ParallelImportinrelationtoPatentandTrademark.

KUMAR SALVA RAGHUVANSHI1

NATIONALLAWSCHOOLOFINDIAUNIVERSITY
Abstract
In a jurisprudential sense, Intellectual Property Rights (IPRs) are the bundle of moral and
economic rights granted to the creator of intellectual property. The laws of country are strived
towards protecting their rights and interest from violator and to compensate them in the event
of violation. There are various other international instruments for protection of various forms
of IPRs such as Industrial Property2, Copyright3, and Performers Right4 etc.

In the realm of IPR lots of debate has been done with respect to exhaustion of right which is
regarded as an exception to infringement of IP holder rights. Exhaustion is often said as
consumption of rights in IP. In the XIIIth Lok Sabha’s discussion of Patents (Amendment)
Bill, 2002, Dr. Raghuvansh Prasad Singh (in the chair) said, “Then, you have to define the
concept of parallel imports in such a way that it protects the legitimate public interest
whenever it arises”. In this context it is amply clear that intention behind parallel imports is
to advance free trade, boost healthy competition and to control the price of products. Non-
implementation of parallel importation doctrine will lead to total control in the allocation
channels thereby bolstering monopolies. Hence the application of this concept is very
important in order to minimize the monopolistic tactics of intellectual property enterprise
who attempts to block the distribution channels. The main recipient of parallel imports is the
eventual consumers who have the privilege of purchasing genuine products provided by
another licensee at a lower price than the original intellectual property holder.

Keywords: International exhaustion, Doha Declaration, TRIPS, Import.

1 The author is LL.M (Business Laws) student at national Law School of India University, Bangalore.

2 The Paris Convention for Protection of Industrial Property, 1883

3 The Berne Convention for Protection of Literary and Artistic Works, 1886

4 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting
Organisations, 1961

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 INTRODUCTION

Parallel Import is also referred as the follow up of the Doctrine of exhaustion. The doctrine of
exhaustion imposes certain limits on the intellectual property right holder. According to this
doctrine, ‘a patented item’s initial authorised sale terminates all patent rights to that item’ 5. In
other words, patentee cannot restrict the re-sale or re-distribution of the particular goods that
had already been sold once.

However, as per the contention of opposition parallel imports often leads to unfair
competition between the intellectual property owner and the parallel importers. They hold a
view that parallel importers encash their goodwill by selling their products in grey market.
Concerns are often raised regarding the quality of grey goods and guarantees and after sale
services.

With respect to international instrument, Article 6 of TRIPS agreement contains provision

regarding exhaustion. It says member states are free to incorporate the concept of
international exhaustion of intellectual property rights within their domestic laws. The
members country can also determine the limitations to which exhaustion of rights are applied
in their domestic laws, without violating the true spirit of the TRIPS. Broadly speaking, the
principle of exhaustion of rights was propounded with regard to health policies issue. As
many of the lifesaving drugs are extremely expensive which are beyond the reach of common
man pocket and parallel imports of such drug makes it cheaper through grey market
distribution channels. In light of this proposition every member states should implement the
principle of parallel import in the broadest flexible way.

It is also important to visit the para 4 of Doha Declaration which say, “the effect of the
provision in the TRIPS agreement that are relevant to the exhaustion of intellectual property
rights is to leave each member free to establish its own regime for such exhaustion without
such challenge, subject to the most favoured nation and national treatment provisions of
Articles 3 and 4.”

5 Quanta Computer Inc v LG Electronics Inc (No. 06-937) 453 F. 3d 1364, reversed (Supreme Court, 9 June
2008)

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 ResearchMethodology

ResearchQuestions

1. Whether India recognizes the Doctrine of International Exhaustion of rights in its IPR
regime?

2. Whether the act of importation without the consent of IP owner amount to infringement?

ResearchMethodology

The research methodology embraced is altogether doctrinal and comparative in nature

depending on primary and secondary source material. The researcher has referred to Indian
and International Journals, Reference books, case laws, Articles along with statutory laws.

AimsandObjective

The research focuses on the impact of parallel import under Patented and Trademarked
products in India. The main objective of research is to trace the existing Patent and
Trademark exhaustion regime followed within the Indian jurisdiction. In order the achieve
these objective researcher makes a comprehensive study of parallel import and doctrine of
exhaustion as an exception to the rights of IP holder and their application whether National,
Regional or International.

