Nigeria: Protection Of Intellectual Property In Nigeria; Effect Of Gray Market Goods; Challenges And Solutions

Last Updated: 16 April 2014
Article by Aderonke Adejugbe

INTRODUCTION

It is the norm and custom in Nigeria that people are seen in the streets; young and old, male and female street hawking various personal goods ranging from books, wrist watches, toys, etc, in an effort to earn a living. It is also the general opinion of many that whilst such goods are very affordable, they are mostly sub-standard products. In spite of this fact, majority of these goods are purchased on a regular basis. For those who are particularly observant, a cursory look at the goods would more often than not reveal popular brands which are generally sold in the high streets at more expensive rates. Sometimes, you may find that the shades of colour are slightly different or the lettering of each word can be distinguished from those of the original brands, by a single letter or more. Such goods are known as "black goods". Simply put, they are counterfeit goods.

Away from the street markets, down to the classy stores (popularly known as supermarkets) where authenticity presumably prevails on the other hand, one may find that specific goods, carrying authentic brands and trademarks are sold at relatively cheaper rates than the price at which they are sold in the countries from which they are imported or manufactured. Of course, because of the relatively low prices at which these goods are sold, people are often eager to purchase them. Some of such goods are specifically manufactured for specific regions taking into consideration certain factors such as climatic conditions, cultural differences and applicable voltage (in respect of appliances) of the region, amongst others. Such goods are popular known as grey goods and in the legal parlance, importation of such goods is referred to as parallel importation.

Specifically, grey goods are products which are manufactured with the genuine trademark of the manufacturer and which is purchased in a foreign country and resold in another without the authorised consent of the trademark owner.1 This differs from black market goods or as they are popularly called, "fake goods" or "counterfeit goods" because of the distinguishing fact that they are genuine. Grey good marketers often have an advantage over the authorised dealers because they can take advantage of the fluctuating foreign exchange rates whilst the authorised importers must maintain stable inventories to satisfy customer demand.2

Whilst, piracy and counterfeiting constitute a burden for business owners in developing countries, and in particular, Nigeria, it appears that little or no attention is paid to the importation of grey goods and its impact on licensed users.

Indeed, there is no argument that the laxity of intellectual property protection is another burden which has largely constituted a bane in the economy of Nigeria and adversely affected businesses in Nigeria; both foreign and local. A typical example of such businesses is a company in Nigeria which a few years back, sold authentic Compact Discs containing music, videos and e-books which were sold at premium price. After about a year of commencing business however, the business owners were forced out of the business because of the competition from other sellers who sold similar products at lesser prices.

The impact of parallel importation is however evident in the automobile industry. In 2013, it was reported that Nigeria lost over USD 500 billion to importation of grey goods in the automobile industry through smuggling of vehicles which are meant for importation into other neighbouring countries.3 According to reports, the decline in custom revenue may be attributable to increased importation of automobiles through the grey marketers who avoid payment of duties.4 An independent survey of the automobile industry also shows that the importation of grey goods is striving at almost the same rate as official imports.

CHALLENGES

It is worthy of note however that intellectual property infringement is increasing daily in many parts of the world, particularly in developing countries. This is perhaps, partly attributable to the fact that many of these developing countries lack the technology to detect and control parallel importation, and partly because parallel importation is negligently encouraged. The issue of whether parallel importation indeed constitutes infringement of the trademark right has been argued back and forth in many countries. In Japan for example, it appears that for many years the courts took a strong stance against parallel importation when in the case of Nestle Nihon v Sankai Shoten5, a Japanese subsidiary imported Nescafe products from its parent company for sale in its country. A third party also imported the Nescafe products for sale in the same country and the court held that the actions of the third party constituted an infringement of the right of the subsidiary. In N.Mc co v Schulryro6on the other hand, which involved importation of "parker" pens, the court held that in so far as the goods imported by the third parties were the same in quality as the ones imported by Schulryo and that as long as the pens were genuine the third party could not be barred from importation of the goods.

Some may argue that placing a ban on importation of grey goods is against the spirit of antitrust law, which has although not taken effect in Nigeria has been long awaited.7 Accordingly, where a country legislates against parallel importation, the support for international trade may create an issue of trademark infringement. In 2008, the ECOWAS community, in an effort to encourage international trade, laid down certain guidelines for its member states. Specifically, Article 5 (1) of the ECOWAS treaty provides that;

" the following shall be prohibited as incompatible with the ECOWAS Common Market, all agreements between enterprises, decisions by associations of enterprises and concerted practices which may affect trade between ECOWAS member states and the object or effect of which are or may be the prevention, restriction, distortion or elimination of competition, within the common market and in particular, those which (a) directly or indirectly fix purchase or selling prices, terms of sale or any other trading conditions, (b) limit or control production, markets, technical development or...(2) any agreement or decision prohibited under sub-paragraph 1 of this Article shall be automatically void....."8

In other words, any agreements between any business and another which seeks to restrict trade to a particular territory within the ECOWAS would be void under this treaty. Thus, an exclusive distributorship agreement between a Nigerian business owner and another which restricts the trade of the distributor to a particular territory would be void pursuant to this provision. This treaty is in support of the principle of exhaustion. The exhaustion doctrine simply put, is the doctrine that supports the notion that once the proprietor of an Intellectual Property has sold or licensed the right to its trademark in connection with a product, the buyer may do as he pleases and sell such products when and where he pleases9 Thus, based on this principle, a licensing agreement or an assignment which bars the licensee from trading the goods of the proprietor in a specific region or beyond a specific region would be void.

