Parallel imports are a concept which leads to exhaustion of Intellectual Property Rights. Parallel imports are goods originating outside the jurisdiction in relation to which trademarks has been applied by or with the consent of theÂ owner of such trade mark and are imported into the right holder. As soon as a country allows imports, it normally means that it has applied exhaustion principle in the sense that it is disallowing any control on the movement of goods once the right to take place the mark on the goods has been validly exercised in any market, irrespective of the country jurisdiction. The movement of goods is free thereafter. On the other hand, if parallel imports are not allowed, it means the country has exercised the option of non-application of exhaustion principle.
When any license or an independent bulk purchaser sells by way of export outside the territory allotted to it, the transaction operates as parallel import and is disliked by the licensee for that area. For instance, In the United States of America, such goods are referred to as â€˜grey goodsâ€™ whereas in other countries the nomenclature is â€˜re-importsâ€™ or â€˜parallel importsâ€™.
The exhaustion of rights principle comes in conflict with the â€˜territoriality principleâ€™ enshrined in the Paris Convention. Parallel imports can possibly be allowed only by the application of the doctrine of internalized exhaustion of rights to the cases where there is a common connection among the trade marks. It cannot be applied to cases where there are two independent trademarks, belonging to two different right holders, similar in get-up appearance.
The principle of territorial applicability as followed by the courts in the UK would hold good in India also. Indian trade mark law is modeled on the lines of the UK law. The Colgate v Markwell Finance case and its decision is not in conflict with the Indian enunciation of law of passing off and, therefore, the case may be followed by Indian courts of a powerful local licensee may challenge a sister license of trade mark from another country.
BASIS OF PARALLEL IMPORTS
Once the goods marked with the trademark are put on the market by the owner or by the licensee, the exclusive right to sell goods bearing the trademark is â€˜exhaustedâ€™ by this first act of putting the trade marked goods into the market. A third party may, after legitimately purchasing these goods, sell them in any of the country-markets. The owner or any of the licensees cannot prevent the sale of such trademarked goods. It is based on the concept of free movement of goods put into circulation by the consent or authority of right holder. The right of restricting further movement is exhausted, because the right-holder has already earned his part, by the act of putting the goods for first sale in the market.
MEANING OF EXHAUSTION OF RIGHTS
It means if the marked goods are once put on the market by the owner or by his consent, and once, purchased legitimately, the IP owner or any one deriving his title from him cannot prevent sale of such goods, as the exclusive right to sell goods bearing the mark is â€˜exhaustedâ€™ by the first sale; that the exclusive right to sell goods bearing the mark cannot be exercised twice in respect of the same goods.
Albert and Heath have defined â€˜international exhaustionâ€™ on the premise that the object of IPRâ€™s is to protect the right and right related goods and not the distribution system. Once the right is manifested in the goods which have been put on the market by the free will of the right holder, his right is exhausted there and he has no control over the goods from the IPRs.
FORMS OF EXHAUSTION
Exhaustion may take three forms â€“
Domestic Exhaustion â€“ Under this, once the goods have been put on the domestic market by the right holders or by third parties with his consent, his right is exhausted in the domestic territory. Domestic exhaustion is generally provided for in almost all countries. Trade Marks Act, 1999 provides for domestic exhaustion in Section 30. Merely providing for domestic exhaustion and not for international exhaustion has been opposed on the ground that, it allows the right holder to extend exclusive right over the entire distribution system. Thus, it has the potential of eroding competition from within.
International Exhaustion â€“ In international exhaustion when the goods are put inÂ the market, by the right holders or with his consent in any country, the rights are exhausted for other national jurisdiction as well.
Regional or EEC Practice of Community- wide Exhaustion â€“ A third form of exhaustion was evolved by EEC i.e., community- wide exhaustion. In the EEC the exhaustion principle extends to the territories of member countries.
The provisions of Section 29, Section 107 read with the provisions of Customs Act 1962 and Section 140 of the Trade Mark Act, 1999 provide for Parallel imports.
Import and Export of trade marked goods are considered as use and unauthorised imports of a similar trade mark would constitute infringement. The provisions in Section 140 which allow suspension of release of imported goods which bear an infringing mark by the custom authorities in to the channels of trade.
After the enforcement of 1999 Act on 15.9.2003, it is now clear that the trade mark owner or his license enjoys exclusive right to import or export the goods on which a trade mark has been applied by virtue of Section 29(2) in respect of similar goods or if the trade mark enjoys reputation in India then the import monopoly extends to even different goods imported under confusingly similar mark by virtue of Section 29(4). The trade mark vested in a right holder in a country can be used to restrict the imports from another right holder (owner or license) of the products under the same trade mark produced in another country. On the basis of such a power the trademark owner or the intellectual Property Rights â€“ holder can impose import or export restrictions on any unit.
Indian right-holder is at liberty to restrain the imports of all such goods as the goods produced by a parallel license can be designated as â€˜Infringing goodsâ€™. The option of applying the exhaustion principle was closed in 1999 when Section 29(6)(c) was enacted.
If the trade marked goods with an identical trade mark in India are imported without complying with the conditions stated above, Indian customs will not allow the entry of such goods into India. This is more so, because no inroads have been made on the exhaustion principle or considerations of common origin/ source of trademark in relation to parallel imports into India. But Indian right-holder who objects should be an exclusive right-holder for India.
In Kapil Wadhva v Samsung Electronics, the Delhi High Court Division Bench reinforced the legality of parallel imports and held that the Trademarks Act enshrines the principle of international exhaustion of rights. In other words, it held that the exclusive right of a trademark owner over its goods is exhausted once the goods have been put on the market either by the trademark owner or with its consent. The court held, among other things, that the word â€˜marketâ€™ used in the statute implies a global market, and that the preparatory works to the Trademark Bill 1999 clearly indicate the intent of the legislature to recognize the principle of international exhaustion of rights to control further sales of the goods once they have been put on the market by the trademark owner.
The decision on whether to allow parallel importation is ultimately a choice between quality control and price control; between the economic rights of trademark owners and consumer access; between trade monopolies and free trade. In the trademark context, parallel importation in no way compromises the trademark ownerâ€™s right to sue for infringement, passing off or falsification of its marks.
 (1988 RPC 283)
 2013 (53) PTC112