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 CHAPTER-I

1.ExhaustionofRightsvisavisParallelImport.

1.1 What is Parallel Import?

As the nomenclature itself suggest, parallel import means once the IP protected goods are
sold or exported by the patentee or through his authorised licensee in the foreign market, and
simultaneously imported in the country where it has received patent protection without the
consent of IP holder. Parallel imports are category of international trade involving direct
imports from overseas of legitimate copies of goods for commercial resale.

To exemplify, a buyer of a I.P protected oculus is free to what s/he wishes to do with that
device; this prerogative also includes right to use, re-sell it etc., without the fear of being sued
for I.P infringement. Thus, it can be said that this doctrine is an exemption to the
infringement of I.P holder rights.

It is said that, ‘Legitimate ‘parallel imports’ are but a natural corollary of the doctrine of
exhaustion’. The main object of parallel import is to help the consumers to avail the goods at
a cheaper price, this is the reason due to which many developing countries promotes parallel
import to make available the goods from the international market at a cheap rate.

Generally speaking, parallel importers are the third party who executes parallel import and
they are not related to IP owner and as to whether such imports are permissible one has to
look to the laws of each country. As the India follows the principle of International
exhaustion and patent and trademark is not an exception to it thus such import in India is
legal.

1.2 Doctrine of Exhaustion and types.

The German Scholar Joseph Kohler introduced the Exhaustion Principle in the context of
Intellectual Property Rights. Subsequently it was applied by the German Supreme Court 6.
The doctrine of exhaustion, also known as the doctrine of first sale provides that once the
patentee releases a patented product into the stream of commerce by selling or authorizing it
to be sold he exhaust his legal right to control that product. Exhaustion is an intuitive concept
6 Christopher Heath, “ Legal concept of Exhaustion and Parallel imports”, in Parallel Imports in Asia, ed.
Christopher Heath (Kluwer Law International), 18.

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that stems naturally from the very notion of the intellectual property right. The U.S Patent Act
does not codify the doctrine of exhaustion but the doctrine is well established in the case law
as a limitation on the patentee’s right. Under the Indian Patent Act, 1970, the law confers the
right on the patent holder the exclusive right to prevent third parties, who do not have his
consent , from making, using, offering for sale, selling or importing for those purposes that
product in India7

It is a legal instrument which is used to control the prices of intellectual property right
protected materials. This was feasible only if the cost of similar product in Indian market was
up when compared to the price in other jurisdiction from where the same product is imported
to India.

The rationale underlying the theory of ‘exhaustion’ and the doctrine of first sale is that the
patentee has already been rewarded through the first sale and should not be allowed to profit
again and again on the same goods by controlling its use, re-sale or distribution. However,
like other doctrine this doctrine is also subject to certain limitations and restrictions, namely:

‘Exhaustion’ kicks in only if the ‘first sale’ is made by or with the authorization of the
I.P holder.

‘Exhaustion’ in relation to a particular intellectual property does not impact any of the
exclusive rights of the holder with respect to their other product.

Before moving forward it is imperative to know various categories of exhaustion followed by

different jurisdiction because the exhaustion regime have a strong implication on the
international trade. We have understood that once a patented or trademarked product is first
put into the market with owners consent his rights with that particular product is exhausted
and he cannot control further exploitation of that product provided it is not altered.

In a hypothetical instance, If the IPR owner holds trademark or patent in two different
jurisdiction ‘A’ and ‘B’. What will happen if he put the goods in market for sale in the
jurisdiction of ‘A’? Whether his rights will be also be exhausted in the jurisdiction of ‘B’. To
justify this one has to see the exhaustion regime followed by the particular jurisdiction.

7 Section 48 of the Indian Patent Act, 1970

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1.2.1 National Exhaustion
In the given hypothetical situation, if the jurisdiction of ‘B’ follows the principle of National
exhaustion then sale of patented or trademark product in jurisdiction of ‘A’ will have no effect
on ‘B’. This means that the IPR owner will be able to control the importation of goods in that
State and his right will not be exhausted with respect to sale in the jurisdiction of ‘B’.
However, the IP owner right is exhausted within his domestic jurisdiction and buyer in that
jurisdiction can engage in subsequent re-selling and re-distribution of that product and it will
not amount to infringement.

