Parallel import means the import of goods from elsewhere for resale in Hong Kong. Different from pirated or counterfeited goods, they are manufactured by or with the authority of the intellectual property rights owners (eg trademark or copyright owner) and are legitimately produced and marketed abroad. They are imported into a country or territory without the agreement of that owner or the exclusive licensee in the place of sale. Parallel importers yield their profits from the price difference between the origin of export and the place of import/sale.
There is no universal consensus on the legal issue relating to parallel importation, and whether it should be restricted is a controversial issue with endless debates both in Hong Kong and in Mainland China.
In the Trade-Related Aspects of Intellectual Property Rights ("TRIPS") agreement signed between members of the World Trade Organization which came into effect on 1 January 1995, no provision expressly provides for the restriction of parallel importation. It is also not in the treaties signed at the Berne Convention for the Protection of Literary and Artistic Works ("Berne Convention") and the Paris Convention for the Protection of Industrial Property ("Paris Convention"). Therefore, individual countries are at liberty to pass their own legislation concerning this issue. In this article, the causes of action in the context of parallel importation in Hong Kong will be discussed by examining the relevant legislation, recent updates in legislation and court's decisions.
Under the Hong Kong trademark law, it will not constitute infringement if the owner or the exclusive licensee of the trademarks have exhausted their rights to the trademarks before the parallel import by putting the relevant products on the market elsewhere in the world. This is the doctrine of "international exhaustion" (or "Exhaustion of Rights").
Exhaustion of Rights refers to an intellectual property owner losing his rights against a parallel importer after first use (usually the first sale in the market) of the trademark. In Hong Kong, adopting this concept, section 20 of the Trade Marks Ordinance, Chapter 559, Laws of Hong Kong, stipulates that the use of a registered trademark by a parallel importer in relation to goods which have been put into market elsewhere in the world is permitted. However, to protect the reputation of the trademark owner, subsection (2) of the above section provides that the trademark owner can prevent parallel import of its overseas products if such products have been changed or impaired.
Following the doctrine of Exhaustion of Rights, the right of a copyright owner is exhausted on the first sale of the legitimately manufactured goods by the owner or exclusive distributor. However, the Copyright Ordinance, Chapter 528, Laws of Hong Kong ("the Copyright Ordinance") has placed certain restrictions and limitations on its effect.
It was formerly an offence if a person did the following acts where the copyright works concerned had been first published anywhere in the world within the last 18 months :-
- Importation of parallel copies for any business purpose;
- Selling, hiring or distributing for profit parallel imported copies; and
- Use or possession of parallel imported copies of movies, television dramas, musical sound recordings or musical visual recordings in business.
Subsequent to the Copyright (Amendment) Ordinance 2007 which came into force on 6 July 2007, the above restrictions became more lenient. Firstly, an end-user is now permitted to import or possess parallel imported copies of copyright works for his own business purpose. However, it is still prohibited from (i) selling, hiring or distributing parallel imported copies of copyright works (except for computer software) and/or (ii) playing or showing the copyright works in movies, television dramas, musical sound recordings or musical visual recording in public.
Secondly, the import of genuine overseas products for educational purposes or for library use is also allowed. Educational establishments are permitted to play and show parallel imported copies of movies, television dramas, musical sound recordings and musical visual recordings for educational purpose and library use.
Thirdly, the period for criminal sanction has been shortened by 3 months, that is, it is an offence only if a person did the following acts where the copyright works concerned had been first published anywhere in the world within the last 15 months :-
- Selling, hiring or distributing for profit parallel imported copies of copyright works (except computer software);
- Import parallel imported copies of any copyright work (except computer software) for selling, hiring or distributing for profit;
- Import or possess parallel imported copies of movies, television dramas, musical sound recordings or musical visual recordings for playing and showing in public.
Lastly, as in the Copyright Ordinance before the amendments, parallel import of computer software is allowed.
The law of passing-off protects a business' goodwill and reputation against persons who intend to cause confusion to the public by misrepresenting the "badge of recognition" of another's product. Therefore, in order to be actionable against the parallel importer, it is necessary to show misrepresentation in addition to unauthorized import. Most common cases are that a parallel importer has represented that the sale of his parallel imported goods is authorized by the original seller when they are not.
In our next issue of e-News, we will examine and discuss the position of law regarding parallel import in Mainland China.
If you wish to know more about intellectual property right registration and enforcement or have any query regarding how to commence or contest legal proceedings in Hong Kong, experienced lawyers in our Intellectual Property Department will be happy to assist you.
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.