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Parallel Imports/Gray Market

What are parallel imports?

Parallel imports (sometimes referred to as gray market goods) refer to branded goods that are imported into a market and sold there without the consent of the owner of the trademark in that market.

The goods have been manufactured by or under license by the brand owner and therefore are not counterfeit However, they may have been formulated or packaged for a particular jurisdiction, and then are imported into a different jurisdiction from that intended by the brand owner.

Exhaustion of IP rights refers to the extent to which IP rights holders can control the distribution of their branded goods. According to the concept of exhaustion, once IP right holders sell in a particular jurisdiction a product to which their IP rights are attached, they must allow the resale of that product in that jurisdiction. The IP rights covering the product have been “exhausted” by the first sale.

There are two types of exhaustion regimes: national (or regional) and international. The debate between which is preferable has been highly controversial.

“International (or Global) Exhaustion of Rights”

“International Exhaustion” is the principle that, once goods in relation to which the trademark is used have been put on the market by a trademark owner or with its consent somewhere in the world, the trademark owner has exhausted its trademark rights in relation to the sale of those goods anywhere in the world.

“National (or Regional) Exhaustion of Rights”

“National Exhaustion” describes a system that considers the brand owner’s trademark rights exhausted for a specific country or region once goods in relation to which the trademark is used have been put on the market in this particular country or region by the trademark owner or with its consent. The exhaustion does not extend to other countries or regions thereby allowing the trademark owner to rely on its trademark rights to prevent the unauthorized sale of these goods in other markets.

"Material Differences Approach"

Some countries adhere to the international exhaustion system but will prohibit the sale of parallel imports if they are materially different from the goods that the trademark owner has authorized to be put on the market in that country. Countries employing a material differences approach may have different standards for what they consider to be “material”.

INTA's position

INTA advocates the national (or regional) exhaustion of trademark rights in relation to the parallel importation of goods.

In addition, the Association supports the principle that international exhaustion should not apply to parallel imports in the absence of clear proof that the trademark owner expressly consented to such imports, and that the burden of proof should be on the party seeking to prove such consent.

In those countries that currently follow international exhaustion, and in which political or other conditions make it highly improbable that national exhaustion would be implemented, a “material differences” standard should be adopted in order to exclude parallel imports that are materially different from those products authorized for sale by the trademark owner in the domestic market.

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