Parallel Imports / Gray Market

What Are Parallel Imports / Gray Market Goods?

Parallel imports (or gray market goods) refer to branded goods that are imported into a market and sold there without the trademark owner’s consent in that market.

The goods have been manufactured by or under license of the brand owner and therefore are not counterfeit, but they may have been formulated or packaged for a particular jurisdiction and are imported into a different jurisdiction in contradiction to the brand owner’s intention.

Exhaustion of IP rights refers to the extent to which an intellectual property (IP) rights holder can control the distribution of its branded goods. According to the concept of exhaustion, once an IP rights holder sells a product to which its IP rights are attached in a particular jurisdiction, the rights holder must allow the resale of that product in that jurisdiction. The trademark rights covering the product have been “exhausted” by the first sale.

There are two types of exhaustion regimes: national (or regional) and international.

National exhaustion is a system that considers the brand owner’s trademark rights exhausted for a specific country or region once goods in relation to which the trademark is used have been put on the market in that particular country or region by the trademark owner or with the owner’s consent. The exhaustion does not extend to other countries or regions, which allows the owner to rely on its trademark rights to prevent the unauthorized sale of these goods in other markets.

International exhaustion is the principle that once goods in relation to which the trademark is used have been put on the market somewhere in the world by a trademark owner or with the owner’s consent, the owner has exhausted its trademark rights in relation to the sale of those goods anywhere in the world.

The material differences approach is similar to the international exhaustion system but prohibits the sale of parallel imports if they are materially different from the goods that the trademark owner has authorized to be put on the market in a given country. What is considered “material” may vary from jurisdiction to jurisdiction.

Our Position

We advocate for the national (or regional) exhaustion of trademark rights in relation to parallel imports.

In addition, we support the principle that international exhaustion should not apply to parallel imports in the absence of clear proof that the trademark owner expressly consented to such imports, and that the burden of proof should be on the party seeking to prove such consent.

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