Whilst the ban on importation of grey goods may appear to be in contravention with the spirit of competition within the Community, the provisions of the Nigerian Trade Marks Act10 (the "Trademarks Act") does not specifically provide for the ban of goods, neither does it support the doctrine of exhaustion applicable in the ECOWAS states and a number of other jurisdictions like the UK.

From the Nigerian perspective, more germane is the fact that applying the provisions of the Trademarks Act to prevent parallel importation into Nigeria may not be successful because the Trademarks Act merely provides that infringement occurs when a person uses a mark identical to that of the registered user in an attempt to deceive the buyers, by importing a reference to a person having the right either as proprietor or registered user of a trademark, in relation to any goods in respect of which the mark is registered.11 This is not the case in instances of parallel importation; the trademark is original and registered in respect of the goods and the user is authorised. Thus, the Trademarks Act will not apply.

In the UK, the laws on trademarks unlike the TradeMarks Act, specifically provides that "a registered TradeMark is not infringed by the use of the Trade Mark in relation to goods which have been put on the market in the European Economic Area under that trademark by the proprietor......" 12This provision is clearly in support of Article 101 of the Anti-Competition Agreements of the European Union13 which supports the doctrine of exhaustion.

Clearly, the doctrine of exhaustion as provided for under the ECOWAS treaty has not been domesticated into Nigerian legislation. As afore stated, whilst parallel importation is not specifically catered for under the Trademarks Act, and again whilst it appears that less attention has been paid to parallel importation and there are only a few notable judicial pronouncements on this issue, the attitude of the courts in a number of cases, appears to be in support of the fact that parallel importation amounts to trademark infringement.

In Honda Place ltd V Globe Motors Ltd (Suit No. LD/1643/96), the Plaintiff instituted an action at the Federal High Court, Lagos, against the Defendant. The facts before the court were that the Plaintiff entered into an agreement with the Defendant, for the dealership in the popular brand of vehicles, known as Honda, granting the Defendant the right to import and sell the cars allotted to the Plaintiff by the manufacturer. The Plaintiff sued on grounds that the Defendant had been importing Honda cars from the United States as opposed to Japan and that Honda cars from the United States were not conducive for the Nigerian market. The parties however settled the dispute out of court by executing a new agreement which was adopted as consent judgment of the court. In delivering the judgment, the court specifically ordered that the defendants cease to import Honda cars from the United States or any other country except Japan.

In another similar case, -Honda Motors Co. & Anor V Bright Motors & 4 Ors (FHC/L/SS/1442/97) 14, the Claimants sued at the Federal high court on the same grounds as in Honda V Globe Motors. The court granted the ex-parte applications of the Plaintiffs, mandating the police to seize all the Honda vehicles of the defendants under the supervision of the police, pending the determination of the suit.

Indeed, importation of grey goods as some may argue may positively impact the economy because of increased competition, which in turn increases market efficiency through promotion of free trade. However, it is harmful; to consumers and trademark proprietors because they may not meet the specific standards for the region into which they are imported not because the goods are sub-standard but mainly because they are not produced and fit for a territory. Also, such goods are not eligible for manufacturer's warranty services and refunds. The authorised dealer of Apple products in Nigeria recently warned Nigerians against purchasing apple products from unauthorised dealers in Nigeria, noting that whilst grey goods are cheaper, benefits of warranty, after-sales support and consumer education cannot be achieved.15 Ultimately, the consumer without knowledge of importation restrictions becomes dissatisfied with the goods which ultimately creates distrust for the trademark and its proprietor.

Importantly, another salient issue which comes to mind would be that where for example, there is a sole-distributorship agreement between the manufacturer of a product and the licensee, would allowing a third party import the same products into Nigeria not contravene the idea of sanctity of contract? If so, perhaps adopting the exhaustion doctrine may have the same effect on franchising agreements, where the franchisee is granted the sole right to distribute and sell any products which bares the mark of the franchisor, within a particular territory.

PRACTICAL SOLUTIONS

Ultimately, the solution may possibly be that rather than ban parallel importation completely and rather than imbibe the doctrine of exhaustion entirely, perhaps credence may be learnt from the principle of the court as laid down in the Japanese case. Perhaps, Nigerian law should allow for parallel importation but only to the extent that the importer is authorised to sell that product, the product does not differ in quality, it conforms with acceptable standards and is not prohibited from the region. In the alternative, Nigerian law may take a cue from the approach adopted by the United States Custom Service Regulation which bans the parallel importation as constituting an infringement except when the foreign trademark owner and the local entity importing the grey goods are owned by the same person or both parties have common ownership or control.16

Footnotes

1 J. Spanogle, International Business Transactions, Supplement Materials, 2013.

2 ibid

3 Premium Times, March 16, 2013

4 Bismark Rewane, http://pointblanknews.com/pbn/exclusive/nigeria-loses-n90b-to-tax-evasion-inautomobile-industry-says-rewane/ last visited 3rd April, 2014

5 Tokyo District Court, May 29, 1965 (Unreported)

6 N. MC. Co v Schulryo Trading Co., Osaka District Court, Feb 27, 1970

7 The Anti-Competition Bill of Nigeria has not been passed into law

8Article 5, Supplemetal Act Adopting Community Competition Rules & The Modalities For Their Application Within Ecowas.

9 Phillipsons Consultancy Blog, "Parallel Imports and Exhaustion Doctrines; Lessons for Nigeria"

10The Trade Marks Act, , Laws of the Federation of Nigeria, 2004

11 Section 5, Trade Mark Act

12 Section 10(b) of the UK Trademarks Act, 1994.

13 The Treaty on The Functioning of The European Community

14 Unreported

15 Kenneth Omeruo ; http://techtrendsng.com/apple-istore-alerts-nigerians-dangers-grey-products/

16 19, C.F.R. S 133. 21(c), 1985

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