Imagine that you are a Thai student in the United States. One day, you receive a list of books you need to buy for your studies. You browse the web and with every item added to your shopping basket, you realize that your vacation plans are becoming more and more modest. To the point of being faced with a choice: either you buy books or go on vacation. The same books in Thailand cost significantly less. Suddenly, a bright idea crosses your mind: what if you ask your cousin to buy an assortment of books, or maybe better - several sets of them - in Thailand and ship to you?! You would sell these book assortments to your fellow students, pay back your cousin, and still keep some money for an extra Daikiri or two. Sounds like a great plan, doesn't it? 

 

The story above is in broad strokes the essence of the Kirtsaeng case in the United States (except that Supap Kirtsaeng sold somewhat more than just several sets of books). Ultimately, the student won the case against the publisher, John Wiley & Sons, Inc., though not immediately and only after five years of litigation leading up to the Supreme court. For those interested in more details, have a look at the Supreme court’s decision here: https://supreme.justia.com/cases/federal/us/568/11-697/case.pdf

So what is it all about?

 

This is where we come to the issues surrounding parallel import.

 

According to the legal definition, parallel market goods are branded goods that are imported into a market and sold there without the intellectual property owner’s consent for that market. These goods are not fakes. It is not a matter of tackling counterfeit. It is a question of reselling lawfully acquired items elsewhere. The classic “buy cheap — sell expensive”. Except that, it is not a given that this action will be allowed for the particular combination of markets one has in mind. 

 

In the United States before Kirtsaeng, there were two other famous cases: Jazz Photo and Ninestar. On both counts, the dispute arose in connection with refurbished products import into the US market. On both counts, the courts ruled that a foreign first sale cannot exhaust domestic rights.

 

Allow us to pause here and explain.

 

Exhaustion of intellectual property rights (in the US it is also known as a first sale doctrine) in simple words, means that: after the intellectual property owner makes the first sale of his products, he cannot control the subsequent resale of these products. So, if someone buys, for example, Tod’s brand loafers from the official boutique, he can afterwards resell them on eBay. Sounds obvious; otherwise, all these second-hand sales would never be possible, right? Well… That might be true in some cases. However, if one lives, for example, in the Philippines and intends to resell these Tod’s loafers from an Italian boutique there, we would strongly recommend thinking twice. The Philippines (or also e.g. Morocco) is an example of a country that adopted a doctrine of national exhaustion of intellectual property rights (IPRs). This means that the fact that the IPRs owner has sold his product outside the Philippines, does not exhaust his rights in the Philippines. Put differently, the IPRs owner can still oppose the import of goods into the Philippines. 

 

In the European Union, the applied regime is the “regional” exhaustion of rights (international exhaustion on a regional scale). Once the product is placed on the market in one of the member states, the IPRs are considered to be exhausted. 

 

Important to stress, that it does not mean that the intellectual property owner loses his intellectual property rights, and anyone can now make the product without his permission. No! The rights which are exhausted are:

• the right to use,
• the right to offer for sale and
• the actual right to sell.

 

In other words, if someone legally bought something in one of the European Union member states, s/he can (usually) legally resell it in another one. However, if a product is placed on the market in the EU (and hence, the IPRs are exhausted in the EU), that does not mean that in the non-EU countries the IPRs are equally exhausted. And that works both ways, by the way. 

 

Obviously, with intellectual property, the principle of territoriality needs to be considered.

 

Very simplified, you can only exhaust what you have. There exists no universal trademark, universal patent or universal industrial design. The only type of intellectual property right which approaches universality is copyright. According to the Berne Convention, a copyright exists from the moment a work is “fixed" in any form (but there is always a small print. And besides, Iran, for example, is not a signatory to the Berne Convention, nor is the Maldives, or Myanmar, or Uganda, or Taiwan). Therefore, one needs to consider who has what and where first. 

 

Coming back to parallel import, some countries have special regulations for particular types of intellectual property rights. Some have different approaches for trademark exhaustion, patent exhaustion and copyright exhaustion. For example, Japan generally recognizes international exhaustion, unless the buyer in the foreign country received a notice of the patent owner’s rights. In the US before the above-mentioned Kirtsaeng case, there was a different regime for trademarks (for them, the international exhaustion was recognized), and for patents and copyright (for them, it was not). If there is a contractual restriction related to imports, Australia will not recognize international exhaustion. And so on. One really needs to check the national peculiarities in advance. 

 

You are probably wondering: why is it all so complex and perhaps the best solution would be to just allow parallel import (or on the contrary, prohibit it) everywhere in the world. However, this matter is quite complex and there is a range of pros and cons to each approach.

 

The bottom line is, while we live in the global world and we might have an illusion of proximity and interconnectedness; there still are quite some differences in regulations and business practices across the world. When you engage in international trade, there are various matters to considers in advance to ensure that you are efficiently navigating its sometimes murky waters. Remember, prevention is more beneficial than cure in all senses. 

 

Our lawyers are highly specialised in matters of trade and intellectual property protection. This allows us to deliver you well-rounded advice, that will address all the potential risks and offer solutions that will benefit your business. 

 

Reach out to us at info@starks.be. Starks: your best legal sparring partner.