19 Jul 2012

The parallel importers' defence: how to establish "consent" of the Australian trade mark owner?

by Mary Still, Jeremy Wade

In practice, would-be parallel importers will have great difficulty in establishing consent and making use of the defence.

Australian trade mark owners will naturally be concerned about competition from grey market goods, that is, goods bearing their trade marks which were legitimately made overseas but were imported without their authorisation. They will be pleased by the recent Federal Court decision in Lonsdale Australia Limited v Paul’s Retail Pty Ltd [2012] FCA 584.

In Lonsdale, Justice Gordon found that a retailer (Paul’s Retail Pty Ltd, PRPL) was not entitled to sell imported "Lonsdale" branded goods in Australia which could legitimately have been sold in Europe. These goods were found to infringe registered trade marks owned in Australia by Lonsdale Australia Limited (LAL), which had not given its consent to the application of the marks on the goods.

PRPL attempted to make use of the parallel importers' defence to infringement set out in section 123(1) of the Trade Marks Act:

"a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark." [emphasis added]

PRPL properly conceded that it should bear the onus of establishing that the trade mark owner had consented before making use of the parallel importers' defence. Justice Gordon found that PRPL failed to discharge this onus.

How does a parallel importer establish consent?

Justice Gordon referred to three ways which consent could be established for the purposes of the parallel importers' defence. The first way, consent through the chain of title or supply chain, was not applicable here on the facts because LAL played no part in the application of marks to the imported goods.

The second way of establishing consent, for related entities within the same corporate group, was similarly considered by Justice Gordon to be inapplicable on the facts. The entity which applied the trade marks to the imported goods here (Punch, under licence from Lonsdale Sports Limited) was not in the same corporate group as LAL and thus PRPL could make no argument that LAL should be deemed to have consented on a corporate group basis.

These facts differ from those in the well known UK trade marks case Revlon v Cripps & Lee [1980] FSR 85 in which companies in the same corporate group were treated as a single functional entity for intellectual property purposes. Justice Gordon nevertheless commented that Revlon has not been "definitively accepted" for the purposes of the Australian parallel importers' defence. This suggests that even if Punch had been in the same corporate group as LAL, a Revlon-type corporate group argument may not have been successful.

Justice Gordon then considered the final way of establishing consent, by conduct. PRPL attempted to draw an inference that LAL had consented to the application of marks. PRPL argued that this was supported by the conduct of the licensor in failing to take action against Punch and the absence of licence conditions preventing Punch from selling the goods to the first purchaser, or preventing this purchaser from on-selling.

Justice Gordon rejected this argument, finding that none of the evidence established facts which LAL were required to answer. Accordingly, PRPL failed to establish consent, was not able to make use of the parallel importers' defence and was found to have infringed LAL's trade marks.

What does Lonsdale teach us about the parallel importers' defence?

Lonsdale illustrates how narrow the meaning of consent is for the purposes of the parallel importers' defence. In practice, would-be parallel importers will have great difficulty in establishing consent and making use of the defence.

Firstly, international brand owners can readily structure their affairs so that the Australian trade mark owner is legally distinct and incapable of giving consent to the application of marks to unauthorised imports through the supply chain.

Secondly, the defence may not be available even where marks are applied by a company within the same corporate group as the Australian trade mark owner.

Thirdly, and especially given the onus of proof, it will also be difficult for would-be parallel importers to establish consent by conduct.

The Lonsdale decision will no doubt be celebrated by brand owners because it affirms the wide scope to enforce rights against unauthorised imports into Australia. However, it is also possible that Australian consumers will have to pay more for branded goods if there is reduced competition from grey market imports and they may therefore be less happy.

The Lonsdale case has gone on appeal, so this might not be the last word on this important issue. We'll monitor any developments.

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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.