Combating Parallel Import

[Dinesh Kumar Agrawal]

Dinesh Kumar Agrawal, Grad. CWA, ACA

(Former Assistant Commissioner of Excise and Customs)

A parallel import is an import of non-counterfeit branded goods without permission of the brand owner. Parallel import takes place when a branded goods sold by the brand owner in a foreign country is exported by a buyer to another country wherein the same brand, duly registered, is held by a person other than the importer.

The brand owner, an inventor or licensee or agent of the inventor or licensee, once registered under the relevant Act enjoys exclusive legal rights ('IP rights') over the use of the registered brand. A registered brand enables control and monopoly of the brand owner over the branded product as a reward for all the labour, money and time he puts to bless society with something which was never existed before. In India, The Copyrights Act, 1957, the Trade Marks Act, 1999, the Patents Act, 1970, the Designs Act, 2000 and the Geographical Indication of Goods Registration and Protection of Goods Act, 1999 (cumulatively 'IP Laws') permits registration of copy rights, trade mark, patent, design and geographical indication (cumulatively 'Intellectual Property' or 'brand') respectively.

Parallel imports usually reduce profit of brand owner as the imported goods are sold at a lower price then the price of brand owner. It not only makes dent to the profitability of the brand owner but also harms the reputation of the brand. For instance various products are customized for the local environment and parallel imported product, not so customized, fails to meet the desired level of performance and hampers the reputation of brand.

Under the IP Laws, import and export of branded goods by person other then brand owner is an infringement of the exclusive rights held by the brand owner. However, till recently, import of goods infringing IP rights was not prohibited or restricted either under the Customs Act, 1962 ('the Customs Act') or the Foreign Trade Policy ('FTP') issued under the Foreign Trade (Development and Regulation) Act, 1992 which governs trans-border movement of goods in India. However, import of spurious goods is prohibited vide Notification No. 1/Cus. (N.T.) dated 18 January 1964 issued under Section 11 of the Customs Act.

Parallel import has been a sensitive and emotive issue for the brand owner as well as importer. Importers argued that there is no infringement due to doctrine of 'international exhaustion of rights'. On the other, brand owners were cribbing about cumbersome process of protection against parallel import in the civil courts. The principle of domestic and international exhaustion of property rights has been subject matter of various litigations all over the world. In the case of BBS Kraftfahrzeug Technik AG,FederalRepublic of Germany v. Nippon BBSKabushiki Kaisha, Tokyo(1997), the Supreme Court of Japan held that principle of international exhaustions will be applicable unless there is a specific agreement between the right holders to preclude the international exhaustion. On the other hand, in the case of Zino Davidoff S.A. v. Levi Strauss & Co. (2001), the European Court of Justice and in the case of Samsung Electronic Co. Ltd. v. G Chaudary (2006), the High Court of Delhi held that parallel import of branded goods amount to infringement of IP rights.

India is a signatory of Trade Related Aspects of Intellectual Property Rights ('TRIPS'), which prohibits cross border movements of goods infringing IP rights. In compliance of TRIPS obligation, the Government of India has notified the Intellectual Property Rights (Imported Goods) Enforcement Rule 2007 ('the Rules') vide Notification No. 47/2007-Cus. (N.T.) dated 8 May 2007. In terms of the Rules, import of goods infringing IP right without the consent of right holder is prohibited under Section 11 of the Customs Act. The Rules lays down a detailed procedure for regulations for prohibitions of parallel import.

Under the Rules, the brand owner is required to give a notice, in the prescribed format, to the customs requesting for suspension of clearance of goods suspected to be infringing IP right. Such notice will be registered by the customs on execution of an indemnity bond and the brand owner has to indemnify customs against all liability and expenses on account of such suspension of imported goods. On registration import of all goods suspected to infringe the IP rights will be suspended and proceedings for confiscation of goods will be initiated under Section 111(d) of the Customs Act. Confiscated goods will be either destroyed or disposed off outside the normal channel of commerce with the consent of the brand owner. The brand owner is also required to bear the costs towards destruction, demurrage and detention charges incurred till the time of destruction or disposal, as the case may be. The Rules do not apply to personal baggage or small consignments intended for personal use.

The Rules enable the brand owner to combat menace of parallel import in a hassle free, timely and cost effective manner. In highly competitive market where reputation of the brand decided existence of a product and the company, it is a golden opportunity to the brand owners to protect reputation of the brand and restrict damages from the parallel import thus increasing profitability of the company.

The author may be contacted at mail2dka@gmail.com or +91 99 6937 5261 or +91 22 2624 1646