By Bob Brewer, Braumiller Law Group
At the core of the definition, a Parallel import is a non-counterfeit product imported from another country without the permission of the intellectual property owner. They are also goods that are not authorized for importation into the U.S. It’s a global phenomenon, a very grey area, and their presence varies across different parts of the globe. For example, in the European Union, parallel imports are generally allowed, while in the United States, they are prohibited. Reason being, Parallel imports can have significant implications for intellectual property (IP) rights, affecting both the rights holders and those involved in the importation and distribution of parallel-imported goods. It’s important to note that the legal treatment of parallel imports varies among jurisdictions, and the impact on intellectual property rights depends on the specific laws and regulations in place. IP holders often seek legal remedies to protect their interests, and legal disputes often arise when parallel imports are involved.
IP is the central point of contention regarding parallel imports. There are a couple different exhaustions of rights. International Exhaustion: In some jurisdictions, the principle of international exhaustion of intellectual property rights applies. This means that once a rights holder or an authorized distributor places a genuine product on the market with their consent, the rights holder’s exclusive rights are considered exhausted. Parallel imports of such goods are then generally allowed. National Exhaustion: In contrast, some jurisdictions follow the principle of national exhaustion, meaning that the exhaustion of IP rights occurs only within the specific national market where the product is first sold. In such cases, parallel imports from other countries may be considered a violation of the rights holder’s exclusive rights.
In addition to IP, there are a variety of other areas affected. For instance, impact on trademarks via brand image and consumer confusion: Parallel imports may lead to situations where genuine products are sold outside the authorized distribution network. This can result in consumer confusion, potentially harming the brand image. If the quality of parallel-imported goods is inferior or inconsistent, it will negatively impact the reputation of the trademark.
Parallel imports may involve products protected by patents or trade secrets. Unauthorized importation and distribution of such goods may lead to patent infringement or misappropriation of trade secrets, potentially exposing the parallel importer to legal action. Copyright issues can also be a point of contention via reproduction and distribution rights. Copyrighted works, such as books, music, and software, may be subject to parallel imports. Unauthorized reproduction and distribution of copyrighted materials may infringe on the rights of the copyright holder. Design rights must also be taken into consideration through review if there is a design infringement since distinctive designs may raise issues related to specific rights. If the design is protected, importing and selling goods without the consent of the rights holder may constitute design infringement. Which brings us to, the violation of licensing agreements that should be considered between the rights holder and authorized distributors. These violations often result in legal consequences for the parallel importer. Within the realm of regulatory compliance there are also policies regarding product registration and compliance. In some industries, such as pharmaceuticals, parallel imports may need to comply with regulatory requirements specific to each market.
All of the aforementioned areas of contention beg the question, just where primarily is this parallel importing taking place, legally? Here are a few more examples of countries that are amenable to parallel imports most taking into consideration the principal of international exhaustion of intellectual property rights:
As previously mentioned, the EU generally allows parallel imports among its member states via the principle of exhaustion of intellectual property rights. In the U.S., the legality of parallel imports is influenced by various factors, including the type of product and the specific intellectual property rights involved. In some cases, the First Sale Doctrine may apply, allowing the resale of legally purchased goods. However, there are exceptions and complexities, and parallel imports may face legal challenges. Down under, Australia generally allows parallel imports, and the principle of international exhaustion of intellectual property rights applies. This means that if a product is legitimately placed on the market by the rights holder or with their consent anywhere in the world, it can be freely imported and sold in Australia.
The kiwis agree, and New Zealand is similar to Australia, as it generally allows parallel imports via the principle of international exhaustion of intellectual property rights being recognized, allowing the free importation of goods that have been legitimately placed on the market elsewhere. Oh Canada: Canada permits parallel imports in most cases via the principle of exhaustion of intellectual property rights. This allows for the resale of goods that have been legitimately placed on the market by the rights holder or with their consent. Back east, Japan generally allows parallel imports, and the principle of international exhaustion of intellectual property rights is recognized. However, there may be restrictions in certain cases, and legal challenges can arise. South Africa allows parallel imports, and the principle of international exhaustion of intellectual property rights is recognized. The Competition Act in South Africa also addresses issues related to parallel imports.
