Does your business import and resell goods from overseas markets? Parallel import goods are commonly found in the Singapore market, with cars, chocolates and beauty products being just a few examples. However, does their prevalence mean it is safe to deal in parallel imports? In this article, we highlight some of the trade mark-related issues that businesses may face when trading parallel imports in Singapore.
What are parallel imports?
One way to understand parallel imports is by identifying what they are not. Importantly, parallel imports are not counterfeit goods. The term "parallel imports" refers to goods which are first sold in an overseas market with the brand owner's authorisation, only to be imported into another market (in this case Singapore) without the brand owner's authorisation.
Not only are the goods genuine products, but they may potentially be retailed at a lower price than the counterparts sold by authorised retailers. In fact, during a Singapore Parliamentary Debate, it was noted that parallel imports provide consumers with "a wider choice of products which they can purchase and also at cheaper prices".1
The parallel import trade also offers opportunities for local entrepreneurs. Small or medium-sized businesses, in particular, may find that trading in parallel imports provides a foothold to compete with more established traders in the Singapore marketplace.
In many cases, these goods already have sufficient reputation in Singapore to attract customers, which saves parallel importers the expense of conducting extensive advertisements. Moreover, local businesses may wish to avoid being bound by licensing and distributorship agreements. By operating as parallel importers, they also may not need to provide warranties, guarantees and follow-up customer care services.
In summary, parallel imports are here in the Singapore market, and both local consumers and businesses appear to benefit. However...
Is it legal to trade in parallel imports?
This is a common query from local businesses, but one without a simple answer as there is no specific law on parallel imports. Instead, parallel imports are regulated under various rules and systems in Singapore, including trade mark laws.
Under Singapore's Trade Marks Act (TMA), trade marks include not just names and logos, but potentially even shapes, colours, aspects of packaging or combinations thereof. If a person or company desires to use a third party's trade marks in commercial activities, then it is usually necessary to obtain a licence to avoid infringement. A company or individual with a registered mark in Singapore has rights to claim infringement against a third party's unauthorised use of an identical or similar sign for the same, or similar goods or services in Singapore, that could lead to the likelihood of confusion.
This would include trading in parallel import goods which bear the trade marks of third parties, if not for a defence in the TMA that is commonly known as "exhaustion of rights". The defence applies to commercial activities such as importing and retailing genuine products that were first put on the market with the registered owner's consent. This "market" can be one located in Singapore or overseas, which expressly covers parallel imports from overseas markets.
In practice, however, relying on this defence is not so straightforward. Some key points to note include:
- Are the goods genuine products?
Firstly, the defence only applies if the goods are genuine products. This can be difficult to verify, especially if the goods are sourced through a complex cross-border supply chain. In many cases, a parallel importer may not be in a position to conduct their own checks and/or seek assurances from their supplier. What they assume to be genuine products may in fact turn out to be counterfeits.
A 2021 decision involving the global Fujifilm group and a Singapore-based company illustrates this risk.2 The local company claimed to be a parallel importer of Fujifilm goods. However, as there was no credible evidence of the identity of the supplier, the Judge found that these were not genuine goods and the defence to infringement did not apply.
- Were the goods put on a market with the owner's consent?
Secondly, the parallel importer will need to verify that the registered owner's goods were put on the market (whether overseas or in Singapore) with their consent.
In a 2017 case3, this became the main reason why the Singapore-incorporated company, An Sheng Trading, was unable to rely on this defence. Although An Sheng was importing genuine Samsonite backpacks, the Court found that An Sheng had infringed Samsonite's registered marks.
This was because Samsonite had only consented to their backpacks being supplied to the computer manufacturer, Lenovo, under a co-branding agreement. The backpacks were to be given away with the sale of certain Lenovo laptops in China. Before this could be achieved, the genuine products were diverted by Samsonite's authorised dealers into the hands of other traders such as An Sheng. As such, Samsonite's goods had never actually reached the market with their consent.
Hence, even if the goods are genuine products, the issue of whether the registered owner had actually put them on a market raises a potential roadblock to relying on the exhaustion of rights defence.
- Are there changes to the condition of the goods?
Moreover, the defence may not operate if the condition of the goods had been changed or impaired since they were first put on the market with the consent of the registered owner.
Changes to the goods are not limited to visible damage or spoilage. There could be subtle changes such as the removal of barcodes and machine-readable tags which may not be easily ascertained by parallel importers. If these changes are considered to have unfairly diluted the distinctive character of the registered mark, the parallel importer also will not be able to rely on the exhaustion of rights defence.
In the Fujifilm case discussed above, the Judge considered that even if the goods had been genuine products, the Singapore company would have been liable for infringement as there were changes made to the firmware and print-speed configurations of the machines.
What are the consequences of infringing a registered mark?
Trade mark infringement is a serious offence. The penalties include being ordered to pay the registered owner monetary damages or an account of profits. The amount will be based on various factors, including the evidence of losses suffered as a result of the infringing conduct. Further, the Court can make orders to disclose information and documents relating to the infringing conduct. Based on the Court's findings of infringement, the registered owner can also ask e-commerce sites to take down a parallel importer's product listings.
Key takeaways
Parallel importers do have a defence against trade mark infringement, but various conditions have to be satisfied, including but not limited to those outlined above.
Moreover, infringement of a registered mark is not the only risk that a parallel importer faces. Brand owners may also be able to take action based on unregistered rights if the retail of parallel import goods gives rise to misrepresentation and a likelihood of confusion.
In addition to trade mark rights, brand owners can also seek to enforce other intellectual property rights. In some cases, multiple types of intellectual property rights may subsist in a single product. For example, software and firmware in the Fujifilm case were also protected by copyright. By importing the machines into Singapore with unauthorised modifications, the local company was found to have infringed not only Fujifilm's trade mark rights but also their copyright.
In conclusion, local businesses should be mindful that dealing in parallel imports is not without risks. The legality of trading parallel imports varies on a case-by-case basis and professional advice may be considered in order to better manage these risks.
This article was first published on ASME's corporate website.
Footnotes
1 Sing. Parl. Debates, Official Report (25 August 1994) Vol. 63 at cols 413 – 416
2 FUJIFILM Business Innovation Asia Pacific Pte Ltd and others v. PTC Business Systems Pte Ltd. [2021] SGHC 272
3 Samsonite IP Holdings Sarl. v. An Sheng Trading Pte Ltd. [2017] SGHC 18
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.
