As a millennial, it took me a while to embrace the Tiktok trend and ‘get with the Gen Z program'. In between billable work one evening, I found myself scrolling on the app and came across a local fashion influencer who was floored by the fact that an extremely popular insulated drink container (possibly the biggest craze at the moment) was being sold for considerably less on a popular global online fashion retailer's app. The influencer was visibly confused, her questions being “Is this legit? Or are these products fake?”. Cue a can of ‘parallel import' worms being opened.
Firstly, for the most part, these products are ‘legitimate'. They are what we call ‘parallel imports' or ‘grey goods'. There is a certain stigma around these phrases with many people believing that these goods are fake or counterfeit goods. Parallel imports are genuine goods, typically branded products, which are imported without the authorisation of the official distributor or intellectual property (IP) owner and are usually sold at a lower price without the usual guarantee/after sales service.
In the normal course, the IP owner designates an authorised importer or distributor to sell and market its products in South Africa. This authorised distributor is responsible for product sales as well as after-sales services, including offering guarantees and warranties related to the product.
Section 34(2)(d) of our Trade Marks Act permits parallel importation. The provision states that a registered trade mark is not infringed by “the importation into, or the distribution, sale, or offering for sale within the Republic, of goods to which the trade mark has been applied by or with the consent of the proprietor.”
The biggest drawback of parallel imports is that the IP owner lacks control over how the parallel importer handles the brand and product. It seems then that this is a ‘lose-lose' for the IP owner? Not just yet! *Consumer Protection Act enters the chat*. Section 25(2) of the Consumer Protection Act mandates that “a person who markets any goods bearing a trademark, but that have been imported without the approval or license of the registered owner of that trademark, must attach a conspicuous notice to those goods in the prescribed manner and form.”
This provision aims to inform consumers that these goods are not covered by any guarantee from the authorised distributor, enabling them to make an informed decision. The notice must be legible, in plain language and placed in a visible location on the product where consumers are likely to notice it.
If the grey goods feature a trade mark, the notice must clearly indicate that the goods have been imported without the approval of the registered trade mark owner. It must also specify that NO GUARANTEE OR WARRANTY WILL BE HONOURED by any authorised importer of the goods. This provides consumers with some form of protection by ensuring that they are aware that they are paying a lower price for the product without any after-sales guarantees or warranties.
South African courts have dealt with several cases related to parallel imports usually relying on the ‘exhaustion of rights' principle. As long as the goods are genuine and lawfully sold in another country, IP owners cannot prevent their importation into South Africa. As with anything in life, there is, however, a proviso to this: If goods have been altered to such an extent that they can no longer be said to be the genuine or original goods, this may constitute trade mark infringement. By extension, the goods could also be considered counterfeit goods, as contemplated in the Counterfeit Goods Act. Each case will be determined by having regard to the nature of the goods and the nature, purpose and extent of the alterations.
Parallel imports present both opportunities and challenges for various stakeholders. While consumers often benefit from lower prices and increased access to products, IP owners, manufacturers and authorised retailers may face disruptions to pricing strategies, brand control, and revenue. Regulators are tasked with balancing the interests of free trade and consumer protection with concerns over intellectual property and regulatory compliance. Ultimately, the impact of parallel imports depends on the specific market and legal environment, highlighting the need for clear policies that address both consumer benefits and the potential risks to businesses and economies. It remains to be seen how the lawmaking, regulatory and judiciary bodies address parallel imports in the future in South Africa.
As for the consumer, by understanding the risks and trade-offs associated with grey goods, you can make more informed decisions about them.
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.
