Alan Massenhove, Solicitor, of Sykes Anderson LLP’s Litigation and Dispute Resolution Department discusses parallel importing via the internet.

Parallel Importing and Exhaustion of Rights

Most people will recall the news headlines a few years ago relating to the legal battle surrounding Tesco importing Levi jeans from the USA and selling them at a substantial discount as compared with other retailers. The case established the principle known as parallel importing and has cast long shadows.

Briefly, parallel importing occurs where suppliers and retailers within the European Union source goods from outside the European Union which are subject to the intellectual property (‘IP’) rights of a third party without that third party’s consent. The rationale behind this principle is that the European Union can be seen as one market. Once an IP owner has introduced its goods into the European Market, they can be sold and resold within that market without limitation. For example, if I introduce products into Spain, there is nothing to stop a UK retailer importing them for sale on the UK market. This is known as the doctrine of exhaustion of rights.

Exhaustion of rights only applies to a given market. If I introduce goods into the Japanese market, these cannot be exported to the UK for sale in the UK market. Similarly with the US Market, products released there are not to be imported to the UK without the IP owner’s permission.

So Far, So Good

In a nutshell, the doctrine is simple enough and there are arguably strong commercial reasons behind it. The court, in the Tesco case, reasoned that Levis had spent considerable amounts building up a brand reputation in the UK and that, by offering the products at a lower price, Tesco were removing some of that mystique. The IP in the products belonged to Levis and they were entitled to protect it. Tesco’s consumer focussed argument did not persuade the court.

The doctrine has since become well established and brand owners and manufacturers have not been shy about marking their products with the market for which they are intended. Some manufacturers have been particularly intolerant of parallel importing to shut down alternative routes for products to reach the UK market.

The Penalties

Having established that parallel importing is affecting their product, the IP owner can issue proceedings to obtain an injunction to prevent further importing. They are also entitled to claim for an account of profits and delivery up of the importer’s stock of infringing products. It should be noted that even temporary importing into the European Union before ultimate sale in another market is still parallel importing.

The Extension of the Doctrine

The key point which all of this is building to is the recent case of KK Sony Computer Entertainment and another v Pacific Game Technology (Holding) Ltd in which it was held that a company based in and operating out of Japan who sold Sony PSPs designed for the Japanese market through a website specifically targeted at the UK and EU was liable under the doctrine of parallel importing.

The readiness of the court to accept that the sale through the website was parallel importing is a significant extension to the doctrine. Although it accords with the courts general stance in connection with jurisdiction over internet transactions, it is difficult to see where a line could be drawn. After all, it is not easy to prevent access to your website by users based in a particular area. Will passive sales i.e. from websites not specifically targeting consumers in the EU also be in breach of this principle? Does this imply an obligation on website traders to specifically limit the areas to which the products sold will be delivered?

Where Do We Go From Here?

Many consumer groups were thoroughly disgusted by the outcome of the Tesco case. The reaction to this case will be similar. However it is the distributors and retailers seeking more economical supplies of products protected by IP rights who are likely to feel the sting of this principle since there is no rule which prevents a holidaymaker visiting Japan from popping into a Japanese store and buying the product for a fraction of the price at which it is retailed in the UK.

Wholesalers, retailers and distributors will need to be wary when ordering products over the internet. They may need to verify the country in which the seller is located before placing orders and ensure that the product received does not have any indication that it was not intended for the European market. If there is such a marking the safest option would be to contact the IP owner and verify that the source of the shipment is legitimate – otherwise they could be faced with court proceedings.

Please note that this area of the law is a complex subject and you should not take or refrain from taking any step without full legal advice on your particular circumstances. The content of this article is of a general nature and no liability is accepted in connection with it or if any reliance is placed on it.