Shades of Grey: New parallel importation defence to trade mark infringement in Australia

By Caitlin McCrum, Rebecca Lobb
11 Oct 2018
It seems that it may now be easier in practice for parallel importers to rely on the parallel importation defence.

Recent amendments to the Trade Marks Act 1995 (Cth) have likely expanded the parallel importation defence to the benefit of importers of parallel products into Australia. In this article, we'll discuss the relevant changes and how these may impact on parallel importers and owners of registered trade marks in Australia.

What are parallel or grey goods?

Parallel goods (also known as grey market goods) are genuine goods that are imported into Australia without the consent of the owner of the Australian trade mark registration.

Trade mark owners generally dislike parallel importation as it lessens the control a trade mark owner has over the distribution of its goods. Another concern can be that genuine goods intended for one market can differ from genuine goods intended for use in another market, which can lead to consumer confusion over the features and/or quality of a branded good. For example, a genuine good manufactured for use in Thailand may have varied features to the equivalent genuine good manufactured for use in Australia. This may reflect, for example, consumer preferences, local conditions, or the prevailing regulatory regime.

On the other hand, parallel importers argue that parallel importation of goods increases competition and often lowers the cost for consumers purchasing genuine goods.

What is the parallel importation defence?

It has long been accepted under Australian law that trade marks are badges of origin and not badges of control.

In line with this position, section 123(1) of the Trade Marks Act previously offered a defence to trade mark infringement in circumstances where it could be shown that a trade mark had been applied to goods by, or with the consent of, the registered owner of the trade mark.

What was meant by the "consent" of the registered trade mark owner had been the subject of court action in Australia with previous decisions applying the defence narrowly.

In Paul’s Retail Pty Ltd v Lonsdale Australia Limited [2012] FCAFC 130, the Full Federal Court found the defence did not apply where the trade mark had been applied contrary to the geographical restrictions of a licence between the trade mark owner and the manufacturer of the goods. The implication of this decision was that importers of parallel goods needed to carefully investigate the circumstances under which a trade mark had been applied.

What has changed - amendments to the parallel importation defence

In response to a 2016 Productivity Commission Report in relation to Australia's intellectual property system, amendments have been made to the Trade Marks Act to expand the scope of the parallel importation defence, thereby confining the circumstances in which the parallel importation of goods will infringe a registered trade mark. These amended provisions will now apply for all actions for trade mark infringement initiated on or after 25 August 2018, even if the alleged infringement occurred before that date.

Most notably, section 123(1) of the Trade Marks Act has been repealed and a new section 122A has been introduced. Section 122A provides a limited defence to parallel importers who make "reasonable inquiries" in relation to the trade mark before using it. If, after making these inquiries, a reasonable person would have concluded that the trade mark had been applied to the goods with the consent of the trade mark owner (or one of its authorised users, or someone with significant influence over the use of the trade mark, or an associated entity of any of those people), then the importation of those goods into Australia will not infringe the relevant trade mark registration in Australia.

The Explanatory Memorandum to the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Act 2018 (Cth) provides some insight into what may constitute a "reasonable inquiry" for the purposes of the new provision. For example, it states that requesting and receiving a certificate of authenticity from a supplier would in most cases satisfy this requirement, although this will ultimately depend on the facts. If a supplier is able to provide a certificate of authenticity, but other factors indicate that the trade mark has not been lawfully applied to the goods (eg. the goods appear to be counterfeit, or the goods are offered at suspiciously low prices or through dubious trade channels), then further inquiries may need to be made by a parallel importer.

Importantly, this defence will apply if the trade mark owner or authorised user of the trade mark has given consent to the application of the trade mark, even if such consent was subject to a condition (such as that the goods are to be sold only in certain countries).

What this means for parallel importers

While the new parallel importation provisions of the Trade Marks Act are yet to be tested in Court, it seems certain that it will be easier in practice for parallel importers to rely on the parallel importation defence. For example, if a parallel importer makes reasonable inquiries and reasonably concludes that the trade mark has been applied by a licensee of the trade mark owner, the parallel importer may be able to rely on the defence even if the trade mark was applied in breach of any conditions imposed by the licensor (such as geographical conditions or quality standards).

This will no doubt have consequences for trade mark owners who seek to protect the use of their trade marks by authorising overseas entities to apply a trade mark to certain goods, but only in relation to certain geographical areas. Such licence restrictions are now common.

In such circumstances, where a trade mark owner or authorised Australian licensee is concerned about parallel imports (perhaps due to quality or standards issues), trade mark owners may need to implement stronger monitoring and enforcement of agreements with their licensees. This will be to ensure compliance with any relevant licence conditions instead of taking direct action against the parallel importer in circumstances where it is likely the parallel importer will be able to show it made "reasonable inquiries".

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.