So, with all of the potential legal action that may take place globally are there real advantages to parallel importing? The short answer is yes, and the long answer is as follows: A cost savings for consumers is well recognized as parallel imports can lead to lower prices for consumers. Since parallel imports often bypass traditional distribution channels, the products may be available at a lower cost than those distributed through authorized channels. There is also an underlying benefit of increased competition since Parallel imports introduce additional competition into the market. This can incentivize authorized distributors and manufacturers to become more competitive in terms of pricing, quality, and services to maintain their market share. Market efficiency is also enhanced as Parallel imports can contribute by ensuring that products are available to consumers at the right time and place. This can help prevent shortages and ensure that demand is met, especially for products with limited availability. In addition to efficiency, Parallel imports can also expand the range of products available to consumers, providing them with more choices. This can be particularly beneficial if consumers prefer certain variations or versions of products that are not readily available through authorized channels. These noted consumer advantages put pressure on manufacturers to adopt more uniform pricing across different markets. If prices vary significantly between countries, consumers may be more inclined to seek parallel imports, prompting manufacturers to adjust their pricing strategies. Within the big picture, in a globalized economy, parallel imports can be seen as a natural consequence of international trade. They can facilitate the movement of goods across borders and contribute to a more interconnected global marketplace.
Keep in mind, the advantages mentioned above might be contested, and there are various arguments against parallel imports, which brings us to, while parallel imports may have certain advantages, there are also notable disadvantages associated with this practice. These drawbacks can impact various stakeholders, including manufacturers, authorized distributors, consumers, and even governments. Here are some common disadvantages:
In addition to intellectual property concerns as previously mentioned, there are quality control and safety issues since Parallel imports may not undergo the same quality control measures and safety standards as products distributed through authorized channels. This lack of oversight can lead to the circulation of products that do not meet the required safety and quality standards. Parallel imports can also disrupt the business models of authorized distributors and retailers. These entities invest in marketing, support, and service infrastructure, and parallel imports can undermine their ability to compete on a level playing field. There is also a loss of revenue to consider for manufacturers, as these products in the grey market are often sold at lower prices than those distributed through authorized channels. This loss of revenue can impact research and development efforts, innovation, and overall business sustainability. Parallel imports can also lead to a complex and fragmented distribution network, making it challenging for manufacturers to control the flow of their products and maintain consistent pricing strategies across different markets. They can also cause confusion for consumers, who may find it difficult to distinguish between genuine and parallel-imported products. This confusion can without a doubt affect brand reputation and customer trust. There is also limited warranty and support becoming fragmented at best. Products obtained through parallel imports may not come with the same warranty, support, or after-sales services provided by authorized distributors. This can leave consumers without proper recourse in case of defects or issues with the product. Obviously, there is the potential for counterfeiting. The prevalence of parallel imports can create opportunities for the introduction of counterfeit products into the market which poses risks to both consumers and brand owners. Parallel imports can contribute to inconsistent pricing across different markets which can be challenging for manufacturers trying to implement global pricing strategies.
In conclusion, Parallel imports can lead to legal disputes and regulatory challenges, as the legality and acceptance of this practice varies from country to country. Manufacturers may need to navigate complex legal landscapes to protect their intellectual property. It’s important to consider these disadvantages in the context of specific industries, legal frameworks, and individual perspectives, as opinions on the impact of parallel imports can vary widely.
There are a variety of reasons as to why a company would decide to engage with parallel imports. On a recent potential client consult the reason given was simply that the original manufacturer would not bother to sell to them (too small of an operation), so they find the product via another distributor, as the brand name was significant to their sales. For whatever reason one would engage in parallel imports, just keep in mind possible ramifications. When in doubt, it is advised to consult with legal counsel.
