[Pharm-policy] Parallel Imports in Europe

[James Love]

Vergil found this.  It is a very good explaination of parallel import
disputes in Europe.  Jamie

http://www.derwent.com/ipmatters/interviews/hugh_brett.html

BRANDS IN EUROPE? - will 'parallel imports' be permitted to pass over
the European Union drawbridge? 

Hugh Brett discusses the issues with Anna Norman, Editor of IP Matters. 

AN. May I first ask, somewhat naively perhaps: what is understood by the
term 'parallel imports'? 
HB. It is not such a stupid question as you may think. Many people
disagree over the exact meaning of the term. 

It is easier to say what 'parallel imports' are not, than what they are.
Counterfeits, which have been unlawfully imported to deceive the
consumer as representations of genuine goods are not parallel imports -
an obvious example would be counterfeit watches made to look like the
genuine article. 

In contrast, 'parallel imports' are genuine products. They will have
been manufactured by the genuine owner, or have been licensed to be
produced with his consent and under his control. But there are grey
areas where people disagree over the extent of the term 'parallel
imports', for example when a licensee overruns a garment line beyond the
agreed limit provided for in his licence agreement. Known as the
'cabbage run' in the trade, are they genuine goods or not? 

So why is there a 'parallel import' problem if the imported goods are
considered to be genuine? 
Like all commercial disagreements, it is all about money. It is
commercially contentious because the imported goods will come from a
region where the branded goods are sold at a discounted price when
compared with the prices to be found in the country to which they are
imported. 

Branded products are the most vulnerable to parallel importing.
Considerable marketing and advertising costs will have been spent on
their promotion, but the financial rewards can be seriously undermined
if parallel imports are sold at discounted price compared to the
national brand and through unregulated outlets. 

Disputes involving 'parallel imports' are therefore generally over high
value products like clothes, perfume and fashion related accessories. 

Why does the law get involved in the 'parallel import' issue, when it is
fundamentally a political and economic question? 
Well, first there must be the making of a legal dispute, and with
'parallel imports' the interests of brand owners and retailers conflict.
The retailers want to source their clothes from the cheapest supplier,
normally in the Far East, but the brand owners do not want their
national/regional pricing and marketing systems undermined. They have
looked to intellectual property law to protect their commercial
interests by restricting 'parallel imports'. 

But why intellectual property law? 
The 'parallel import' question, as I have already indicated, is
fundamentally an economic and political one. Intellectual property law
has been dragged into the dispute by default, because they are national
rights, they can be used to restrict counterfeit goods and possibly
'parallel imports'. 

Please explain how intellectual property law is involved. 
In short, intellectual property laws are national monopoly rights, which
are infringed when unlicensed copies are made or branded names are
adopted without the owners consent. But infringement can also arise
(depending on the applicable national law) where unlicensed goods are
imported into the country as 'parallel imports'. 

The legality of 'parallel imports' became pertinent, for example, when
the European Union was formed and national barriers to trade within the
EU were being removed. 

Free trade principles, the European Court of Justice decided, were to
prevail over national intellectual property rights. In one leading
decision the European Court decided that when the action by the
electronic manufacturer Grundig to use its national trademark - GINT- to
divide the 'common market' on a country-by-country basis was unlawful,
parallel imports were to be allowed within the European Union. 

The 'parallel import' issue has now extended beyond national rights, and
the question is now whether regional or international exhaustion applies
to the exercise of trademark rights when faced with 'parallel import'
issues. 

So what is meant by 'exhaustion' of intellectual property rights? 
The term is a form of short hand used to describe the position when
intellectual property rights cannot be exercised to control 'parallel
imports'. 

If intellectual property rights cannot be used to control the movement
of goods within a country but can be used to control imports, then it is
said that they are exhausted 'nationally'. 

In an economic region like the European Union they are said to be
'regionally exhausted' when they can be exercised to control 'parallel
imports' but not movement of goods within the European Union region
itself. 

Finally if once the branded product has been sold and put on the market
and trademark rights are no longer pertinent in controlling their
ultimate destination then the trademark rights are said to be
'internationally exhausted'. 

So what is the position with 'parallel imports' and the European Union -
are they permitted?
It is an open question whether 'regional exhaustion' applies to the
exercise of trademark rights within the European Union. Or does
'international exhaustion apply' and 'parallel imports' are permitted? 

May trademark rights and indeed other intellectual property rights
restrict 'parallel imports' into the European Union itself? Can
'parallel imports' slip over the EU drawbridge? Or does the EU
intellectual property fortress restrain them? This is the hot issue at
the moment. 

Why?
Well as already mentioned the battle is between brand owners and
retailers, and two pending and important cases before the European Court
of Justice reflect this division. 

Both pending cases are concerned with well known branded products. One
relates to Levi jeans and whether trademark rights can be used to
prevent the 'parallel importing' of Levi jeans into the European Union. 

The other pending referral to the European Court of Justice concerns
Davidoff aftershave and the importation of genuine Davidoff shampoo
sourced from the Far East. 

The legal decision will be determined on detailed issues of trademark
law but the result will be very commercially sensitive. It is widely
believed that the brand owners will succeed before the European Court of
Justice in preventing 'parallel imports' and that the EU drawbridge will
be lifted, and that trademark rights will be sanctioned to protect
Fortress Europe from 'parallel imports'. 

Will that be the end of the matter? 
I very much doubt it! The European Court's decision is unlikely to be
unqualified and different meanings will, no doubt, be given to the
decision when taken apart by lawyers! 

Indeed even if trademark issues are clarified there are other
intellectual property rights that can be brought into play to complicate
matters. It will certainly be possible to argue that the packaging of
'parallel imports' infringes the copyright on the wrapping of the
products. Additionally there are design rights, patents and the
recently-enacted database rights which could all be brought into play by
creative lawyers, on behalf of brand owners' interests! One day the
European Commission may boldly step in to resolve the conflicting
interests. 

Hugh Brett is editor of the European Intellectual Property Review, and
of Counsel with the international law firm of White and Case. He is a
Professorial Fellow at Queen Mary and Westfield College, London
University.