EXHUASTION AND PARRALLEL IMPORTS (INDIA)

Law


India has always been lenient on the law relating to parallel import. This is because, prior to the Trademark Act 1999, the law on the trademarks was governed by the Trademarks and Merchandise Act of 1958, in which, there was no provisions related to parallel imports. In other words, Indian trademark law was never tested by examining a trademark infringement claim against parallel imports. The Trademarks and Merchandise Act of 1958 was amended and repealed by a new Trademarks Act, 1999 (1999 Act), which came into effect in 2003. The Trademarks Act, 1999 for the first time the concept of exhaustion was introduced under section 30 sub sections (3)[1]. Although the Trademark act 1999 does not expressly use the term “parallel imports” but Section 29 and Section 30 prohibit the practise of parallel imports. Section 29 deals with the ‘Infringement of trademark’ and section 30 deals with the ‘Limits of effect of registered trade mark’. The relevant segments of these sections are as follows:


Section 29(1) A registered trade mark is infringed by a person who, not being a registered proprietor or having permission, uses in the course of trade, a mark that is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such a manner as to render the use of the mark likely to be taken as being used as a trade mark.[2]


Section 29 (6), For the purposes of this section, a person uses a registered trade mark, if, in particular, he –


a) Affixes it to goods or packaging;


b) .........


c) Imports or exports goods under the mark; or[3].


So, while reading Section 29(1) and section 29(6)(c) together it becomes clear that if any person, other than the trademark owner, imports the goods, without the owner’s consent, then this act will be considered to be use of trademark in course of trade and will constitute infringement of exclusive right of the trademark owner


Section 30 of the trademark act 1999 states the act which will not be considered as infringement, which includes the provisions relating to the doctrine of exhaustion. Section 30(2)(c)(i) states that, to avoid the trademark proprietor from claiming infringement on the imported goods, the parallel importer has to show the consent of the trademark proprietor. This consent may be expressed or implied.


Section 30(3)(b) :- Where the marked goods are lawfully acquired by a parallel importer, the sale of the goods in the market or subsequent dealing in those goods by importer will not amount to infringement, where those goods have been put on to the market by the proprietor or with his consent,


After the amendment in 2003, the new Trademark Act, 1999 included, sub section (4) in section 30. This sub section is identical to article 7 (2) of the European Trademark Directive. Section 30 (4) is an exception to section 30 (3). Section 30 (4) states that the trademark proprietor can prevent the parallel importer from further dealing of marked good, only where there exist legitimate reason to do so. In particular where the condition of the goods has been changed or impaired after they have been put on the market.


Courts adjudication


One of the first cases touching the question of exhaustion of rights in context to parallel importation, provided under section 30(3)(b) was Bose Corporation vs. S. Mehta[4] where the court observed the plaintiff’s company offered warranty on their music system, this warranty was available only on the display of the original proof of purchase from the authorised Bose dealer (India), defendant was importing these music systems and offering limited warranty, which was not applicable in India. After looking into all the arguments place by both the sides the Delhi High Court issued an interim injunction against the retailer defendants from selling the Bose Corporation's digital audio music systems in the Indian market without authorisation.


Another case exploring section 30 (3)(b) was General Electric vs. Altamas Khan[5], where GE brought a trademark infringement claim against an unauthorised retailer of a GE dehumidifier, which was a parallel import. At that time, GE did not sell any dehumidifiers in the Indian market, which was noted by the court. The court not only granted an interim injunction but also appointed the court commissioner to seize all GE dehumidifiers from the defendant's premises[6].


After the new Trademark Act, 1999 coming into force in 2003, there has been no case on which on the section 30 sub section 4 until August 2006 when Samsung filed a multiple trademark infringement suits against retailers and parallel importer importing Samsung ink cartridges and toners. This was the first time when the Delhi high court gave its judgement on trademarks and parallel imports.


Samsung Electronics Company Ltd & others vs. G Choudhary & others[7]


Fact of the case / issues involved


In this case plaintiffs, were the legal owner of the mark “Samsung”, filed a case against the retailers and parallel importers (defendants) importing ink cartridges and toners from China. The defendants were selling these toners and cartridges under the trademark “Samsung”, these toners and cartridges were manufactured by the plaintiff itself but in China. The plaintiff claimed "change or impairment" in the condition of goods on two grounds that, although the products were genuine, the imported goods were not conform for Indian packaging and labelling law as the description was in Chinese, and the products did not carry after sale services and warranty benefits.


Judgement


The Delhi High Court took a month and multiple hearings to examine the statute and case law from jurisdictions such as the US and the EU, and held that a cause of action for trademark infringement may be available to the proprietor against an importer where there is legitimate reason, in this case the genuine goods have been materially altered without proprietor’s consent after placing them in the market. Further, the court held that there was a prima facie case for injunction since it was certain that the goods and evidence to substantiate the complaints would be removed if an injunction was not granted. Accordingly, the defendants were restrained from importing, exporting, distributing, selling, directly or indirectly dealing in grey market ink cartridges or toners of the plaintiff bearing the mark ‘SAMSUNG’.


In light of the above said cases, it is clear that the parallel importation is allowed in India. Section 30(3) for the trademarks Act, 1999 provides that where the parallel import which are legally purchased and the trademark owner had already put them in to the market, the parallel importation is allowed (doctrine on exhaustion). Section 11(2) (n) of the Customs Act, 1962 restricts or prohibits import and export of goods infringing trademarks. And section 30(4) states that the trademark owner may prevent the importation by the parallel importer bearing his trademark, where there is a “legitimate reason” to do so.


Indian trademark law and TRIPS


In observance if the TRIPS obligation, in the article 51 to 60, the government of India has issued Notification 49/2007, Customs dated May 8 2007, under the above Section 11(2)(n) of the Customs Act 1962, prohibiting import of goods infringing the IP rights of the right holders under the Trade Marks Act 1999. Articles 51 to 60 of TRIPs deal with border measures relating trade mark infringement, India has issued the Notification and has framed rules to impose the bar in respect of trade mark infringement conforming to the practise prevailing in other countries. In this regard, the trade mark owner or its representative is required to give notice in writing to the Commissioner of Customs, requesting suspension of clearance of goods suspected to be infringing an IP right. However, grant of registration of such notice is allowed by Customs subject to the execution of a bond, along with surety or an authorised representative. Once such a notice is registered, clearance of the impugned imported goods is suspended. If the infringement is proved, the goods are treated as prohibited goods liable to confiscation under Section 111 of Customs Act 1962.