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12 September 2017 Trade mark protection against parallel importers

By Eric Ziehlke, Partner

When an overseas manufacturer exports to Australia, it may choose to set up a distributor in Australia under an exclusive distribution agreement.  Unfortunately for the exclusive Australian distributor, unauthorised parties may source and sell in Australia genuine products which may have been originally manufactured and trade marked by the overseas manufacturer.  This parallel importation by unauthorised parties strikes at the heart of the exclusive agreement between the overseas manufacturer and its Australian distributor.  An important question is whether this type of parallel importation represents an infringement of the trade mark rights of the overseas manufacturer in Australia.  The short answer to that question is that such conduct does not usually constitute trade mark infringement. Parallel importation of this nature is generally protected under section 123 of the Australian Trade Marks Act (Act).  Under this section of the Act, no trade mark owner can claim infringement of its trade mark if the sale of the subject goods bears a trade mark which has been applied by the manufacturer or with its consent.  Furthermore, the rights of the parallel importer to sell such genuine goods in Australia generally extend to the publicising, advertising and distribution of such genuine goods. 

Does the overseas manufacturer own the Australian trade mark registration?

The above protection of the parallel importer against a claim of trade mark infringement assumes that the overseas manufacturer owns its trade mark in Australia.  However, trade mark registration rights apply only to the jurisdiction in which the mark is registered.  As a consequence, if the overseas manufacturer allows its Australian distributor to own the trade mark in Australia then the parallel importer usually cannot claim the protection of section 123 of the Act because the Australian trade mark owner did not apply the subject trade mark to the imported goods.

Conditional assignment agreements

Naturally, most overseas manufacturers are reluctant to allow their Australian distributors to obtain ownership of their trade mark rights in Australia.  As a consequence, some overseas manufacturers have set up conditional assignment agreements with their Australian distributors under which the distributor is allowed to become the registered owner of the trade mark in Australia on the condition that the mark will be assigned back to the overseas manufacturer when the distribution agreement terminates.  This contrived arrangement has generally proven to be successful under Australian law. Australian courts have been prepared to accept the beneficial ownership of the Australian trade mark by the distributor, declining to look behind this ownership into the contrived assignment agreement between the distributor and the overseas manufacturer. 

Arms-length relationship with Australian distributor

There are certain caveats to the general position on parallel importation outlined above.  It is important for the overseas manufacturer to maintain an arms-length relationship with its Australian distributor which owns the trade mark in Australia.  If the overseas manufacturer takes a controlling financial interest in the Australian distributor, that distributor's ownership of the trade mark could be deemed to be under the control of the overseas manufacturer.  As a consequence, the Australian trade mark owner could be seen to be consenting to the affixing of the trade mark applied by the overseas manufacturer.  In those circumstances, the parallel importer could thereby claim the protection of section 123 of the Act.

Trade mark affixed with the consent of the overseas manufacturer

From the viewpoint of the parallel importer, it is important to first check that the overseas manufacturer is the registered Australian owner of the subject trade mark before it commences parallel importation into Australia.  However, this precaution is not foolproof.  It is also important for the parallel importer to check that the trade mark on the goods it is importing was affixed with the consent of the overseas manufacturer.  In a world of global supply and complex licensing arrangements, it may be difficult to prove that the relevant consent was given to the affixing of the trade mark by the overseas manufacturer.  Parallel importers should also be careful that they do not expose themselves to a claim of misleading conduct if they imply that they can provide manufacturer's warranties which may apply to the imported goods.

Although the general position under Australian trade mark law on parallel importation is fairly settled, there are particular circumstances which make it advisable for Australian distributors and parallel importers to consult their intellectual property lawyers before embarking on major commercial activities which depend on the operation of section 123 of the Act.

Eric Ziehlke, Partner  |  Phone: +61 2 9233 5544  |  Email: ejz@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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