therefore implying “consent”.  The Court held that “consent” had not been given by the registered trade mark owner, notwithstanding the actions of its subsidiary.
 

3. The overseas trade mark owner and the Australian trade mark owner are different entities but may have a distributorship arrangement in place

Where the overseas trade marks are registered in the name of one company and the Australian trade marks are registered in the name of an unrelated company, a parallel importer is unlikely to be able to demonstrate that the Australian trade mark owner consented, either expressly or impliedly, to the application of the trade mark to the imported goods.  Without consent, the parallel importer is unable to rely on the defence under s123, and the doctrine of territoriality is likely to apply, and the parallel importation is likely to amount to infringement. 
 
This situation arose in the case of Ward Group v Brodie Stone 64 IPR 1.  In this case, an English company owned the RESTORIA trade mark in the United Kingdom, and an unrelated company had registered RESTORIA in Australia.  Both products were hair restoration products, which were identical in their characteristics and ingredients because Ward Company had established the Restoria business worldwide but later sold off the Australian business and had no involvement in the Australian business. 
 
In this case, the parallel importer could not rely on s123 as a defence to infringement by importation of the UK RESTORIA product into Australia, as the registered owner of the RESTORIA trade mark in Australia had not been involved in any way with the application of the trade mark to the English product which was being imported into Australia.  (However, the activities of the parallel importer were not held to be infringement due to a technicality involving "trap orders".  Otherwise, infringement would have been found.)
 
A variation of this scenario is where the corporate entity owning the overseas trade mark and the Australian trade mark owner are different entities but in a contractual relationship.  This situation has been the issue in two decisions, where the overseas owner has conditionally assigned the Australian trade mark registration to an Australian corporation, the assignment conditional on the Australian assignee agreeing to obtain its supplies of the trade mark product from the overseas trade mark owner under an exclusive distributorship contract, and that the Australian company would re-assign the Australian registration to the overseas owner in the event that the exclusive distributorship contract is terminated. 
 
This conditional assignment structure has been used by trade mark owners to prevent parallel importation, as it negates any suggestion that the Australian registered owner (the exclusive distributor) has applied the trade mark or consented to the application of the trade mark, to the goods.  Therefore a defence to trade mark infringement under s123 of the Act is not available to the parallel importer. 
 
In the Fender case, Fender Australia Pty Ltd v Bevk 15 IPR 257, the US Fender company conditionally assigned the FENDER trade mark in Australia to Fender Australia (not a subsidiary).  The parallel importation of FENDER guitars was held to be infringement of the Australian trade mark registration.

In the Montana case discussed above, Ohtsu conditionally assigned the relevant trade marks to the unrelated Australian company, Transport Tyres Limited.  However this judgement only dealt with the parallel importation of tyres before the conditional assignment.  The issue that is undecided is whether continuation of importation of the tyres after the conditional assignment would have constituted infringement.  The question which would need to be answered is whether the Australian trade mark owner, Transport Tyres, had consented to the application of the trade mark to the imported goods.
 
In these two cases, the Court did not consider the validity of the conditional assignments.  However, it found, in the circumstances of the Fender case, that the Australian trade mark owner had built up its own goodwill in the FENDER trade mark as it had been involved in the promotion and servicing of FENDER guitars, had added labels identifying itself as the registered owner of the trade mark such that the mark was considered distinctive of "a commercial origin in Australia, as well as of an anterior source overseas".  Therefore, the exclusive distributor's trade mark ownership of FENDER in Australia was supported by the distributor's local goodwill. 
 
The conditional assignment of a trade mark from an overseas trade mark owner to an unrelated corporate entity (exclusive distributor) has, in the Fender and Montana cases, been a successful strategy to avoid the assumption of "consent" and therefore defeating a parallel importer from utilising the s123 defence to avoid infringement.  However, this strategy may be challengeable on the basis of lack of validity of the conditional assignment or validity of the trade mark registration in the name of the Australian entity.
 

Conclusion

Trade mark law regarding parallel importation and the extent to which it constitutes infringement of an Australian registered trade mark is still uncertain, except in cases where the overseas trade mark owner (the source of the parallel imported goods) and the Australian trade mark owner are different and unrelated legal entities such that "consent" to the application of the trade mark to the parallel imported goods cannot be said to be either expressly or impliedly given. 
 
The opportunity to bring proceedings for infringement for parallel importation depends on the legal form of the arrangement or relationship between the trade mark owners and their distributors, the key strategy which has been used to date is the practice of conditional assignments.
 
The philosophical approach of the Australian government is pro-competition, and therefore no change to the Australian Trade Marks Act in support of rights of trade mark owners to prevent parallel importation, is likely.

 
 
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