Concept of Parallel Imports and the Principle of Territorial Exhaustion of Rights under the Indian Trademarks Act, 1999 – Eshwars
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Concept of Parallel Imports and the Principle of Territorial Exhaustion of Rights under the Indian Trademarks Act, 1999

In many of our foreign trips, we often buy some newly launched electronic or electrical products which are either not yet available/launched in our country or are offered at higher prices. While such procurements are intended for personal use or consumption, the concept of “Parallel Imports” in the context of trademark laws means the procurement of goods from the trademark owners or their authorized personnel through legitimate trade channels in a different market (mostly in a different country) and thereafter importation of such goods without the knowledge of the trademark owners of such products for sale to the general public in a different market.

It is also called as ‘Grey Market’ sales owing to the reason that such imported goods are offered for sale in the country of its import through trade channels not specifically permitted by the trademarks rights holder or the trademark owner in such markets. While such products are not counterfeit, pirated or duplicate products, but they are offered for sale in a market place through trade channels that are not authorized by the trademark rights holder or owner. Accordingly, the moot question that arises in such matters is whether such parallel imports tantamount to infringement of trademarks of the trademark owner in the country of import.

In order to understand the legal aspects surrounding the permissibility or legality of parallel imports under the trademark laws in India, it is important to also understand the principle or doctrine of territorial exhaustion of rights from the perspective of sale of products by a trademark owner or rights holder in a particular territory.

The principle of territorial exhaustion of rights vis-à-vis the trademark owner in relation to sale of products under its trademark means that, once the goods are in the first instance legitimately purchased by another person in a particular territory or market from a trademark rights owner or his authorized person, the rights of the trademarks owner to prevent further sale of such goods is exhausted after such first sale. This is so because the title in the goods has passed on to the purchaser and that the title of the trademark owner in such goods has been exhausted after the sale. The doctrine of territorial exhaustion as explained above can be categorized as: National Exhaustion, International Exhaustion or Regional Exhaustion [as in the case of a specific region such as European Economic Areas].

Doctrine of International Exhaustion means that once the goods have been legally sold by the trademark owner or his authorized person in any international market, such sale leads to an exhaustion of the rights of the trademark owner to prevent further sale of such goods anywhere internationally. Doctrine of National Exhaustion means that once the goods have been legally sold by the trademark owner or his authorized person in a domestic market, such sale leads to an exhaustion of the rights of the trademark owner to prevent further sale of such goods anywhere in the domestic market, but however, he still has a right to prevent any parallel import of such similar goods bearing his trademark in the domestic market.

Territorial exhaustion of rights of a trademark owner can be national, internal or regional exhaustion.

Legal position under the Indian Trademarks Act, 1999 with regard to Parallel Imports and Doctrine of territorial exhaustion of rights

Time and again in cases involving parallel imports in India, the Courts have always clarified the question of whether Indian trademark law adopts the doctrine of international exhaustion or national exhaustion of rights in the light of the provisions of Section 29 (infringement of trademarks) and Section 30 (limits on effect of registered trademark) of the Trademarks Act, 1999 (the ‘Act’). Following are the relevant clauses in these sections to understand the judicial and statutory position pertaining to doctrine of territorial exhaustion of rights in India:

Section 29 (1) of the Act – “A registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trade mark.”

Section 29 (6) of the Act – “For the purpose of this section, a person uses a registered mark, if, in particular, he —

(a) affixes it to goods or the packaging thereof;

(b) offers or exposes goods for sale, puts them on the market, or stocks them for those purposes under the registered trade mark, or offers or supplies services under the registered trade mark;

(c) imports or exports goods under the mark; or

(d) uses the registered trade mark on business papers or in advertising.

Thus, it is clear from the above that any unauthorized import or export of goods would be considered as infringement of the owner’s trademark.

Section 30 of the Act contains, so to say, the exceptions to infringement or defences available to a person against whom an infringement action is alleged.

Section 30 (3) of the Act – “Where the goods bearing a registered trade mark are lawfully acquired by a person, the sale of the goods in the market or otherwise dealing in those goods by that person or by a person claiming under or through him is not infringement of a trade by reason only of

(a) the registered trade mark having been assigned by the registered proprietor to some other person, after the acquisition of those goods; or

(b) the goods having been put on the market under the registered trade mark by the proprietor or with his consent.

Further Section 30 (4) of the Act states that “Sub-section (3) shall not apply where there exists legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market”.

On a plain reading of Section 30 (3) it can be interpreted that the goods once legally acquired, the trademark owner cannot forbid from further sale of the goods in any market. However, the important question that had to be clarified by the Indian courts in various matters filed before it in the context of deciding trademark infringement issues in the light of parallel imports, was whether the word “market” as used by the legislature in this section means the national or international market. Alternatively, the legal question that was to be decided by the Indian courts was whether the Indian trademark law recognized the doctrine of international exhaustion of rights or the national exhaustion of rights.

The landmark judgement in this regard was delivered on appeal by the division bench of the Hon’ble High Court of Delhi against an order of the Single Judge, in the case of Kapil Wadhwa and Ors. Vs. Samsung Electronics Co. Ltd.  on 3rd October 2012 (Samsung Electronics Co. Ltd. is hereinafter referred to as “Samsung” and Kapil Wadhwa and Ors. hereinafter referred to as “Appellants”), which dealt with in great detail the concept of parallel imports as well as doctrine of exhaustion of territorial exhaustion of rights of the owner of a trademark in the realm of the statutory framework under the Indian trademark laws.

