Marketing of products abroad will not
involve exhaustion. Under Article 4 and 6(3) of Paris Convention; principle of
territoriality is applied for Trade Marks. Further TRIPs agreement has left the
question of exhaustion and Parallel Imports open for member states. Article 6
particularly mentions that “for the purposes of dispute settlement under this
agreement, subject to the provisions of Article 3 and 4 above nothing in this
agreement shall be used to address the issue of the exhaustion of Intellectual
Property Rights”[1]
which makes clear that this does not affect the issue of Exhaustion[2]. The effect of the
provisions in the TRIPs agreement that are relevant to the exhaustion of
Intellectual Property Rights is to leave each member free to establish its own
regime, subject to the MFN and National Treatment provisions of Article 3 &
4, for such exhaustion without challenge.
International law thus leaves the
question of exhaustion and Parallel imports up to each country. Hence the
practice of Parallel Imports is legally allowed, under article 7 of the
directive, within the European Union as well as in India, under section 30 after
the adoption of Trademarks Act 1999.
A
Swot Analysis of Different Parallel Import Legislation
The European Economic
Area (European union)
The
EEA law of the principle of exhaustion is being developing for last twenty five
years. The EEA has adopted regional exhaustion where by an act of sale in one
country is equivalent to it being an act of sale in any country within the
region. EEA follows the rule of free movement of goods within the EEA. The fundamental principle of the free movement of goods
reflects the European Unions’ goal of achieving a single market[3].
Prior to the Harmonization directive (89/104/EU),
Article 28 and 30 of the Rome Treaty laid down the rules for the free movement
of goods, which is as follows:
Article
28 lay down: “.... qualitative restrictions on imports and all measures having
equivalent effect shall be prohibited between Member State. However this
provision shall not preclude prohibition or restriction on imports, exports or
goods in transit justified on the grounds of..... the protection of industrial
and commercial property.
Article
30 lays down: “... such restrictions or prohibitions shall not, however,
constitute a means of arbitrary discrimination or a disguised restriction on
the trade between Member states[4]”.
In simple words, any intellectual property right which
confine the trade between the member states shall only be defensible if this is
to safeguard the essential function for the intellectual property right
concerned. These provisions of the treaty, in light of judicial precedents by
ECJ, were codified under Article 7 of Directive 2008/95/EU (Earlier, Trademark
Directive 89/104/EU).
Article 7[5]
states:
1.
“The trade mark shall not entitle
the proprietor to prohibit its use in relation to goods which have been put on
the market in the Community under that trade mark by the proprietor or with his
consent”.
2.
“Paragraph 1 shall not apply
where there exist legitimate reasons for the proprietor to oppose further
commercialization of the goods, especially where the condition of the goods is
changed or impaired after they have been put on the market”[6].
The
EU law on parallel import or rule of exhaustion is categorised into two:
·
First sale is outside the EEA
·
First sale within the EEA
First
sale is outside EEA
Article 7 of the Trademark Directive as well as Section
12 of the Trademark act 1994 was uncertain about the international exhaustion. There
were no provisions relating to international exhaustion. Article 7 only dealt
with the situation where the goods where placed within the EEA. In other word
it only concentrates on the community market (European context). Due to this
ignorance on the question of international exhaustion, there was a huge
confusion between the countries. And the countries were free to adopt the rule
of international exhaustion. Some countries adopted the international
exhaustion were as some adopted the regional exhaustion only. Prior to the
Trademark Directive, the question of whether on international exhaustion was
totally a matter for the internal law of the member state, as seen in the case
EMI Records Ltd vs. CBS United Kingdom Ltd.[7]
But in 1984, after the Explanatory Memorandum for the Directive, published as a
part of the proposal[8]
to amend the CTMR, it became clear that EEA did not adopt international
exhaustion.
An important case on international exhaustion was
the ‘Silhouette case’.In Silhouette
International Schmied GmbH & Co v Hartlauer HGmbH, the issue
involved was:
(1) Is
Article 7(1) of the First Council Directive 89/104/EEC of 21 December 1988 to
approximate the laws of the Member States relating to trade marks (OJ 1989 L
40, p. 1) to be interpreted as meaning that the trade mark entitles its
proprietor to prohibit a third party from using the mark for goods which have
been put on the market under that mark in a State which is not a Contracting
State? On which the court held that “under Art.7 exhaustion
of rights occurred only when the product had been put on the market within the
EEA. H's argument went against both the wording of Art.7 and the purpose of the
Directive, which was to safeguard the functioning of the internal market.
