Parallel Importation of Branded Goods: An Update

“Parallel importation” refers to the practice of unauthorised importers importing into Australia branded goods that were intended by the brand owner to be sold overseas but not in Australia. The goods are not counterfeit – they are simply goods which have been approved for sale only in certain countries.  Unauthorised parallel importation and sale of “grey market” goods often compete with the business of an authorised Australian distributor of the same branded goods.

In calling for reform in this area, the recent draft report of the Productivity Commission on Intellectual Property Arrangements says that the law is currently “unclear and unworkable” because of “recent legal cases which have ‘muddied the waters’”. However, similar calls for reform have gone unheeded in the past, including those of the Intellectual Property and Competition Review Committee report in September 2000 (Ergas Report) and those of the House of Representatives Standing Committee on Infrastructure and Communications in its inquiry into IT pricing in 2013.

Andrew McRobert and Cameron Harvey of Norton Rose Fulbright Australia successfully ran one of the leading cases in this area on behalf of Lonsdale Australia¹

In the Lonsdale Case, “Lonsdale” branded clothing and footwear was manufactured at the direction of the German licensee of Lonsdale Sports Limited (Lonsdale Sports). Lonsdale Australia was (and is) the owner of the relevant trade marks in Australia. The respondents in that case, “Paul’s Retail” operated the “Paul’s Warehouse” chain of stores in Australia.

The particular licence granted to the German licensee of Lonsdale Sports permitted it to promote, distribute and sell goods marked with certain “Lonsdale” trade marks in several of European countries. In August 2011, the German licensee entered into an agreement with a Cyprus-registered company named Unicell Ltd. Pursuant to that agreement the German licensee sold almost 300,000 units of Lonsdale goods to Unicell Ltd. Paul’s Retail acquired all of them (Paul’s Goods) through a US-based intermediary named TMS LLC.

Although Unicell was registered in Cyprus, title in the Paul’s Goods passed from the German licensee to Unicell Ltd in the Peoples Republic of China (PRC). The Paul’s Goods never entered Europe. They were shipped from the PRC to Colombo, Sri Lanka and then processed and reloaded in Sri Lanka before being shipped to Sydney, Australia through Singapore. Over 100,000 units of the Paul’s Goods were seized by the Australian Customs and Border Protection Service under notifications lodged by Lonsdale Australia.

One of the key issues in the case was whether the Australian trade marks had been applied to the Paul’s Goods with the consent of the registered owner of those marks. That was important because section 123 of the Trade Marks Act 1995 (Cth) provides a defence to infringement if the relevant trade marks were applied to the goods with the consent of the registered owner of the trade marks.

In the Lonsdale Case, the Court upheld Lonsdale’s argument that the Paul’s Goods had been sold in the PRC, which was outside the licensed territory of the German licensee of Lonsdale Sports and therefore not within the terms of the consent given by Lonsdale Sports. The Full Court said that to interpret the licence agreement in the contrary manner contended for by Paul’s Retail would be to deny the “evident intention of the [contracting] parties that the authorised supply of goods bearing the mark[s] should be confined to the defined geographic area”. Because Lonsdale Sports had not given its consent, there could be no consent by the owner of the Australian trade marks, Lonsdale Australia.

The Lonsdale Case has been followed in subsequent cases, including in the recent decision of Chief Justice Allsop in Scandinavian Tobacco Group Eersel Bv v Trojan Trading Company Pty Ltd [2015] FCA 1086 at [76] to [72]².    In that case, Allsop CJ held that:

“The natural reading of s 123 is one that looks to (a) the use of a trade mark in relation to goods (b) the similarity of the goods to those in respect of which the trade mark is registered (c) an enquiry whether the trade mark has been applied to, or in relation to, the very goods as in (a); and (d) whether that application was with the consent of the registered proprietor.”

His Honour held that section 123 provided a complete defence to the claims of trade mark infringement in that case.

In its recent draft report, the Productivity Commission states that:

“The law that governs parallel imports of trade marked goods would also benefit from reform. Parallel imports — the importation of legitimately trade marked goods produced in another country — can be blocked by owners or licensees of the mark in Australia. While the Trade Marks Act does contain provisions about when parallel imports may be allowed, recent legal cases have ‘muddied the waters’ to the point where firms are unsure if they are able to import marked goods legally or not ...”

In its submission to the Productivity Commission, the Law Council of Australia noted that it has become very difficult to advise clients on what is, or is not, a legitimate parallel import and that the onus lies on an importer or retailer to prove all the requirements of the section 123 defence. In its view, some Australian retailers and importers are therefore avoiding the risks associated with parallel imports, for fear of engaging in criminal conduct and being labelled a counterfeiter.

The draft report of the Productivity Commission recommends that the Australian Government amend section 123 of the Trade Marks Act 1995 (Cth) to “ensure that parallel imports of marked goods do not infringe an Australian registered trade mark provided that the marked good has been brought to market elsewhere by the owner of the mark or its licensee”. It suggests that Australian law could follow the example of section 97A of the Trade Marks Act 2002 (New Zealand).

The final report of the Productivity Commission is scheduled for release in August 2016.

It remains to be seen whether the Australian Government will reform this area following the release of that report. In 2001, the Australian Government accepted the Ergas Report recommendation that the "Trade Marks Act be amended to ensure that the assignment provisions are not used to circumvent the intent to allow the parallel importation of legitimately trade marked goods". Despite the fact that legislation was introduced in 2006 to amend other sections of the Trade Marks Act 1995 (Cth), section 123 has been left untouched. Until the law is reformed, the parallel importation of trade marked goods remains a potential minefield for brand owners and direct importers alike.