The brief facts in the matter was that Samsung being the brand owner and the registered proprietor of the mark ‘SAMSUNG’ in India, accused the Appellants for importing Samsung’s products namely, printers without their permission and selling the same in the Indian market at a cheaper price and thereby infringing their registered trademark. In order to determine whether the same may be construed as an infringement, the Court had analyzed the provisions of Sections 29 and 30 of the Trademarks Act, 1999. The important issues considered by the Court were:

1. Whether India follows National or International exhaustion as per Section 30?

In the judgement of the Single Bench dated February 17, 2012, it was held that that Section 30 (3) of the Indian trademark act recognises only the doctrine of National Exhaustion. Thus, the Defendants were restrained from importing, exporting and dealing in printers and their ink cartridges/toners bearing the trademark SAMSUNG.

However, the order of the Single Bench was set aside on appeal by the Division Bench of the Hon’ble High Court of Delhi on appeal and held that the term ‘the market’ contemplated by Section 30(3) of the Trade Marks Act, 1999 means the international market and in holding so relied upon the Statement of Objects and Reasons of the Trade Mark Bill 1999 placed before the Indian parliament at the time of passing the legislation, India’s communications at the Uruguay Rounds and report of the Standing Committee on the Copyright (Amendment) Bill, 2010 which suggested India’s support for international exhaustion principles.

Accordingly, it was held that the trademark legislation in India adopts the Doctrine of International Exhaustion of Rights.

2. Whether parallel importation of goods into India is permissible?

The singe judge in its original judgement dated February 17, 2012 held that the import of goods into India without the permission of the registered proprietor of the Trade Mark is governed by Section 29 of the Trade Marks Act 1999 and this flows from a conjoint reading of Section 29(1) and Section 29(6) which require it to be held that when a person uses a Trade Mark in the course of import or export of goods, the same would be under the registered Trade Mark and thus the act of import is in clear and explicit terms of the two provisions, and would be infringement when import is made without the consent of the registered proprietor of the Trade Mark. Further, Section 29(1) does not distinguish between the import of genuine and non-genuine goods. Thus, imports, whether of genuine or non- genuine goods would amount to infringement if not effected by the consent of the registered proprietor of the Trade Mark or the permissive right holder of the Trade Mark.

On appeal it was argued by Samsung that it was also entitled to prohibit such parallel import and sales of “SAMSUNG” branded products in India by virtue of the provisions of Section 30 (4) that limits the exceptions to infringement of trademarks granted under Section 30 (3) and further argued that allowing such parallel imports would prejudice the rights of Samsung as a trademark owner that can potentially lead to a situation where counterfeit and duplicate goods are also pushed into the Indian market through illegitimate channels and hence by virtue of the provisions of Section 30 (4) it was entitled to restrict such parallel imports.

However, the Division Bench in its judgement dated October 3rd 2012 stated that Section 29 has to be read with Section 30 (a) and (b) and observed that –

“There is no law which stipulates that goods sold under a trade mark can be lawfully acquired only in the country where the trade mark is registered. In fact, the legal position is to the contrary. Lawful acquisition of goods would mean the lawful acquisition thereof as per the laws of that country pertaining to sale and purchase of goods. Trade Mark Law is not to regulate the sale and purchase of goods. It is to control the use of registered trademarks”.

The division bench of the Hon’ble High Court of Delhi, turned down the above arguments of Samsung by stating that curtailing such parallel imports will deny the Indian consumers access to original products at competitive prices and that the provisions of trademark laws are not intended to regulate the sale and purchase of goods but merely to protect the trademark and proprietary rights of trademark owners against misuse of its trademark, which misuse has not occurred in the instant matter.

It further held that since the word “market” as used under Section 30 (3) and 30 (4) means the “international market” and not merely the “Indian market”, and further since the Indian trademark law recognises the doctrine of international exhaustion, Samsung will not be entitled to prevent the parallel import of its products in India and further, permitted the sale of such printers under the condition that the Appellants shall prominently display in their showrooms that the product sold by them have been imported from abroad and that Samsung does not give any warranty qua the goods nor provide any after sales service and that the warranty and after sales service is provided by the Appellants personally.

It is to be noted that the same principle was also followed in the case of Western Digital Technologies Inc. vs. Mr. Ashish Kumar & Anr. in its judgement dated 20th October 2016, with respect to parallel importation wherein the Defendants were conducting parallel imports of genuine goods of the Plaintiff through unauthorised channels. The Plaintiff held registrations for their trademarks in India, which they had also registered with the Customs Authorities under the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 to prevent the import of infringing goods bearing the said trademarks.

However, based on the ratio of the landmark judgement passed by the Hon’ble High Court of Delhi in the Samsung case, the parties agreed to amicably resolve the matter and the Defendant agreed to place permanently and affix a label on the imported products to show that the goods have been imported and are not supported by an authorized warranty of the Plaintiff.

Conclusion
From the above, it can be concluded that the Trademark law in India allows parallel imports by acknowledging the concept of international exhaustion of rights of the owner as seen from the above cases. However, it is pertinent to note that the trademark owners’ rights are still intact if the goods which are being imported are counterfeit and not genuine goods. The cases of parallel imports are on a rise and, therefore, in order to protect the interests and rights of the brand owners, the Government has also initiated various steps including to stop import of counterfeit products by the Custom Authorities (to read more on how to record your IPs with the custom authorities, please read our article at this link- ( https://www.lexology.com/library/detail.aspx?g=fcdd9435-454d-4eb0-b378-f755c1830764).

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