This article is written by Simran Sanjay Doshi, Studying at Kes ‘Shri Jyantilal H. Patel Law College, L.L.B, 1st Year during her internship at Le Droit India.
SCOPE OF THE ARTICLE
1. Introduction
2. Meaning and Nature of Gray Market Goods and it’s Distinction from Counterfeit Goods
3. The Concept of Parallel Imports and the Doctrine of Exhaustion of Rights
4. Legal Framework governing Gray Market Goods in India
5. Landmark Decisions and their Judicial Impact
6. Benefits of Gray Market Goods
7. Legal Challenges and Commercial Concerns
8. Comparative Analysis: India’s Position v. Other Jurisdictions
9. Issues emerging in the Digital Era and Way Forward
10. Conclusion
11. References
Abstract:
In the International market the contemporary concept of the gray market or the parallel imports has grown as the legal issues of trademarks increases. This concept though very curious yet a very controversial topic worldwide. Parallel imports are the products imported which are genuine or original but such import is without the consent or the authority of the trademark owner in a country and reselling it after adding the profit margin to it.
Under this an example can be, Suppose that you buy a real Iphone or branded perfume that is sold in a price cheaper than India and from that country you purchased and resale in India at a price relatively higher but not as much as of the authorized network. This article examines the legality of such parallel imports through the landmark decisions. The benefits and the legal challenges or issues concerned to this grey market goods is also discussed and an analysis of it was compared with other jurisdictions.
Key Words: Gray market goods, Parallel imports, Trademarks, Genuine goods, Import of goods, Exhaustion, Jurisdictions.
Introduction
The term Gray market goods refers to a branded genuine goods which are obtained from one market or economic area or jurisdiction, than that are subsequently being imported into another market and without the consent of the trademark owner these goods are being sold there. In basic sense, it can be said these goods are directed from an authorized distribution channel to any unauthorized seller or outside the distribution channel which is not lawfully permitted.
This article concisely lays down the question as to the legality of this parallel imports and also the conflict of this goods with the collective rights of the Intellectual Property Rights holder and consumers involved in this gray goods transactions. It also provides for the legal position of such goods in India and the opinions of the courts in India.
Meaning and Nature of Gray Market Goods and it’s Distinction from Counterfeit Goods
The goods brought from different network other than the network which is authorized and it is sold at a cheaper price generally than the authorized dealer’s price. These goods are produced and sold legally only and any illegal or not original goods are not sold as they are implied as they can somehow be misleading. A question arises what’s so gray about?
The gray is not about the goods itself but it is about the channel of distribution by which the goods find their ways to the importing country. Such sales they create havoc for the entrepreneurs who sale through these authorized dealers expensively. And to unwelcome such a competition they argue that if products comes under the Intellectual Property Rights like Trademarks, Copyrights, Patents then the rights will protect such sale as infringing the rights.
These are distinct from the counterfeit goods as these gray goods are genuine goods as they are manufactured by, for or under the license from the owner of trademark under the concerned jurisdiction. However, they are imported to markets not authorized by trademark owner even though they are been formulated, packaged, or license only for the particular market. It cannot be called fake, even though it has not been sold through the official channels of the company.
The Concept of Parallel Imports and the Doctrine of Exhaustion of Rights
Concept of Parallel Imports:
The parallel imports are simply the products that are original which are imported into the country without authorization of the trademark owner and after that it has been lawfully sold elsewhere. They use the legitimate channels as they are genuine products and not similar to counterfeit goods.
An illustration stating the basic concept of parallel importation is:
In India, Mr. A is an importer of the gray goods. A hypothetical product, say a book was available for sale at INR 2000 in India and the same was available at INR 1200 at Bangladesh. Mr. A legally imports the book from Bangladesh and the further sold it in India adding some profit margin to it but not more than the price of the authorized dealer.
Doctrine of Exhaustion of Rights:
The limit to the Intellectual Property or the period during which the Intellectual Property Rights holder of a given product will have no longer control over that product. According to this concept, once the Intellectual Property Rights holders sells a product in a particular market they are subject to a limited exception which it cannot prevent the resale of that product in the market.
