On 25 August 2018, the Trade Marks Act 1995 (Cth) (Trade Marks Act) was amended by including a parallel importation defence for importers of goods. With the new changes, Australian trade mark owners will find it more difficult to prevent parallel importation of genuine trade-marked goods by others into Australia, as the new amendments are designed to help increase genuine parallel importation and competition.
What is ‘Parallel Importation’ and why is it problematic?
Parallel importation occurs when genuine branded goods are lawfully purchased in Country A and imported into Country B for resale where the importer is not an authorised distributor in Australia, and without the consent of the Australian trade-mark owner. For example, parallel importation would occur when Party A purchases wine from a winery in France and is subsequently imported to Australia for sale where there is an already existing network of distributors for the sale of that product, without the Australian distributor’s authorisation.
In that scenario, an Australian distribution network would want to prevent Party A’s sale of the product in Australia as such conduct threatens their market share, and they want to protect their business. Afterall, they have been establishing the goodwill and brand for the product over a number of years. The entry of Party A into the market means Party A can benefit from the already established brand and thus undercut the Australian distributor.
However, the Australian Government sees this process as increasing competition and benefiting consumers, as typically in these cases consumers may purchase the products at a reduced price. On the other hand, trade mark owners may see a negative impact on sales and business, and it may be difficult to maintain their brand image and service quality.
What has changed?
Pursuant to the former section 120 of the Trade Marks Act, an Australian trade mark owner could, in certain circumstances, exercise its exclusive rights to restrict the parallel importation of genuine trade-marked goods. This former section 120 states that a person infringes a registered trade mark if the person used as a trade mark a sign that was substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark was registered of goods of the same description. For example, it would be an infringement of a trade mark if:
- an importer imported bottles of wine, and
- the wines were marked with a brand name that is a registered trade mark in Australia; and
- the trade mark in Australia was owned by a person who is not the importer; and
- the trade mark was registered for the same or similar goods to the goods being imported.
Pursuant to the former section 123(1), no infringement occurred when the trade mark had been applied to the goods by, or with the consent of, the registered owner of the trade mark in Australia.
New Amendments – Parallel Importation Defence
Pursuant to the new amendments, importers won’t infringe the registered trade mark if they can demonstrate they made ‘reasonable inquiries’ to ensure the trade mark has been applied to the imported goods with the trade mark owner’s consent, even if the trade mark was not applied by the registered owner. In simpler terms, parallel importation of legitimately marked goods does not constitute trade mark infringement where these goods have first been brought to the market by the registered owner of that trade mark, or another person with a commercial relationship with the registered owner.
Making ‘reasonable inquiries’ is dependent on the facts. The Explanatory Memorandum to these amendments gives examples of what is a ‘reasonable inquiry’. It highlights that requesting and receiving a certificate of authenticity from the supplier would be sufficient in most circumstances. Though, where the supplier is widely known or suspected to supply counterfeit goods, or where the goods are being offered at suspiciously low prices or through dubious trade channels, more searching inquiries may need to be made, such as contacting the trade mark owner to confirm consent. Conversely, if the goods are purchased from a retailer widely known to be the licensed distributor of the trade mark owner at the normal price of genuine goods in the relevant market, then no further inquiries may be needed.
The importer is not required to prove actual consent to apply the trade mark to the imported goods. The evidentiary burden has been reduced for importers as they are not privy to documents and information that could show consent was actually given, such as the contract between the registered owner and their distributor.
Pursuant to section 122A(1)(c), the importer must establish that, at the time of use, a reasonable person, after making those reasonable inquiries, would have concluded that the trade mark had been applied 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;
- the authorised user of the trade mark;
- a person permitted to use the trade mark by the registered owner or authorised user;
- a person permitted to use the trade mark by an authorised user who has power to give such permission;
- a person with significant influence over the use of the trade mark by the registered owner of an authorised user; or
- an associated entity of a relevant person mentioned in sub-paragraphs (1)-(5).
A sub-licensee is an example of a person referred in (4), and only has the power to permit someone else to use the trade mark subject to any agreement between the registered owner and the authorised user. A person mentioned in (5) intends to capture any significant contractual or commercial relationship where one party influences the registered owner or authorised user or vice versa. The Explanatory Memorandum to these amendments states it is intended to cover contractual arrangements, non-contractual legal arrangements, and a wide variety of informal understandings.
Pursuant to section 122A(2)(a), the registered owner cannot circumvent the defence against trade mark infringement by imposing specific restrictions or conditions on licensees or other authorised users. Reasoning in cases such as Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd  FCAFC 51 seem to no longer apply. In this case, the defence failed where a trade mark had been applied contrary to the geographical restrictions of a licence between the trade mark owner and the manufacturer of the goods. The new amendments mean if there is a licence to sell branded goods and the licence expressly excludes Australia, this will still be consent. There is nothing prohibiting a business placing such limitations in their licences, though when the trade mark is used in a manner contrary to any conditions placed in any such licence, the registered owner should seek a remedy from their licensee, not from the parallel importer.
The intention of the amendments by the regulators is to ensure the Trade Marks Act better meets the objective of facilitating the parallel importation of goods into Australia to benefit consumers by limiting the strategic use of restrictions by registered trade-mark owners.
What does this mean for businesses?
The parallel importation amendments threaten the exclusive rights of registered trade mark owners in Australia. Section 122A limits the circumstances where contractual relationships or corporate structuring can be used to restrict parallel importation.
Care ought to be taken in licensing arrangements and in protection of intellectual property between the overseas parent company and the Australian distributor in permitting the sale of goods of another party in Australia. This means that instead of taking direct action against the importer where that importer is likely to show it made ‘reasonable inquiries’, trade mark owners may implement stronger monitoring and enforcement of agreements to ensure compliance with any licence conditions.
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.