September 05, 2014

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Corporations and IP Association Jostle Over Grey Market Goods

- Ranjan Narula, Managing Partner [ RNA, Intellectual Property Attorneys ]
- Abhishek Nangia, Senior Associate [ RNA, Intellectual Property Attorneys ]

Ranjan Narula & Abhishek Nangia

In addition to varying views emerging from the courts and customs authorities, the contradictory views of APAA and INTA in the intervention applications filed before the Supreme Court have created a piquant situation with battle lines drawn for an intense debate

Parallel importers do not just affect the trademark owner and their franchisee, but they also undermine consumers' trust in the marks and the quality, as there is no supervision and quality control over the imported goods. This may lead to consumer unhappiness and dissatisfaction.

The parallel imports saga in Samsung Electronics Company Limited (Plaintiff) v Kapil Wadhwa & others (Defendant) has seen many twists and turns with conflicting views emerging not only among the contesting parties but also within the Delhi High Court, Central Board of Excise and Customs and two IP organizations - International Trademark Association (INTA) and Asian Patent Attorneys Association (APAA) that espouse the same cause. The intensely contested case has now reached the Supreme Court and is being closely followed by brand owners. The issue before the Supreme Court is if the Indian trademark law provides for national or international exhaustion of trademark rights.

Facts of the case

The Plaintiff filed a suit for trademark infringement and passing off against the Defendant for allegedly importing printers from Korea into India bearing SAMSUNG trademark for retail sale. Further, the Plaintiff alleged that the Defendant was meta-tagging their website for marketing parallel imported products.

Order passed by Single Judge

The Single Judge of Delhi High Court vide order dated 17th February, 2012, held that any goods imported into India without the consent of registered proprietor will amount to infringement under the Trade Marks Act, 1999. Accordingly, the Defendant was restrained from importing, exporting and dealing in printers / cartridges bearing SAMSUNG trademark. Interestingly, the Central Board of Excise and Customs (CBEC), in a circular issued on 8th May, 2012 stated that Trade Marks Act, 1999 provides for the principle of 'international exhaustion' of rights and clarified that parallel imports are allowed as long as the goods are genuine and have not been materially altered or impaired. The circular cleared the decks for the free movement of parallel imported goods in India.

Order passed by Division Bench

Meanwhile, Defendant filed an appeal against the order passed by Single Judge. The issue before the two judges bench (Division Bench) was if Trade Marks Act, 1999 provides for national or international exhaustion. The Division Bench vide order dated October 3, 2012 reversed the decision of the Single Judge and held that:

1. India follows the principle of 'international exhaustion', thus taking the position advocated by CBEC circular.

2. The expression 'lawfully acquired' in Section 30(3) does not mean "acquisition by consent for the purposes of import".

3. The situations in Section 30(3)(a) and Section 30(3)(b) are "distinct and operate in two mutually separate areas". One section cannot be interpreted in a manner that renders the other section otiose. Thus, the further sale of "lawfully acquired" goods cannot be prevented just because the trademark has been assigned to another entity.

4. The word 'market' in Section 30(3) of the Trade Marks Act, 1999 means 'international and/or domestic market'.

5. Trade Marks Act, 1999 does not prohibit import of goods without the consent of registered proprietor.

6. The international statutes are of no assistance in determining whether the principle of international exhaustion applies in India.

7. The Statement of Objects and Reasons of the Trademark Bill 1999, India's communications at the Uruguay Rounds and the report of the Standing Committee on the Copyright (Amendment) Bill 2010 clearly showed that India supports parallel imports and the principle of international exhaustion. The difference in services and warranties is not sufficient to oppose further dealings under Section 30 (4) as this does not constitute a material change or impairment of goods.

8. Appellant (Defendant) is not restrained from importing printers, ink cartridges and toners bearing SAMSUNG trademark and selling them in India.

Nevertheless, the Court:

1. passed an injunction order restraining the Defendant from meta-tagging their website to that of the Plaintiff.

2. the Defendant should prominently display in their showrooms that the goods are imported and that Plaintiff does not provide warranty or after sales service.

The Plaintiff aggrieved by the order passed by Division Bench has filed an appeal in the Supreme Court. The issue before the Supreme Court is whether Trade Marks Act, 1999 allows the principle of international exhaustion or national exhaustion.

