Online shopping’s massive growth has significantly increased the ability for consumers to source products from overseas. It has also opened options for retailers seeking to provide Australian consumers with goods that might be available more cheaply overseas. Goods imported and sold in a manner other than through official distribution channels are known as ‘parallel imports’, or sometimes ‘grey’ or ‘direct’ imports. For example, headphones purchased from an authorised supplier in the USA and subsequently imported to Australia for sale (without the manufacturer’s authorisation) would be considered a parallel import.
Parallel importing raises a number of legal concerns for manufacturers/brand owners, importers, and consumers. While parallel importing can in many cases be legally done, both manufacturers and parallel importers need to be aware of their rights and obligations under both intellectual property and consumer law. Manufacturers may be seeking to control the manner in which their goods are distributed, while importers should know the circumstances in which they may be infringing on the manufacturer’s rights as well as their obligations under the Australian Consumer Law.
Reasons for Parallel Importing
The primary reasons for engaging in parallel importing are that the product is available overseas for a lower price than in Australia, or that the product is not available in Australia through official channels.
It is a common complaint that Australian consumers are victims of price discrimination, i.e. goods sold in Australia are often more expensive than those available overseas. IT products, including software, music, and videos are particularly notorious for being overpriced in Australia. In July 2013, the House of Representatives Standing Committee on Infrastructure and Communications produced a report: At what cost? IT pricing and the Australia tax (Australia Tax Report). Among the findings in that report was that Australian consumers do indeed pay more for IT products and that the increased cost does not reflect additional costs borne by IT product suppliers in selling to the Australian market.
Although the Australia Tax Report dealt specifically with IT products, it recommended an amendment of the Copyright Act 1968 and the Trade Marks Act 1995 to specifically remove any remaining restriction on parallel importing, which would apply across the board and not only to IT products.
In some cases, a manufacturer may make versions of products for specific markets, and opt only to sell those products in the regions for which they were manufactured. This is common practice for electronic goods, such as mobile phones.
Legality of Parallel Imports
The legal basis for challenging parallel importing is that it constitutes an infringement of intellectual property rights. Specifically, complainants may regard the unofficial importation of their products as an infringement of their copyright or their trade marks. In Australia, however, the Copyright Act 1968 and the Trade Marks Act 1995, and the Designs Act 2003 all contain provisions designed to expressly permit parallel importing.
Sections 44A to 44F of the Copyright Act 1968 contain express exceptions to copyright infringement in the case of parallel importation. These exceptions apply when importing specific types of products or materials which either attract copyright protection themselves or are accompanied by copyright protected material.
In addition to defining ‘accessories’, the legislation refers to specific types of articles. There are specific sections that relate to books, chemical products, medicines and other healthcare information, other articles, sound recordings, computer programs, and electronic literary or music items.
Of particular note is section 44C of the Copyright Act 1968, which applies in the case of importation of ‘non-infringing articles’. This section states that the copyright embodied in accessories to imported goods (notwithstanding the other sections that may apply), is not infringed by the importing, sale, hire, or public display of the non-infringing articles. ‘Accessory’ is defined under the Act to include product labelling and packaging, as well as accompanying written information, or instructional sound or video recordings.
The provision is designed to prevent manufacturers from using copyright law to prevent parallel importing and was introduced after the case of R.A. Bailey & Co. Ltd. v. Boccaccio Pty. Ltd (1986) 6 IPR 279. Here, the manufacturer of Baileys’ Irish Cream successfully prevented parallel importation by claiming infringement of the copyright in the artwork in the labelling and packaging of the product.
Since the introduction of the section 44C exception to copyright infringement, the Federal Court has confirmed that copyright law is not to be used to prevent parallel importing. In the case of Polo/Lauren Company LP v Ziliani Holdings Pty Ltd  FCA 49, parallel importer Zilani successfully relied on section 44C to defend against a claim of copyright infringement in respect of a logo affixed to imported clothing.
The above cases demonstrate that given the availability of the defence under section 44C, allegations of copyright infringement are largely an ineffective means of preventing parallel importing.
