New Zealand: Parallel Importing Given A Workout

Last Updated: 13 June 2007
Article by Earl Gray
and Fiona McKenzie

The New Zealand High Court decision in Leisureworld Limited v Elite Fitness Equipment Ltd, CIV 2006-404-3499, 21 July 2006 per Heath J, illustrated the ongoing conflict between the rights of New Zealand registered trade mark owners and the right to parallel import into New Zealand.

Background

Leisureworld brought proceedings for an interim injunction against Elite, one of its competitors in the New Zealand marketplace for the sale of fitness equipment. Leisureworld alleged in particular that Elite had infringed its copyright and registered trade marks by importing its protected "Infiniti" branded equipment into New Zealand, as well as arguing that Elite had unlawfully interfered with Leisureworld's contractual relations with its Taiwanese manufacturer and was in breach of the Fair Trading Act 1986. Elite disputed liability on the basis that the equipment was legitimately parallel imported.

Leisureworld had bought a New Zealand business (Progym NZ) to obtain the New Zealand intellectual property rights (being two trade mark registrations for "Infiniti" and copyright) in the Infiniti-branded fitness equipment that Progym NZ's associated company, Progym Taiwan, manufactured. Progym Taiwan granted to Leisureworld "the exclusive right to import, sell, market, promote and distribute [the relevant equipment] in [New Zealand]". Progym Taiwan undertook not to supply such products directly or indirectly (with knowledge) to New Zealand.

Before the purchase of Progym NZ by Leisureworld, Elite had purchased "Infiniti" equipment directly from Progym Taiwan. Subsequently, Elite dealt with two other Taiwanese companies which obtained Infiniti equipment from Progym Taiwan. Elite also purchased Infiniti equipment from Progym Australia, said to own the Infiniti trade mark registrations in Australia.

Registered Trade Marks and Parallel Importing

The Court focused its decision on whether Elite's importation of the Infiniti branded equipment infringed Leisureworld's New Zealand registered trade marks, or whether the defence of legitimate parallel importing was available to Elite.

The parallel importing regime was intended to allow retailers, wholesalers and consumers to obtain goods subject to intellectual property rights directly from licensed or authorised overseas sources. This was to avoid the need for them to deal directly with local suppliers, licensees or agents, and to allow for competition between sources of the same or similar goods.

In 2003, an amendment was made to the Trade Marks Act 2002 to address concerns that registered trade marks were being used to thwart competition objectives underpinning the parallel importing regime, as follows:

"[Section] 97A Exhaustion of Rights Conferred by Registered Trade Mark

A registered trade mark is not infringed by the use of the trade mark (including use for the purpose of advertising) in relation to goods that have been put on the market anywhere in the world under that trade mark by the owner or with his or her express or implied consent."

The purpose of s97A was described in the explanatory note to the amendment Bill as follows:

"Consequential amendments are made to the Trade Marks Act 2002 to ensure that registered trade marks cannot be used to frustrate legitimate parallel importing, in line with the Government's parallel importing policy. For the avoidance of doubt, these amendments provide that a registered trade mark is not infringed by the use of the trade mark on parallel imported goods (including for the purpose of advertising) when a trade mark has been legitimately applied, whether that was in New Zealand or anywhere in the world. However, the parallel importing regime is not intended to encourage or legitimise attempts to sell pirated or counterfeit goods in New Zealand."

The Court found that Leisureworld had not expressly consented to the imported goods under the relevant trade mark being placed on the market anywhere in the world. The Court therefore applied the principles set out in the European Court of Justice decision, Zino Davidoff SA v A & G Imports Ltd [2002] Ch 109, to establish whether implied consent should be inferred.

In Zino Davidoff the European Court of Justice stated that evidence from which implied consent might be inferred must demonstrate unequivocally that the trade mark proprietor has renounced any intention to enforce its exclusive rights. For example, implied consent cannot be inferred from silence of the trade mark proprietor or its lack of opposition or warning against the goods being placed on the market elsewhere. Further, the onus of proving consent rested on the party alleging that consent had been given, and while consent could be express or implied, it must be expressed positively.

In Leisureworld Heath J stated that parallel importing may only be conducted lawfully if the registered trade mark holder has given consent to the goods being placed on the market anywhere in the world. The Court considered that the focus of the s97A inquiry should be on the intentions of the New Zealand registered trade mark holder. Heath J found that on the evidence before him, there was no basis to infer, from established facts, implied consent on the part of Leisureworld to the Infiniti-branded fitness equipment at issue being placed on the market anywhere in the world.

"Put on the market" for the purposes of s97A, Heath J stated, connotes an intention by the New Zealand registered trade mark owner that the goods be traded in markets outside New Zealand. Heath J held that the existence of a manufacturing agreement with a company in another jurisdiction was not evidence of consent for that manufacturer to make those goods available for sale elsewhere in the world. Leisureworld was therefore granted an interim injunction that restrained Elite from supplying Infiniti fitness equipment pending resolution of substantive proceedings.

Comments on the Decision

The Court appeared to be swayed by the particular circumstances of this case, for example, the deal Leisureworld believed it had with Progym Taiwan and Progym Taiwan's undertakings to Leisureworld regarding exclusivity in New Zealand.

However Leisureworld's deal recognised the fact that Infiniti branded fitness equipment was also sold legitimately outside of New Zealand and Progym Taiwan had the right to manufacture Infiniti branded fitness equipment for sale in countries outside of New Zealand. This could have been read as "implied consent" by Leisureworld to the goods being put on the market anywhere in the world (as per s97A).

It has been said that this decision flies in the face of the Government's parallel importing policy. However despite this criticism, the decision in general illustrates that the parallel importing defence against trade mark infringement does and should allow for different business structures and circumstances (for example, where the parallel imported goods being sold are of inferior quality to the same goods as previously sold in New Zealand) to preclude otherwise legitimate parallel importing.

Conclusion

It appears doubtful that the Leisureworld matter will proceed to a substantive hearing.

Although parallel importing was given a workout by the High Court in its decision in Leisureworld, the next round could well go the other way, if the factual matrix is different. This is particularly true in the context of global businesses, with varying approaches to structure and ownership of assets such as registered trade marks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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