Parallel Imports Committee Advocates for Balanced Protection Against Imports That Interfere with IP Rights

Parallel imports (or gray market goods) are branded goods that are imported into an unintended market and sold there without the trademark owner’s consent. Parallel importers usually purchase products in a jurisdiction at a price (price A) which is cheaper than the price in a second jurisdiction (price B), import the products into the second jurisdiction, and benefitting from arbitrage, sell the products in that jurisdiction at a price which is usually between price A and price B.

The legality of parallel imports in a given jurisdiction depends on whether the jurisdiction applies the principle of national, regional, or international exhaustion. The European Union, for example, adopted a concept of regional exhaustion, meaning a product which was placed on the market by the trademark owner (or with its consent) in any member state of the EU or of the European Economic Area (EEA) can be resold anywhere within the EU or the EEA. Imports from outside the EU/EEA, however, are illegal (without the trademark owner’s consent). International exhaustion, by contrast, means that once branded goods have been put on the market anywhere else in the world by the trademark owner or with the owner’s consent, the goods can also be resold in the jurisdiction applying international exhaustion, such as Switzerland or the United Kingdom.

While such parallel distribution is an element of free trade and should lead, in theory, to more competition and better prices for consumers, it often interferes with the legitimate interests of brand owners and leads to an inability of the brand owner to control the quality of its goods in a specific market. Often, products are tailored to the specific tastes or needs of a particular market. But with parallel imports, the market is confronted with different versions of the same product. Sometimes, different regulatory frameworks lead to product differences and, to be able to import products from one jurisdiction into another, parallel traders modify the product and interfere with its integrity. A well-known example is pharmaceutical products: Parallel importers often must adapt the product packaging to the legal requirements and language of the import jurisdiction and do so by affixing a sticker with all mandatory information to the outer packaging (re-labeling) or even by repackaging the product into a completely new outer packaging (re-boxing).

INTA advocates for the national (or regional) exhaustion of trademark rights in relation to parallel imports. In jurisdictions that currently follow international exhaustion principles, and in which political or other conditions make it improbable that national exhaustion would be implemented, a material differences standard should be adopted to exclude parallel imports that are materially different from those products authorized for sale by the brand owner in the domestic market.

The Parallel Imports Committee (PIC) develops and advocates INTA’s policy on balanced protection against parallel imports. The PIC monitors and analyzes developments in treaties, cases, legislation, and regulations in various jurisdictions to provide valuable input and insights where needed and to propose policy recommendations to INTA’s Board of Directors.

The PIC is currently divided into three subcommittees:

The Material Differences Subcommittee collects and analyzes information on material differences standards in select jurisdictions to determine circumstances that may reasonably qualify as “material differences” and allow for exceptions to international exhaustion. Its goal is to develop a policy position based on fact patterns, and to advocate for material differences standards in jurisdictions with international exhaustion, to ban the import of materially different products.

The aim of the Lever Rule Subcommittee is to revive INTA’s advocacy efforts to achieve changes to the so-called U.S. Lever Rule and its application. This rule permits the importation of gray market goods into the United States which are different from their domestic counterparts if the importer affixes a certain disclaimer to the goods.

Finally, the Current Developments Subcommittee closely monitors all new legal and political developments regarding parallel trade. It assists INTA in responding to consultations and in developing position papers for legislative processes or amicus briefs for important court proceedings.

The PIC is currently working on responding to planned legislative changes in EU pharmaceutical law which would further limit brand owners’ ability to maintain control over the integrity of their products in the market. In April 2023, the European Parliament adopted a proposed revision of the EU Medicines Directive which includes a provision according to which, “for the purpose of patient safety, Member States may decide that medicinal products imported or distributed in parallel shall be repackaged in new outer packaging.” However, re-boxing severely interferes with the integrity of a medicinal product’s packaging, creates risks for patient safety, and leads to an unnecessary amount of packaging waste. To assist stakeholders in understanding the issues, the PIC has drafted a position paper which it shared with relevant government officials.

The PIC’s projects and advocacy efforts support the goal of well-balanced protection against parallel imports which often substantially interfere with the legitimate interests and reputation of trademark owners and, at the same time, can create risks to consumer safety.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest.

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