In a similar manner to the protections found in the Copyright Act 1968, the Trade Marks Act 1995 contains a defence to trade mark infringement where the trade mark has been applied to goods with the consent of the trade mark owner. Under section 120 of the Trade Marks Act, a person infringes a registered trade mark if they use the trade mark without the permission of the trade mark owner. Use of the trade mark must be in the course of trade and in relation to the same or closely related goods/services to those for which the trade mark is registered.
Under section 123, selling goods or services to which the trade mark owner has applied their mark or given their consent will not constitute trade mark infringement. The defence does not apply to counterfeit products where someone may use the trade mark (or a similar mark) without permission in relation to goods which did not originate from the mark’s owner.
Despite this protection, however, there are certain circumstances in which parallel importing can constitute trade mark infringement. In most cases, the owner of the mark will be the same party that is manufacturing the original products. Some circumstances may arise, however, where another party makes the goods, and the trade mark owner simply acquires these for resale.
The trade mark owner may acquire these goods subject to certain conditions. As such, the importation and sale of goods where the trade mark owner has not consented to the application of the mark may constitute infringement.
The case of Lonsdale Australia Limited v Paul’s Retail Pty Ltd  FCA 584 demonstrates this scenario. In that case, parallel importer Paul’s Retail acquired branded Lonsdale products from the European Lonsdale licensee and sold these products. The Australian licensee (Lonsdale Australia Limited), however, was the owner of the Australian trade mark and had not consented to the application of the Lonsdale trade mark to the goods imported by Paul’s Retail. In particular, Lonsdale Australia did not play any role in the application of the trade mark to the parallel imported goods and was, therefore, counterfeit. Accordingly, Paul’s Retail could not rely on the section 123 defence to trade mark infringement.
The Lonsdale case demonstrates that parallel importers need to be very careful when selling imported products in Australia, and thoroughly check that the goods they are selling are indeed genuine products, with the trade mark applied with the Australian trade mark owner’s consent. A failure to do so may mean liability for trade mark infringement.
Preventing Parallel Imports
The above cases reveal some difficulties for manufacturers who may wish to prevent other parties from engaging in parallel importing of their products. With exceptions to copyright and trade mark infringement, it may seem that it is not possible to prevent parallel importing. However, the Lonsdale case demonstrates that this is not so, at least in respect of trade mark infringement. We discuss some practical steps available to manufacturers seeking to preserve their product distribution model below.
Trade mark ownership
Lonsdale Australia succeeded in stopping parallel importing because the owner of the Australian trade mark was the Australian entity, who had no relationship to the European licensee. Manufacturers may then wish to ensure that the Australian licensee is the owner of the Australian trade mark, and identify who dictates the terms on which the trade mark is applied to goods for sale in Australia. Doing so will mean that genuine products will be more difficult or impossible to acquire other than through official channels.
Trade mark owners are entitled to lodge a notice with the Australian Customs and Border Protection Service (ACBPS), requiring ACBPS to seize any goods bearing the relevant trade mark that an authorised party has not imported. This is a crucial step in preventing the flow of parallel imports into Australia. Trade mark owners should know that they will be required to provide an undertaking to ACBPS to pay the costs involved in seizure, storage, and destruction of seized goods. These costs may be recovered from the importer, assuming the trade mark owner takes action and is successful.
The issue of parallel imports can be a controversial one. On the one hand, many businesses rely on traditional models of product distribution to ensure their brand image and service quality. On the other, such models often involve price discrimination, which is generally perceived as negative for Australian consumers. This is especially true for goods that do not involve physical shipment of products, such as software delivered online. Even in circumstances where goods are physically shipped to Australia, it’s hard to justify increased prices solely on shipping costs. If shipping costs were high enough to justify inflated prices in Australia, there would be no means of engaging in parallel importing cost effectively.
On the whole, the protection for parallel importing is positive for Australian consumers. Although challenging for manufacturers, it is a means of encouraging them to adopt modern business practices based on increased product availability through the internet. If you have any questions, get in touch with our specialist trade mark lawyers on 1300 544 755.