Intellectual Property update: The new parallel importation defence to trade mark infringement ― more black and white than grey?

Feb 19, 2019

It has now been six months since the assent of the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Act 2018, which (amongst other things) introduced a new parallel importation defence at section 122A of the Trade Marks Act 1995 (Cth) (Trade Marks Act). While it may be early days, the courts are yet to consider the new defence and hand down a decision to guide us on its operation. Could it be that the changes to the parallel importation defence are actually more black and white, than grey?

Our latest Intellectual Property update provides a reminder as to how the importers of grey goods may benefit from the recent changes to the Trade Marks Act.

What is grey about parallel importing?

Parallel or grey importing occurs where a supplier imports and sells products upon which a trade mark has been applied, in a country outside of the trade mark owner’s or authorised licensee’s official distribution channels. While the products are genuine (not counterfeit), the sale by the parallel importer is not authorised by the owner of the trade marks.

The grey market is most commonplace in e-commerce where online retailers can enjoy the art of arbitrage i.e. selling cheap goods by taking advantage of the differences in pricing levied for the same product across different countries. The grey market is an opportunity for sellers to import and sell products at a cheaper price than the official distributor or licensee may charge.

The relationship between the law and parallel imported goods is often a bedevilled one.

New parallel importation defence provides greater clarity to an uncertain area of law

In a win for competition, the Government has provided some clarity to this uncertain area of law by introducing a new parallel importation defence at section 122A of the Trade Marks Act.

The new defence will protect a parallel importer against a claim for trade mark infringement if the following three criteria are met:

  • similar goods: the goods that parallel importer is selling are similar to goods in respect of which the trade mark is registered;
  • reasonable inquiries: before the time of use, the importer had made reasonable inquiries in relation to the lawfulness of the use of the trade mark; and
  • trade mark applied with consent of 'relevant person': a 'reasonable person' (objective test) after making those inquiries, would conclude that the trade mark had been applied to the goods by, or with the consent of, a relevant person at the time of the application or consent (as the case may be).

Reasonable inquiries

There is no clear cut formula to follow in order to satisfy the 'reasonable inquiries' condition of the defence. Whether or not reasonable inquiries have been made is a question of fact based on the particular circumstances (i.e. determined on a case-by-case basis).

In explanatory materials associated with the new legislative changes, the Government has indicated that requesting and receiving a certificate of authenticity from the supplier will ordinarily be sufficient for a parallel importer to have made 'reasonable inquiries' and entitle it to rely on the defence. However, further inquiries may be required in certain circumstances, such as where the grey goods are offered at suspiciously low prices or obtained from a supplier that is widely known or suspected to supply counterfeit products.

Relevant person

For the benefit of parallel importers, 'relevant person' is defined broadly and may be someone other than the owner of the trade mark who can provide consent, including:

  • an authorised user of the trade mark;
  • a person permitted to use the trade mark by the registered owner;
  • a person permitted to use the trade mark by an authorised user who has power to give such permission;
  • a person with significant influence over the use of the trade mark by the registered owner or an authorised user; or
  • an associated entity of a relevant person.

Old law and conservative view replaced with more clarity

A string of court rulings prior to the introduction of the new parallel importation defence cast doubt over the legality of importing grey goods into Australia. The relevant 'consent' element to the old defence under section 123(1) was interpreted conservatively by the courts, to the disadvantage of parallel importers. Section 123(1) has now been repealed and replaced with section 122A.

Broadly speaking, the new defence introduced by section 122A limits the ways in which trade mark owners were previously able to use the law to restrain and/or attack parallel importers (e.g. through corporate restructuring). The intention of the new section is to clarify the defence and reduce uncertainty for parallel importers.

Significantly, the 'consent' requirement may still be satisfied even if the consent was provided by a relevant person subject to a condition. An example of such a condition may be that the goods are only to be sold only in a particular country. The practical implication of this expanded meaning of consent, is that the defence may still be available to a parallel importer even where the trade mark had been applied in breach of a geographical restriction in a licence agreement, provided of course that the parallel importer was not aware of this breach, had made reasonable inquiries of the supplier of the goods and reached a reasonable conclusion that the trade mark had been applied to the goods with the consent of the relevant person. 

The fundamental change the legislation has brought about, is that the registered owner’s rights are 'exhausted' following the initial application of the trade mark to the goods.

Warning!

While these legislative changes are good news for parallel importers, there remains a few words of caution:

  • Certain grey goods imported into Australia may face additional regulatory hurdles prior to being lawfully available for sale e.g. electrical goods and therapeutic goods.
  • If you have actual or constructive knowledge of contractual restrictions imposed upon the supplier of the relevant goods you cannot rely on the new defence.
  • As with any new law, until this section is considered by the Courts, there will remain uncertainty as to exactly how the ‘reasonable inquiries’ condition will be satisfied

Parallel importers are advised to keep proper records of inquiries and findings in respect of trade marks associated with grey goods to be in the best position to rely upon the new defence now provided by section 122A.

More information

For more information, or to discuss any of the issues raised in this update, please contact Jeremy Goldman, Principal Lawyer, on (03) 8600 8886 or jgoldman@kcllaw.com.au, or Dana Morrison, Lawyer, on (03) 8600 8809 or dmorrison@kcllaw.com.au.

Author

More information on the author, Dana Morrison.

Note: This update is a guide only and is not intended to constitute legal advice.

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