The Intellectual Property Rights covering the products that gets exhausted by the first sale and hence it is also called as Doctrine of First Sale. This doctrine basically means that the owner if once sells in the market his products or services then the exclusive control gets lost to sell or distribute the products or services. Hence, with the first sale there is exhaustion of rights of owner exclusively of the sale and distribution of products or services.
Types of Exhaustion:
- International Exhaustion: This theory regards the world as one market without any territory, where the brand owner rights exhaust when the product gets sold in any part of the world.
- National or Regional Exhaustion: The rights are exhausted only in the jurisdiction or region where they are first put on the market. Under this, once a product is legally sold in domestic market or any particular region, the rights of brand owner exhausts and cannot further claim profits over the product. The prominent example can be the European Union wherein the exhaustion covers the European market.
Hence, the legality of the parallel imports is largely governed by this doctrine of exhaustion and is being followed by different countries.
Legal Framework governing Gray Market Goods in India
The policies in relation to parallel imports are yet to be set up in India. The legal framework are to be made in relation to the Copyrights, Trademarks and Patents.
In relation to the Copyright Law in India under the Section 14(a)(ii), there is no static clarity as till date concerning the parallel imports. Under the Penguin Books Ltd v, M/S India Book Distributors (1984) (AIR 1985 Delhi 29) , it was held that while selling this publication books in India by importing it from USA the authorized copies of books imported without the authorization of the Intellectual Property Rights holder, the defendant has caused secondary infringement of the Intellectual Property Rights of the Plaintiff. Later, these sections amended in 1994 validating the parallel imports on literary, dramatic and musical works other than computer programs.
At present, regarding the Indian Patent Act, 1970 there is considerable ambiguity pertaining to the interpretation of the Section 107A(b).
With relation to the Trademark Act, 1999 it recognized the validity of the Section 30(3) in the judgement and acknowledged the idea of international exhaustion of Intellectual Property Rights and also permitted parallel imports carried on by defendants but with certain conditions. The legal question which involves parallel imports is still being stood under the Indian boundaries unsettled.
Therefore, Intellectual Property laws remains ambiguous with no concrete law governing gray market goods which makes to ascertain the legality of these gray market goods almost impossible.
Landmark Decisions and their Judicial Impact
1. Kapil Wadhwa and Ors v. Samsung Electronics Co. Ltd. and Anr (2012)( Del 5172)
Facts: The Kapil Wadhwa he imported genuine Samsung products from abroad without the Samsung India’s permission, who registered trademarks ‘Samsung’ in India. This were sold in lower price in India and these products they were original that is not counterfeit goods and due to this Samsung file a suit alleging the infringement of trademark.
Judgement: Under the Delhi High Court it was held that under the Section 30(3) of Trademark Act, 1999, the parallel import is considered legal of the genuine products. As the Indian legal system follows the International Exhaustion Doctrine, if there are any legitimate reasons the trademark owner can object under Section 30(4) of the Trademark Act,1999 like the alteration of the goods or confusion of consumers regarding warranty and quality.
This case establish the genuine parallel imports generally to be legal in India, while balancing the rights of trademark owner with the consumer choice.
Principle:
- Section 29 = Trademark Infringement
Under this registered trademark it defines Act which amount to infringement when any unauthorized use causes confusion or violated trademark rights.
- Section 30(3) = Exhaustion of Rights
If the trademarked genuine goods are acquired lawfully and are resold after being out on the market by the proprietor or with their consent which forms the legal basis for parallel imports.
- Section 30(4) = Exception
Where the trademark owner to stop the resale if: the goods are damaged or alter, Consumer’s are being mislead with regard to warranty or quality, or any other reasons which felt to be legitimate.