Article 5 to Art.7 had to be construed as providing a complete harmonisation of
substantive rules governing the rights conferred by trademarks, and divergence
in national rules applying to exhaustion of rights would inevitably hinder the
free movement of goods and services,”
(2) May
the proprietor of the trade mark on the basis of Article 7(1) of the Trade
Marks Directive alone seek an order that the third party cease using the trade
mark for goods which have been put on the market under that mark in a State
which is not a Contracting State?. Court held that Art.7 (1) did not, per
se, give a proprietor the right to restrain third parties from using his mark
for products placed on the market outside the EEA. However, Member States were
required, in implementing Art.5 of the Directive, to ensure that a proprietor
could obtain an order to restrain third parties from infringing his rights, and
domestic law was to be interpreted by national courts so far as possible to
achieve the purpose of the Directive[9]
After this decision, it was clear that the member states could not
include their own domestic international exhaustion rules, and it is well settle that the goods
places outside the EEA can be prevented from being imported within EEA by the
owner of the trademark, but it can only be prevented if the good are placed
within the EEA without the consent of the trademark owner. Now, the next important question arose from it was on the
term “consent” in Para (1) of article 7.
Consent
The
first attempt by the parallel importer to construct this term in their favour
was in the case of Sebago Inc vs. GB Unic
SA[10], where the issue involved was that
the proprietor of the trademark had consented a batch of shoes to be put into
the market the defendants argued the proprietor consent to identical goods to
be placed onto the market was deemed. The ECJ rejected this issue and held “even
though Article 7 of the Directive was silent on this issue, it was necessary
for the importer to demonstrate a trademark proprietor’s consent to the
particular batch in question. The principle of consent therefore only applies
to the individual goods themselves and not to the class of goods to which they
belong”.
Implied consent/ unequivocal consent
The
owner of the trade mark does not automatically get the right to prevent the
importation of the good to EEA, which are placed outside the EEA; he can do so
if the good are imported without his consent. The consent of the proprietor can
be implied. In 1999, ECJ disagreed with Laddie J’s analysis in Zina Davidoff SA vs. G Imports Ltd[11] said that, this consent of the owner of the
trademark can be implied but this consent is to be drawn by the facts and
circumstances preceding the placing of the goods within market, the consent must be positive and unequivocal. This means
that, the necessary consent cannot be inferred from the fact that the owner of
the trademark had not expressly prohibited the exporting of the goods to and
their further marketing in the EEA. However, the trademark proprietor’s consent
to further marketing need not be express, but if the parallel importer provides
evidence of an unequivocal intention on the part of trademark owner that he
would be comfortable for the goods to be taken to the EEA for further marketing
then proprietor does not have the right to stop the imports, as it will then be
considered that the goods are places in the market with the consent of the
trademark owner. So, the
owner of the trademark has to impose sufficient restriction on to the
distributor outside EEA so that the good are not imported within the EEA.
Although
after the decision on Davidoff case
it was concrete that the consent of the trademark owner can be implied, but
until 2007 there was no case in which implied consent could be established, it was
considered very difficult to mount a successfully case of implied consent. In
2007 the English Court for the first time, establish an unequivocal consent in Mastercigars vs. Hunters & Frankau[12]. “The appellant purchased Cuban cigars from the
retail outlet in Cuba an imported them into United Kingdom, the retail outlet
was permitted by the trade mark owner to sell up to twenty five (USD) worth of
cigars to an individual per transaction, and to provide document for export
through Customs. The appellant’s consignment was seized by United Kingdom
Customs at the instigation of the exclusive UK distributor. On appeal, it was
held that the trade mark proprietor had consented to the goods being put on the
market in the EEA. Consent could be implied, and ‘unequivocal’ did not mean
that the defendant had to prove implied consent. The proprietor’s permit to the
retail outlet to sell cigar for export indicated unequivocally his consent to
the use of the trade marks on the purchasers’ home markets, and also, the export
quantity which was allowed to an individual to buy was much higher for self consumption”[13].
