Australia: Changes proposed regarding parallel imports – An exhausting concept for Australian trade mark owners?

Last Updated: 11 April 2018
Article by Frances Drummond and Rebecca Brenikov

In this article, we consider;

  • the changes to the Trade Marks Act proposed in respect of parallel imports which the Draft Explanatory Memorandum states are aimed at ensuring that the law "better meet[s] the objective of facilitating the parallel importation of goods into Australia to the benefit of consumers by limiting the strategic use of restrictions by registered trade mark owners, and to introduce greater clarity and certainty in how the provisions operate";
  • IP Australia's responses to the public consultation on the draft of the Intellectual Property Laws Amendment (Productivity Commission response part 1 and other matters) Bill and regulations 2017, which were published on 2 March 2018; and
  • whether in light of the proposed amendments, trade mark owners should reconsider their protection strategy in Australia.

What is a parallel import?

Parallel imports are genuine goods (i.e. goods which have been branded with a trade mark by or with the authorisation of the trade mark owner) which have been purchased in country A and have been imported and sold in country B. The benefit to the importer being that the goods can be bought for a low cost in country A, and sold in country B for a higher price.

Trade mark owners (particularly in the cosmetic, pharmaceutical and electrical goods space) often try to deter or prevent parallel imports. The reasoning is twofold: (1) parallel imports impact the sales and business of authorised local distributors and licensees; and (2) products are regularly tailored to a specific market to meet local preferences and/or requirements, and selling goods intended for one market in another market can result in consumer dissatisfaction and eventually damage to the brand and reputation.

What are the proposed changes?

Currently, under section 123 of the Trade Marks Act, a party will not infringe a registered trade mark if they use that trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered, if the trade mark has been applied to the goods by (or with the consent of) the registered owner of the Australian trade mark registration.

The Australian Government argues that this provision was intended to allow for parallel imports, but the narrow reading of section 123 by the Courts has caused issues for parallel importers. This is because the section 123 defence has been held not to apply in instances where the Australian trade mark registration is owned by a different entity to the entity which owned and applied the trade mark in the country where the goods were purchased – the result being that the trade mark was not applied to the goods with the consent of the Australian trade mark owner and therefore the defence does not apply. This interpretation has meant that trade mark owners have been able to prevent parallel imports by assigning or filing applications for the trade mark registration in the name of a group company, subsidiary, distributor or licensee.

The draft Bill intends to repeal section 123 and insert section 122A, which introduces the principle of international exhaustion of trade marks into Australian law. Third party submissions lodged during the public consultation process for this Bill argued the proposed provision tilted too far in favour of parallel importers. In its response to the consultation process, IP Australia has acknowledged that the proposed draft provisions may not have achieved "the right balance between the parallel importer and the trade mark owner". IP Australia therefore agreed to certain amendments ahead of introducing the Bill to Parliament. IP Australia proposes amending section 122A of the draft Bill to read as follows.

Section 122A Exhaustion of registered trade mark in relation to goods

A person who uses a registered trade mark in relation to goods does not infringe the trade mark if:

  1. the goods are similar or closely related to goods in respect of which the trade mark is registered; and
  2. at the time of use, it was reasonable for the person to assume, having made reasonable enquires, that the trade mark had been applied to, or in relation to, the goods by, or with the consent of, a person who was, at the time of the application or consent:
    • the registered owner of the trade mark; or
    • an authorised user of the trade mark; or
    • a person authorised to use the trade mark by the registered owner (so long as they are empowered to permit someone else to apply the mark under section 26(1)(f) of the Trade Marks Act) or an authorised user, or with significant influence over the use of the trade mark by such a person; or
    • an associated entity of any of the above entities.

These amendments include removing:

  • the reference to 'international' from the section heading to clarify that the changes are intended to capture exhaustion both outside of and within the domestic market;
  • references to services and 'goods closely related to services' to clarify that the defence applies only to goods and not services; and
  • the requirement that goods must be 'put on the market' (on the basis that, in order to constitute trade mark infringement in Australia, the goods must have been 'dealt with or used in the course of trade' in any event).

IP Australia also indicated that they intend the 'reasonable to assume' limb of the test to be objective i.e. what a reasonable person in an importer's situation (with information obtained from reasonable enquiries) would assume. However, IP Australia was not persuaded that it was necessary to include changes to clarify the place of application or use, or the terms 'significant influence' and 'associated entity'.

What will the impacts be?

While the amendments will impose a slightly higher burden on parallel importers, they are unlikely to ameliorate the overall impact on trade mark owners. Essentially, once the Bill becomes law, it is unlikely that trade mark owners will be able to prevent parallel imports through corporate and contractual arrangements regarding ownership of the Australian trade mark registrations. The reasoning in cases such as Paul's Retail Pty Ltd v Sport Leisure Pty Ltd (2012) 202 FCR 286 and Paul's Retail Pty Ltd v Lonsdale Australia Ltd (2012) 294 ALR 72 no longer apply and organisations will potentially need to reconsider their ownership arrangements in Australia.

Whilst the change might be good news for importers, the law will raise new problems for trade mark owners. As mentioned above, trade mark owners often tailor products and packaging for the specific market, so they meet local preferences and comply with local laws. As a result, products sold under the same trade mark, but destined for different countries, can differ in packaging (helplines, warranties and safety warnings), price, quality, size, flavour, weight, nutritional values and guarantees. A parallel import could therefore fail to meet the expectations of an Australian consumer. The proposed changes do not address the problem that consumers, relying on the trade mark, will face when purchasing (possibly unbeknownst to them) a product which is a parallel import. This is to the detriment of both consumers and the registered trade mark owner.

The International Trademark Association disapproves of parallel imports and international exhaustion of rights entirely, favouring regional exhaustion on the basis that it 'is in the best interests of consumers, trademark owners, and the general public, as it helps ensure for orderly markets in which consumers are given the ability to distinguish products and can have confidence in the products they are buying'. We are sure that many trade mark owners will agree.

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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Frances Drummond
Rebecca Brenikov
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