1.2.2 International Exhaustion.

Now, let’s take another view that jurisdiction of ‘B’ follows the regime of international
exhaustion; in this case sale of patented or trademarked good in any jurisdiction of the world
(along with the jurisdiction of ‘A’) will exhaust his right in any part of the world. Now, any
importer from country ‘A’ is free to import that product in his country and engage in grey
market to enjoy the benefit of price differences without altering with the quality of product.

Therefore exhaustion theory applies wherever there is a first sale, regardless of whether the
first sale takes place in the country of manufacture or abroad. The reasoning underlying
thereto is that the patentee has an opportunity to control the first sale and has enjoyed
sufficient benefit to maintain an incentive to invest in creative efforts and hence a ‘second
bite of apple’ by granting the opportunity to control foreign purchase’s re-sale of the product
in the country of its origin, is not necessary.

1.2.3 Regional Exhaustion.

Let’s assume that a country follows the regional exhaustion regime, now if the patented or
trademarked goods are first put in the market by the IP holder or with his consent it exhaust
his right over that product not only domestically but also within a regional block and parallel
import with those region will not constitute infringement. The European Union is a good
example of regional exhaustion and sale of product within the union exhaust the right in other
parts of the union. This regime provide for parallel imports with the regional block and not
parallel import from non-member states of regional block.

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 Chapter-II

2.IndianPatentLawRegime

2.1 Concept of Parallel Import and Patent.

Prior to Patent (Amendment) Act, 2002 there was no express provision in the Patent Act,
1970 that address the issue of exhaustion. The Doha Declaration on TRIPS 8 and public health
shoot the issue of international exhaustion of Patent rights and parallel imports into the
limelight in the context of access to affordable medicines in the developing countries.

The birth of parallel import first came by Patent (Amendment) Act, 2002 under Section 107A
(b) which says, “Importation of patented products by any person who is duly authorised by
the patentee to sell or distribute the product”, shall not be considered as an infringement of
patent rights. According to the policymakers and patent practitioner this provision was
limited and involves interference of patent holder. In this provision the importation of
patented article should and must be made by patentee or any person who is duly authorised
by the patentee.

To exemplify, if company ‘ABC’ has got a patent on a machine capable of saving power in
two jurisdiction Japan and India. It sells the machine at Rs. 5,000 in India and Rs. 10,000 in
Japan through a person ‘L’ authorized by him in both the jurisdiction. Now another company
in Japan ‘XYZ’ purchases the machine from India at Rs. 5,000 and imports it into Japan and
resells it at Rs. 8,000. Now ‘L’ discovers that ‘XYZ’ is indulging in parallel trade selling the
machine at lower price thereby cutting the market of patentee. ‘L’ stops the trade with ‘XYZ’.
Now, ‘XYZ’ purchases the product from store ‘S’ in India and again imports the product and
engage in parallel trade. Here ‘S’ is not an authorised person by the patentee but he can re-sell
or re-distribute the product in India (hereinafter referred as national exhaustion). Thus,
according to this provision if ‘XYZ’ imports the product then it will amount to infringement
because it is not authorised by patentee. This provision indirectly puts barrier on the idea of
international exhaustion and the main purpose of exhaustion gets defeated because it fails to
make the availability of patented products at a cheaper price.

To remove this difficulty the Parliament of India introduced Patent (Amendment) Act, 2005
and added few words in existing section. The amended Section-107A(b) now reads as,
8 Adopted by World Trade Organization on November 14, 2001.

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“importation of patented products by any person from a person who is duly authorised under
the law to produce and sell or distribute the product” will not constitute infringement of
patent.

This provision makes it amply clear that once the first sale of product is made by any person
authorised by patentee his rights are exhausted with respect to those product and he can no
more control the resale or re distribution of the sold article. This gives the importer freedom
to purchase the product from any person (including reseller) and not only from the person
who is authorised by the patentee and this will not constitute infringement. Thus 2005
amendment removed all the barriers associated with 2002 amendment.

Thus, a patented property is exhausted by the first act of introduction into the commercial
circuit of the product incorporating the claimed invention (be it the product itself or the
process of directly manufacturing the product), or bearing the protected distinctive signs,
provided that introduction has been made by the right owner or with its consent. The first sale
of the patented article, therefore, ‘frees it from the protection of the patent right,’ as Sullivan
has put it. This must be understood in terms however. The patent owner, after selling a
patented product, may not oppose the sale, the offer for sale, or the stocking of the product by
the buyer.