So
in light of the above said cases it is clear that “registered trade mark shall
confer on the proprietor exclusive rights therein. The proprietor shall be entitled
to prevent all third parties not having his consent from using the in the
course of trade”[14]
First
sale is within EEA
Under the Trademark Act 1938, The United Kingdom
and other common law countries for the first time introduced the law on
doctrine of exhaustion. At that time the proprietor of the trademark could
prevent the importation of parallel imports by filing an action of infringement
or passing off. As the European community developed, a doctrine of exhaustion
of rights began to take shape under the principle of free movement of goods[15].
After a period and the decision of the ECJ[16],
it was finally established that trademark right will rest with proprietor
unless the goods which are placed in the community market by the trademark
proprietor or with is consent. Article 7 of the Directive deals with this
specific provision i.e. the doctrine of exhaustion of right within the EEA. So
it is evident from this fact that the European Economic Area exercises regional
exhaustion.
After the adoption of Article 7 of the directive, a
number of cases commencing article 7 have come before the ECJ. These cases were
mainly relating to the terminology of article, especially relation to the term
“consent” in Para (1) and the term “legitimate reason” in Para (2) of article
(7).
(1) Consent
As explained above, it is well settle rule the “the trademark proprietor
right are not exhausted when the good are place in the market without his
consent. The owner has to consent all the goods which are imported with the
EEA. The consent cannot be considered as deemed in case for identical goods, of
those the owner has consented. The importer has to show the proprietors consent
on all the goods which are imported, it cannot be presume that the proprietor
had give his consent to the category of the goods imported[17]. Although, the Trademark proprietor’s consent can be
implied in some situations, but
it is to be drawn by the facts and circumstances preceding the placing of the
goods within market.[18]
(2)Legitimate
reasons
A
large amount of cases concerning doctrine of exhaustion of rights within EEA
are raised from the importation of pharmaceutical products. The problem arises
where the parallel importer has to repackage or make adjustments to the marked
goods, before they are put into the market, so that they are acceptable to the
targeted consumers. This situation is based on the rule of necessity, where the goods have to be altered, to ensure
that the goods enjoy the same competitive advantage. The parallel importer
might have to change the language on the product or change the standard size or
quantity of the marked goods due to the national laws of the importing country
or even has to affix a different trademark, where the trademark owner uses
different trademark in different countries within EEA. At this stage the
trademark proprietor has the right to prevent the parallel importer from
importing marked goods as it will be considered as a “legitimate reason” with
the preview of Para (2) of Article 7.
The
legitimate reasons may be categorised into two:
1. Affixing
a different Trademark or Repackaging/Relabeling/Rebranding
2. Advertising
parallel imports
Affixing
a Different Trademark
A problem arises where the trademark owner uses
different trade marks for the same product in different territories within the
EEA, this prohibits the parallel
importer from affixing trade mark that trademark owner uses for the importing
country. This situation is called artificial partitioning of the market, where
the trademark owner uses different trademarks within the EEA to partition the
EEA into separate territorial markets. This is contrary to the goal of
achieving a single market. However this problem could not be resolved by just
giving parallel importer an unqualified right to affix a different trade mark
as it will undermine the legal and economic significance of the trade mark. To
tackle this situation ECJ in Bristol-Myers
Squibb[19]
gave a set of three conditions which the parallel importer has to satisfy
before putting the goods into the market. These conditions are as follows[20]:
(a)
Use of trademark
rights to prevent imports would contribute to artificial partitioning of
markets between the Member states,
(b)
The repackaging
did not adversely affect the original condition of the product, and
(c)
The parallel
importer complied with certain obligation as to labelling and provision of
sample:
Condition
(A) - Artificial partitioning of markets between the Member states.
A case where the issue of artificial partitioning and
relabeling[21]
was involved was the loendersloot case[22],
where the loendersloot, removed the word “pure” and the name of the importer
from the whiskey bottle and relabelled it and imprinted his own name as a
parallel importer, the ECJ agreed with the defendant and held that it was necessary to remove the word “pure” and importers
name from the whiskey bottle to be marketed in a particular member states, as
without so it was impossible to import (due to national restrictions) and then
Bellantine’s right on its trade mark right would contribute to the artificial
partitioning of the markets[23].
Condition
(B) adversely affecting the original condition of the goods
If
the owner of the trademark show that the condition of the goods have changed or
impaired before putting into the market then the rule of exhaustion will not
apply and he will rest with all the right to prevent such import.