Intervention Petition by INTA

Meanwhile, International Trademark Association (INTA) filed its first amicus brief in India at the Supreme Court seeking leave to intervene in the matter. INTA in its application advocated national exhaustion as the correct position. The jist of INTA's submissions is outlined below:

APAA's stance is based on the legislature's intention in framing the law, and correct interpretation of law. On the other hand, INTA's arguments take into account the practical concerns of the brand owners and socio-economic condition that does have a bearing on application of law. It would be interesting to see the approach taken by the Supreme Court as it is not only about determining the correct legal principle but also about safeguarding and balancing the consumer interest

1. As use of a mark in, one country does not automatically confer rights in all countries, the principle of exhaustion should likewise apply only nationally. "The principle of law applicable must be the same for creating a right as for the exhaustion of a right so created."

2. Buying products in one jurisdiction cheaply and then reselling them in another for less than the trademark owner's price point in that country "causes irreparable prejudice to trademark owner and its franchisee/licensee/subsidiary who have invested in market research, product development, brand promotion, after sales service, and distribution network." If return on Research and Development (R&D) is undermined by parallel imports, the investment will inevitably decline.

3. Parallel importers do not just affect the trademark owner and their franchisee, but they also undermine consumers' trust in the marks and the quality, as there is no supervision and quality control over the imported goods. This may lead to consumer unhappiness and dissatisfaction.

4. The quality of product varies from region to region. Not all formulations suit all markets and delays in delivery of parallel imported goods can erode the quality of original product. Examples of potential harm to consumers on account of lack of consistent quality include unworkable consumer helpline numbers in the country of import, lack of regulatory approval in the country of import, variations in recipe/taste/ formulation according to cultural preferences or climate and varying environmental protection standards.

5. Parallel importers often alter packaging of goods. This leads to breach of packaging legislation which in turn places consumers at risk.

6. Many countries worldwide favour national exhaustion. National exhaustion benefits trademark owners, consumers and promotes investment in all countries.

7. Economic analysis favours the concept of regional or national exhaustion. International exhaustion threatens to undermine low-pricing policies in underdeveloped countries and it can be unfair to local distributors. It also encourages importation of counterfeits by legitimising parallel imports, which are often shipped through the same channels or mixed with counterfeit goods.

Intervention Petition by APAA, India

Recently, Indian Group of Asian Patent Attorneys Association (APAA, India) filed an application in the Supreme Court seeking leave to intervene in this matter. APAA, India petition strongly pushed for international exhaustion as the correct interpretation of Indian trademarks law. The jist of submissions advanced by APAA, India is outlined below:

1. The Indian legislature has adopted the principle of international exhaustion and parallel imports of genuine and unimpaired goods. This is clear from reading of the Section 30(3) and 30(4) of Trade Marks Act, 1999.

2. The stance adopted by India at the General Agreement on Tariffs and Trade dated July 10, 1989 (GATT) on 'Standards and Principles Concerning the Availability, Scope and Use of Trade Related Intellectual Property Rights' indicates that it favours the doctrine of international exhaustion.

3. Sub clauses (3) and (4) of Clause 30 of the Statement of Objects and Reasons contained along with Trademark Bill 1999 shows the intent of the legislature to recognise the doctrine of international exhaustion.

4. Paragraph 7(12) of the Report (No. 227) presented by Rajya Sabha Committee at the time of introduction of the Copyright (Amendment) Bill, 2010 stated that the national policy on exhaustion of rights was in conformity with the concept of 'international exhaustion' which is also envisaged in Section 107 A of the Patents Act, 1970 and Section 30(3) of the Trade Marks Act, 1999.

5. The Customs Notification No. 1/1964 of Department of Revenue dated 18th January, 1964 permits import of goods bearing a trademark which is identical to the trademark of any manufacturer, dealer or trader in India, only if the goods carry the name and place of the country where the goods are produced in the letters as large and conspicuous as any letter in the name or trademark. However, this notification does not permit parallel import of genuine goods that have been altered.

6. The doctrine of international exhaustion has been accepted in various countries such as Singapore, Hong Kong, Japan, Canada, U.S.A., Egypt, New Zealand.

7. The Indian law provides for international exhaustion provided there exists conspicuous display of origin of goods and that the goods have not been materially altered/modified.

Disclaimer - The views expressed in this article are the personal views of the authors and are purely informative in nature.

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