However, where there is express term in the contract to contrary, it will bind those who
receive goods with notice of the limitation, unless the limitation clauses in the contract are hit
by anti-trust laws or contract laws of the country.

It is important to know that for the application of principle of international exhaustion first
sale must have to be made or authorised by patentee. If the first sale was not authorised then
each subsequent sale and use of the patented article will constitute separate infringement of
the patent.

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 Chapter-III

3.IndianTrademarkRegime.

3.1 Concept of Parallel Import and Trademark.

As we have made a reify sketch of parallel import in relation to Patent. Now let’s discuss the
impact of parallel import with respect to Trademark. The notion of “Parallel Import” in
relation to trademarked goods are those goods that are first released in the market by or with
the consent of trademark owner and later they are re-sold or re-distributed in different market
without previous authorization of the trademark holder. It is often said as unauthorised
distribution channel because it is made or imported without the consent of trademark owner.
The general notion of trademark rights is that the products or services bearing trademark are
genuine and coming from the true owner or the manufacturer, or by others under his grant of
license, but parallel imports bypasses this authorised distribution channel9.

Section 30 places limit on the effect of registration of a trademark and shall be a good
defence to an action for infringement, and Section 30 encompasses further exceptions to the
rule of infringement provided in Section 29. Once the goods have been lawfully acquired, i.e.
purchased in accordance with law of sale and purchase of goods, whether in India or any
other country, the sale of such goods in India would not infringe registered trademark in
India. Therefore, importer of grey market goods would not be liable for infringement under
Section 29. The importer has to prove that the impugned goods, bearing a particular
trademark, were placed in any market worldwide by the registered proprietor of said
trademark or with its consent.

A parallel importation of trademarked goods may be either active or passive. The

fundamental object behind allowing parallel import is social welfare which can be done from
such imports. It is important to note that difference in price in the international market gives
rise to parallel importation of goods. The importer buys product in a market where they are
relatively cheap and sell them where the prices are higher 10. This technique of distribution of
goods also provides opportunity to the consumers to purchase the goods at a cheaper rate.

9 Voutier Kerrin, “Economic consideration of Parallel Imports” In Parallel Imports in Asia, ed. Christopher
Heath (Kluwer Law International, 2003), 1.

10 Kerrin, “Economic Considerations of Parallel Imports”.

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Further, Parallel import of original trademarked goods helps in promoting trade and positive
competition in the market. Allowing parallel import may help in mitigating the monopolistic
market power of big multinational companies. India, for instance, adopts the international
exhaustion of trademarked goods. A number of developing countries like Argentina, South
Africa, Thailand have enacted laws with respect to parallel imports of pharmaceuticals
products. Parallel imports of trademarked goods helps and provided an opportunities to the
developing countries to provide cheaper rate of products to its consumers.

However, the principle of international exhaustion applies only till the goods are genuine and
original. If the goods have been changed, altered, impaired after they have been put in the
market the international exhaustion principles does not allow and importer can be held liable
for infringement. This issue is provided under Section 30(4)(d) of the Indian Trade Mark Act,
1999 as follows:

“Sub-section (3) shall not apply where there exist legitimate reasons for the proprietor
to oppose further dealings in the goods in particular, where the condition of goods, has been
changed or impaired after they have been put on the market11”

In a nutshell we can say that Indian law provides for parallel imports of trademarked products
when the products are imported in its original form without any change in the quality of
products. However, this rule is not applicable when the product is physically and materially
altered, changed or destroyed without the consent of trade mark owner. Exhaustion of
trademark does not allow the parallel importer to engage in acts that may affect the quality or
reputation of the branded goods. Nor can parallel importer remove or affix his own labels12.

3.2.1 Trademark Parallel Import Judgements.

A. Samsung Electronics Co. Ltd & Anr. V. G. Choudhary and Another13

In this case the District Court of Delhi observer, “Indian law is quite liberal in permitting
parallel imports of genuine goods bearing registered trademark, provided such goods have
not been materially altered after they have been put on the market…once genuine goods are

11 Indian Trade Mark Act, 1999, Section 30.

12 See Helen Norman, Perfume, whisky and Leaping cats of the Prey: A U.K perspective on three recent
Trademark cases before the ECJ, 20 European Int. Prop. Rev., 306, 309 (1998).

