Wrongs and Rights of Grey Importing (Part 1) by Brian Miller Solicitor

(previously featured in Fashion Business Weekly)

Brand owners often sell their products at different prices in different countries, in order to take advantage of the different market conditions that exist around the world.

Traders have long capitalised on these price differentials, purchasing products cheaply in one country and selling at a profit but below market price in another. As this practice of 'parallel importation' interferes with the brand owner's carefully formulated pricing policies, it is not surprising that they go out of their way to keep their markets partitioned by making life difficult for both parallel and grey importers.

If a European importer intends to bring goods from outside the EU (or more exactly, the European Economic Area, which includes Iceland, Liechtenstein and Norway), he has to be aware of a principle known as 'exhaustion of rights', which applies to a trade-mark owner that has put its goods on the market in any EEA Member State. If the goods were put on sale in Germany, for example, then under European law that manufacturer will have 'exhausted' its ability to use its trade-mark rights to prevent parallel importers from reselling those goods in other EEA Member States.

The European Court of Justice (ECJ) has, however, made it clear that there is no corresponding principle of 'international exhaustion' of rights under European law - that is, the same law does not apply to imports from outside the EEA. Furthermore, the ECJ has ruled that no EU Member State can introduce national legislation providing for the international exhaustion of trade mark rights, as this would allow grey importers to import goods from outside the EEA into that Member State and from there into the rest of the EEA.

So if, for example, Italy attempted to enact laws that allowed Italian grey importers to import products that had been put on sale in Taiwan, regardless of any EU or Italian trademark rights of the brand owner, then those laws would be held by the ECJ to be contrary to EC law, which takes precedence over Italian law.

The issue of consent

The issue of the international exhaustion of rights has been considered by the ECJ and the British courts on several occasions, particularly in the cases of Silhouette (1998), Sebago (1999), Davidoff (2001), Levi Strauss (2002) and Quiksilver (2004). The following principles have emerged from these cases.

If a manufacturer puts its goods on sale outside the EEA, the only way in which that manufacturer could be said to have exhausted its trade-mark rights within the EEA in relation to any importer of those goods from outside the EEA is if the manufacturer had 'consented' to those goods being resold in the EEA.

It is up to the grey importer to prove that such consent has been unequivocally given by the trade-mark owner. Consent can be inferred by the particular facts and circumstances in which the manufacturer has put the goods on the market - but it is important to note that consent will not be implied where the manufacturer has simply remained silent on the issue.

Suppose that a brand owner was selling its garments to a wholesaler in Mexico, and that the distribution agreement between the parties was silent on the issue of whether the seller consented to the goods being resold into the EEA. In such a case, consent would not be implied and any grey importer who bought goods from that Mexican distributor for ultimate sale in the EEA would find it very difficult to rely on the 'consent' defence in a trade-mark infringement lawsuit.

Of course, if the distribution agreement happened to contain an express provision stating that the manufacturer did consent to the goods being resold in EEA territories, then the grey importer would be in a much better position, assuming that it was able to produce a copy of this agreement in any potential court case. However brand owners are highly unlikely to give this kind of express consent in their contracts, as they will no doubt be well aware that this would damage their ability to partition markets.

The test for consent is therefore a tough one, and it seems that the only reliable ways for a grey importer to prove that express consent has unequivocally been given are (i) to ask the brand owner to grant its express consent in return for a fee, or (ii) to ask the distributor for a copy of its distribution agreement with the brand owner, if this happened to contain an express consent provision. It is crucial that the consent is obtained from the owner of the trade mark itself, and that the importer does not rely on consent given by a distributor alone. While a distributor may have a licence to use a trade mark for selling goods in certain territories, the question of whether that distributor consents to the goods being resold in the EEA is irrelevant. What matters is the consent of the trade-mark owner, and this can only be given by the owner itself.

The grey importer who ignores the issue of the trademark owner's consent runs the very real risk of being on the wrong end of a lengthy and costly trade-mark infringement lawsuit.

© Brian Miller, solicitor. This article may not be reproduced without the prior written permission of the author. This article reflects the current law and practice. It is general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.

Brian can be contacted at Stone King Solicitors.  For further news and information on legal topics of interest, please visit Brian's other blogs:

Brian Miller Solicitor's IP Blog

Brian Miller Solicitor's Computer Games Blog

Brian Miller Solicitor's Privacy & Data Protection Blog