2. Western Digital Technologies Inc. v. Mr. Ashish Kumar and Anr
Under this the Plaintiff obtained trademark registration from the Custom authorities under the Intellectual Property Rights (Importing Goods) Enforcement Rule, 2007, where the plaintiff are entitled to specifically prevent the infringement of goods bearing trademark. The defendant was importing through the unauthorized channel even through the genuine goods were only imported. However, under this the current Indian law if certain compliances are adhered then the parallel imports are permissible and brand owner should intimate action if not original or as such the nature which destroys goodwill or reputation of the trademark. ‘
Benefits of Gray Market Goods
There are many advantages which are there but with a great controversy regarding who makes the benefit from such gray market goods or parallel imports. It most benefits the growth of market competition and also the lowering prices of products which are made available to the consumers. There is an increase in the consumer welfare due to this. The products which are not generally available it is also possible to be sold to consumers at the affordable prices. There are great products availability enhancing the consumer powers. This also helps in preventing the monopolies by the exclusive dealers in the market.
Legal Challenges and Commercial Concerns
The major issue is regarding whether these parallel imports they violate the trademark rights. There are challenges faced while differentiating between the genuine goods and the counterfeit goods. There is also a concern to the manufacturers as no official warranty is being received in India for such imported goods. The commercial differences with regards to the packaging, accessories, manuals, etc having a different specifications of the products. The consumers may be confused and they may assume that it is covered under the authorized owner only. There can be even lack of awareness regarding the warranty and the issue to render on time the after sale service support.
These parallel imports they bring a major challenge for the official distributors as it reduces their profits due to which they suffer financial losses and have to face unfair competition.
Comparative Analysis: India’s Position v. Other Jurisdictions
1. India: In India the parallel import of genuine goods is generally permitted under the Section 30(3) of Trademark Act, 1999. India which follows the International Exhaustion Doctrine. Here, there is also an approach which is relatively consumer friendly as under the Section 30(4) of Trademark Act, 1999 which preserves the protections under the trademark.
2. US: It focuses on whether the goods imported are materially different and they are subject to certain exception and judicial interpretation which is recognized on basis of the international exhaustion.
3. European Union: This follows the Regional exhaustion, where the goods within the European Union Members can move freely but may require the authorization if want to import outside the European Union.
4. Japan: Under this it protects both the trademark owner and the interests of the consumers, allowing the products if genuine then only parallel imports are permitted and hence protects that the consumers are not misled.
Issues emerging in the Digital Era and Way Forward
There are rapid growths in the e-commerce like the Amazon, eBay, Flipkart which helps to facilitate the cross-border purchases. The increase in the cross border online shopping where the consumers buy directly the genuine goods from the foreign sellers. The online platform may bring a difficulty in monitoring the unauthorized parallel imports. There are even challenges in understanding the after sale service issues and the limitations of the warranty.
The future outlook can be that the law should try to maintain a balance between consumers access to affordable genuine products and the protection of the trademark rights in the evolving digital marketplace.
Conclusion
In India’s situation concerning the legality of gray market goods is still evolving and the Indian Courts needs to clarify it. The concerning law regarding parallel imports and the Intellectual Property Rights is still developing and premature in India. While the other jurisdictions around the world sets different criteria concerning the gray markets and also opts the means to regulate such markets. The basic objective of this trademark law is being made consistent which helps prevent consumer confusion and at the same time protects the goodwill of the firms.
On the very outset it can be look that the gray markets are tempting to the consumers as they benefit them giving at lower prices the authenticated products. Thus, the savings of the Intellectual Property Rights holder and to increase the confidence in the market. It also becomes necessary that proper protection is offered which provide a benefit to the manufacturers who are subject to this public policy.
Thus, with rapid growth in the international trade and digital commerce, India must continue to refine its legal framework to strive a fair balance between the market competition, consumer welfare and the trademark protection.
References
2. Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007
4. https://www.sciencedirect.com/science/article/abs/pii/S0144818898000325
5. https://blog.ipleaders.in/grey-market-legal-india/
7. https://law.uh.edu/hjil/articles/hjil-22-2-swanson.pdf
8. https://nualslawjournal.com/2020/09/26/grey-markets-the-enigma-in-ipr-law/
9. https://ssrana.in/articles/india-legality-of-parallel-imports-vis-a-vis-trade-marks-law/