One
of the first case on the “change or impairment” was involve was the Levis case[24],
where the German court held that the bleaching and then dying the jeans in to a
different colour was regarded as modifying the jeans and this act would
adversely affect the Levis brands and the doctrine of
exhaustion cannot be applied here. According
to the ECJ in BMS case[25],
in case of a situation where the goods have been changed or impaired this will
be the matter for the national courts to assess on cases by case basis. And the
ECJ has laid down some guidance for the national courts.
Condition
(C) - labelling and provision of sample
Under this condition the parallel importer has to
comply with certain condition concerning the labelling and has to provide an
advance notice and a sample to the trademark proprietor. The parallel importer
has to indicate on the external packaging as to who repackaged the goods and
also if the parallel importer had added an extra product in the package then he
has to indicate that product added in the package is not associated with the
trademark owner. In Sony Computer
Entertainment Inc vs. Tesco stores Ltd,[26]
Lloyd J held that “parallel importer did not have to say explicitly that it had
repackaged the product with an additional article, but he was not sure that it
had done enough by the notice on the packaging to dispel the impression that
Sony was responsible for it”.
The requirement of an advance notice to be given by
the parallel importer to the owner of the trademark is a prerequisite to all
the conditions of the BMS. It is to ensure that the proposed repackaging
actually does affect physical or mental condition of the goods, to give an
opportunity to object to their sale. This requirement does not only apply on
pharmaceutical products but to other product too (whiskey bottle)[27].
So in light of above cases it is clear that the
parallel importer has to stick to all the guidelines which are laid down by ECJ
in BMS vs. Paranova[28]
for repackaging or relabeling or rebranding to prevent there good from being
detained. The trademark owner has the right to prevent the parallel importer
from importing marked goods, and placing it within EEA, only when the importer
does not comply will all the BMS conditions.
Advertising
parallel imports
Under article 7 of the directive, it is possible that
the owner of the trade mark can prevent the parallel importer on the basis of
repackaging of good, but the owner of the trademark may also prevent the
parallel importer on advertising of the good. An important case on this
situation was Perfumes Christian Dior SA
vs. Evora BV. ECJ held that once the goods are place in the market the
owner’s rights are exhausted and the reseller may advertise the goods to spread
awareness to the targeted consumers. But when applying the BMS condition the
ECJ held that the owner of the trademark can prevent the parallel importer from
advertising the products if the advertisement adversely affects the reputation
of the trademark (damage the reputation)
Although it is not clear that from the decision of the
Perfumes Christian Dior SA vs. Evora BV, that
does this principle apply only to luxury goods only. But ECJ had cleared that the principles which
have been developed in the court’s case law relating to trademark shall apply
to all the forms of the intellectual property right.
[1] Article 6 of TRIPS
agreement http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm
on 21/2/2011
[2] Parallel imports by NAMRATA SHARMA http://jurisonline.in/2008/09/parallel-imports/
on 21/2/2011
[3] “Article 34 of TFEU, prohibits any legal restrictions on the
movement of goods between member states for further marketing unless the
restrictions can be justified on grounds of the protection of “industrial and
commercial property”. However, Article 36 of the TFEU qualifies the exception
by providing that the protection of property rights should not constitute a
‘means of arbitrary discrimination or a disguised restriction’ on trade between
member states and that any derogation from the principle of free movement must
be limited accordingly”.
[4] The treaty
of Rome , http://ec.europa.eu/economy_finance/emu_history/documents/treaties/rometreaty2.pdf
on 21/3/2011
[5] The corresponding provision has been incorporated in the Article 13
of the CTMR.
[8] By international trademark association, Parallel imports: summery
of EU law and its application in the EU member states (2005) page 5, http://www.docstoc.com/docs/7024665/Parallel-Imports-Summary-of-EC-Law-and-wbr-its on 23/3/2011 “On the question of
international exhaustion of the rights conferred by the community trademark,
the commission has formed the opinion that the community legislation should
refrain from introducing this principle and make do with the rule of Community
– wide exhaustion. The community must, however, be empowered to conclude, at
some future time with important trading partners, bilateral or multilateral
agreements whereby international exhaustion is introduced by the contracting
parties. The restriction to community-wide exhaustion, however, does not
prevent national courts from extending this principle, in case of special
nature, in particular where even in the absence of a formal agreement,
reciprocity is guaranteed”
[9] (Case C-355/96) [1998] E.T.M.R. 539
[17] Sebago v. G-B Unic
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