13 CS (Os) No. 1602 of 2006: Vikrmajit Sen; 2006 Indlaw Del 1386, 2007 (136) DLT 605, 2006 (33) PTC 425

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released into commerce anywhere by or with the proprietors’ consent, all associated Indian
Trademark rights are exhausted. Such consent may be express or implied, direct or indirect.
The underlying rationale for liberal exhaustion is that trademark is deemed to connote trade
origin and not control”.

B. Xerox Corporation v. Puneet Suri14

In this case Justice Kaul of High Court, Delhi held that, “import of [second hand] Xerox
machines that has proper documentation is permissible under the Trademarks Act, provided
that ‘there is no change or impairment’ in the machine”.

C. Dell Case

In this case, the Customs Commissioner made an order that, “based on the interpretation of
Section 30(3) (b) of Trademark Act, 1999, if goods bearing a registered trademark are
lawfully acquired, further sale or other dealing in such goods by the purchaser, or by person
claiming to represent him, is not considered an infringement”.

D. Kapil Wadhwa and Others v. Samsung Electronics Co. Ltd.15

In this case division bench of High Court, Delhi observed, “Preceding the TRIPS Agreement,
even Uruguay Round of the GATT, the Indian position was to favour the doctrine of
exhaustion of rights linked to parallel imports”. Therefore this judgement makes it clear that
Indian Trademark Act, 1999 provides a way for international exhaustion.

E. Marlboro Trademark case16.

In this case High Court, Delhi established that “India follows an international exhaustion
regime for trademarked goods as per Kapil Wadhwa case, interpreting Section 29 and Section
30(3)(4) of the Act”. Therefore once the goods are lawfully acquired by the owner according
to laws of the country, the further sale of such goods will not amount to infringement.
However, the onus lies upon the importer to prove that goods were lawfully acquired.

14 CS (OS) No. 2285/2006; Unreported order.

15 FAO (OS). 96/2012

16 Philip Morris Products S.A v. Sameer 2014 SCC Online Del 1077: (2014) 209 DLT I.

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 Conclusion
In the realm of intellectual property rights there is uniformity and consistency with respect to
parallel import which means the country recognizes the doctrine of international exhaustion
regarding Patent and Trademark Law. Thus, there are no limitations or restrictions within the
words of the statute which prohibit the importation of genuine goods in their original form.
Article 617 of TRIPS Agreement also makes a discretion of members of WTO to apply the
doctrine of exhaustion as they deem fit whether it be National, Regional or International. In
India, in the public interest international exhaustion of trademark and patent is recognized.
The following diagram explains the concept of parallel import clearly.

Chart:ParallelImporting

Under the international exhaustion principle, the IP protected goods become cheaper and
more accessible to the consumers. It also helps to prevent the monopolistic approach and

17 Article 6 Exhaustion For the purposes of dispute settlement under this Agreement subject to the provisions of
Articles 3 and 4 nothing in this agreement shall be used to address the issue of the exhaustion of intellectual
property rights.

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dominance position in the market exercised by IP holder or their duly authorised licensee.
Parallel import also shoots healthy competition in the market between the IP holder and
parallel importer which in turn leads to trading of goods at a cheaper rate, which in turn
benefits the ultimate consumers.

Furthermore, from the consumer point of view, “parallel imports will increase product
availability in the market, widen the choice of goods and increase consumption in the
domestic market thereby. More importantly, parallel imports attract more affordable imports
of the products in the developing markets, and consumers in such a condition are the one who
benefits from allowing parallel imports”.18 According to NERA report, a vast majority of
developing countries are now applying global or international exhaustion of rights principles.

There may be chances of abuse by alteration or physical or material change in the quality of
product. In allowing the parallel import the countries have to ensure certain limitations and
restrictions with regard to quality of goods. If there are no provisions on quality control or
alteration, then parallel import will become meaningless because the interest of consumers is
not safeguarded when buying those products. In order to reduce such risk of alteration
developing countries should learn from the developed countries.

18 Nguyen Ho Bich Hang, Parallel Importation: Comparative analysis of the Trademark laws of the United States, the
European Union and Japan, and Legal Implications for Developing Countries , Student Paper submitted to
Nagoya University ( 3 rd August, 2016 8:25 p.m.) available at http://ir.nul.nagoya-
u.ac.jp/jspui/bitstream/2237/15590/1/k9359.pdf

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