Parallel imported products

While legitimate, sellers of parallel imports are obliged under law in SA to disclose goods’ lack of warranties

Disputes on parallel imports will emerge as they hinge on differential pricing systems

PARALLEL imported products are legitimate manufacturer products that are brought into a country through unauthorised distribution channels and imported without the permission of the manufacturer, who is the holder of intellectual property.

They are not counterfeited or pirated products. They may have been and are sometimes purchased from legitimate cross-border third-party suppliers in different countries and brought into a country. They could also have been manufactured for distribution in a different country and brought into a country for resale.

Countries’ laws differ on the sale of parallel imports; it is allowed in some countries and not in other countries.

Parallel imported products, also referred to as grey market imports, cut manufacturing companies’ authorised distributorship channels’ return on investment. Hence manufacturers and their authorised distributors are disinclined and generally do not cover warranties for parallel imports.

Under South African law they are not obliged to cover warranties for parallel imports and a seller of parallel imports is obliged to tell you so. In fact, a parallel import seller must do so — conspicuously in terms of the South African Consumer Protection Act of 2008 which provides that “a person who markets any goods that bear a trademark, but have been imported without the approval or licence of the registered owner of that trademark, must apply a conspicuous notice to those goods in the prescribed manner and form”.

Parallel imports are legal in SA and in harmony with existing trademark, copyright and patent law in SA. Notwithstanding, we need to be mindful of ongoing debates about the principle of exhaustion of rights which limits a patent holder’s right. Once a patented product is sold, the manufacturer’s rights are exhausted by the act of first sale and subsequent resale of the product cannot be prohibited and the debate around whether permission of the IP holder should be obtained and whether the express consent requirement is restrictive.

It is worth considering that as a consequence of the exhaustion principle (no restrictions on subsequent sale), parallel importation prevents market segmentation and its attendant profit maximisation for a specific entity, hence manufacturers tend to be wary of parallel imports. Trade policies may have a different take and see the value of parallel imports in global trade and in creating a market for free movement of products.

Disputes on parallel imports will emerge as they hinge on differential pricing systems that affect the intellectual property holder’s rights. In addition, in certain sectors they may just as well invite competition as well as bring into play a range of potential antitrust issues. Parallel import disputes need to be resolved inter country as the agreement on trade related aspects of intellectual property rights, governed by the World Trade Organisation (WTO), does not allow for countries to bring parallel importation legal disputes to the WTO.

14, April 2014, Business Law and Tax Review