Australia’s current position on parallel importing: ‘Proceed with caution’

David Moore
26 Aug, 2011

A recent case has opened up a limited means for registered trade mark owners to prevent the parallel importation of products to Australia. For importers, this creates uncertainty over whether or not products can safely be parallel imported.

This article takes a general look at parallel imports in Australia and considers what impact the court ruling may have on importers.

Parallel importing

Parallel importing is the importation of genuine products into a country, without the permission of the incumbent authorised distributor. In other words, parallel importing is when an importer finds a cheaper price for a genuine product on the world market and imports the goods for sale at a price that undercuts the existing local prices set by the owner and local distributor.

Traditionally, government policy has supported parallel importing, save for certain categories of protected products. In theory, parallel importation increases competition and forces prices down for consumers. Brand owners, manufacturers and suppliers have typically resisted parallel imports because they undermine existing distribution channels and result in products tailored and priced for a specific overseas market being distributed in a different region, where they may not meet local regulations or consumer expectations.

Potential copyright or trade mark infringement

Over the years, intellectual property rights holders have attempted to assert either copyright or trade mark infringement as a means of preventing parallel imports. Most cases have been decided in favour of the importer. For example, generally speaking, the importer will not infringe a registered trade mark if the trade mark applied to the parallel imported product was done so with the consent of the owner of the Australian registered trade mark (see section 123 Trade Marks Act 1995 (Cth) (Trade Marks Act)).

The ‘Montana Case’ (Transport Tyre Sales Pty Ltd v Montana Tyres Rims & Tubes Pty Ltd (1999) 93 FCR 421) considered a situation where the parallel importer (Montana) acquired tyres in Singapore and exported them to Australia. The tyres were originally manufactured in Japan and the trade marks were applied to them by the brand owner. There was no question that the sale of the tyres in Australia was ‘use’ of the trade mark. However, s123 of the Trade Marks Act provides that ‘a person who uses a registered trade mark in relation to goods … does not infringe the trade mark if the trade mark has been applied to… the goods by, or with the consent of, the registered owner of the trade mark’.

Use of the trade mark ‘in relation to’ the goods was found to extend to advertising of the goods.

Some restrictions

There are currently some restrictions on parallel importing in Australia, which can be found in the Copyright Act 1968 (Cth) (Copyright Act). These restrictions are designed to protect local retailers, manufacturers and suppliers who may otherwise face tougher competition from cheaper imports.

For example, the parallel importation of books is not permitted unless the book was first published overseas and then is not published in Australia within 30 days of first publication. There are a few other exceptions, but the general position is that Australian publishers and authors are protected from being undercut by cheap overseas imports.

There has been debate over whether parallel import restrictions should be lifted completely in respect of books. Bodies such as the International Publishers Association are against the lifting of restrictions, believing a lack of protection for Australian authors and publishers would be detrimental. However, the Australian Government Productivity Commission recommended in their ‘Copyright Restrictions on the Parallel Importation of Book Research Report’ (dated 14 July 2009) that parallel import restrictions in the Copyright Act be repealed, giving three years’ notice to facilitate industry adjustment. However, this recommendation was rejected by the government on 11 November 2009 for the stated reason that removing the restrictions would adversely affect Australian authors, publishers and culture.

Recent case

The recent decision of Sporte Leisure Pty Ltd v Paul’s International Pty Ltd (No 3) [2010] FCA 1162 (29 October 2010) introduces an element of doubt for importers who might otherwise believe they are protected by the s123 defence to trade mark infringement discussed above. In other words, ordinarily an importer would expect that genuine parallel imported goods have had the trade mark applied to them with the consent of the owner.

An Indian Company, BTB Marketing PVT Ltd (BTB), had a licensing agreement with Greg Norman Collection Inc (GNC). Under the licensing agreement, BTB was only able to apply the GNC trade marks to garments sold by it in India.

A Pakistani Company, Sunsports (BVI) Limited (Sunsports) sought to acquire products from BTB for supply outside of the Pakistani market; however, BTB did not know that Sunsports planned to sell the goods outside that market. The goods eventually ended up in the hands of Paul’s International Pty Ltd (Paul’s International) in Australia.

Did GNC consent to the use of its trade mark on products manufactured for BTB for sale to Sunsport? The court found:
‘[w]here a registered owner consents to another person applying the registered mark to goods on condition that the goods must not to be supplied outside a designated territory, the registered owner would not [emphasis added] usually be regarded as having consented to the application of the mark to goods which the other person knows at the time he or she applies the mark are to be supplied by him or her outside the territory’.

It was found that GNC had not consented to use of the trade mark on goods that were to be supplied outside of the defined territory; hence Paul’s International could not rely on the defence provided by s123 of the Trade Marks Act.

Consequently, Paul’s International had breached the Trade Marks Act; section 120 provides that a person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered.
This recent decision is consistent with the position that a brand owner has consented to the use of its trade mark once it has licensed another party to manufacture products bearing the mark. However, the case looks more closely into what is meant by ‘consent’. Frequently, the courts have favoured the importer and held that any manufacture, anywhere in the world of genuine goods under licence, has been done with consent. In the above case, it would seem that Paul’s International was the last party to obtain the goods in a chain of events that lead to their arrival in Australia. However, express restrictions placed by the brand owner on its licensees meant that it had not in fact consented to the use of its trade mark for the Australian market.
An onus lies on importers to make relevant inquiries about the conditions of supply of their goods before importation.

Current position in Australia

The current position in Australia is that importers may be liable for trade mark infringement if they import goods where the brand owner’s consent to the use of its trade mark on the goods is expressly for specific territories.

If the decision discussed above is to be followed by the courts, the onus will be on parallel importers to be aware of any territorial restrictions that could apply to goods they are importing. Importers should proceed with caution when importing goods for trade in Australia.
Importers should also review the warranties they obtain from overseas suppliers so as to transfer some of the burden onto the supplier to ensure that the brand owner’s consent to the use of its trade mark is not ‘conditional’.

Note: The Sporte Leisure Pty Ltd v Pauls Warehouse International Pty Ltd case is currently under appeal

First published in Inside Retailing Magazine.

Authored by David Moore and Lauren Bartlett, Cornwall Stodart