The parallel universe: how to protect your brand from ‘foreigners’

Parallel importing. That’s been legal in New Zealand for ages, hasn’t it? Well, yes and no. If we’re talking about branded goods and not music, films or software, then parallel importing has been legal here since 2003 and it’s allowed traders to import genuine goods bearing a trade mark (think L’Oreal perfume or Sony cameras) that are sourced from an overseas supplier rather than the authorised distributor in New Zealand. So what legal weapons are available to local businesses whose investment is being put at risk by cheap imports? 

Parallel imports are not to be confused with counterfeit goods, which are infringing goods produced without permission from the owner of the trade mark (think fake hand bags, watches and memory sticks). The Trade Marks Act 2002 says it’s okay to import, advertise and sell genuine trade marked goods so long as they were put on the market somewhere in the world by the trade mark owner or with his or her express or implied consent. This has meant that in most cases, if genuine trade marked goods have been put on the market outside New Zealand, it is pretty hard to prevent them coming here to compete (often at a cheaper price) with the authorised goods of the local distributor.

Scenario: Famous US toothpaste company sells a shipment of branded toothpaste manufactured for the Asian market to an Indian retailer. The retailer sells the shipment on to a local importer, who offers it to a supermarket chain at a cut rate price in order to shift the products before the use by date. The authorised New Zealand distributor loses market share, and receives numerous complaints from customers about the different taste of the product.

Although the parallel importation provisions have not been tested in the New Zealand courts, there has over the years been a considerable amount of discussion about how to get around them. The most popular option was a transfer of the New Zealand trade mark registrations in question to the local subsidiary or distributor, so it could then argue the products had not been put on the market overseas with consent of the trade mark owner.

Scenario: Famous US brand owner assigns its New Zealand trade marks to the local subsidiary. The subsidiary files a notice with Customs and asks for parallel imports to be stopped at the border. It threatens trade mark infringement against any imported goods that get through the Customs net.

To the extent that this scenario would have worked to prevent parallel imports, it is much less likely to be effective since amendments to the Trade Marks Act last month. The law has now been tweaked to allow parallel importation of goods that have been put on the market anywhere in the world by an ‘associated person’ of the registered owner. An ‘associated person’ includes a member of the same group of companies as the trade mark owner. It also includes a person who has ‘effective control’ of the use of the trade mark (which is defined broadly).

Parallel importing has always inspired mixed feelings here. We’d all like to have cheaper consumer goods, and historical research has suggested that allowing parallel importing is likely to provide net gains to the New Zealand economy as a whole. However, what of the local subsidiary or distributor? Would we be concerned if local businesses became unsustainable on this basis and could no longer offer branded products? Or would they just be casualties of the globalisation of trade?

There are still legal weapons available to local businesses who suffer from parallel imports, depending on how those goods are marketed. Action might be available for passing off, copyright infringement and breaches of the Fair Trading Act.

Scenario: The imported toothpaste contains minimal fluoride. The packaging makes a fluoride claim that was acceptable under Indian law but is likely to mislead New Zealand consumers, giving the local distributor a Fair Trading Act complaint.

Scenario: The importer copies some of the local distributor’s website material to advertise the imported toothpaste, giving the distributor a copyright infringement complaint.

These options will be available only in appropriate fact situations and, in the meantime, may not provide much comfort. The best remedy is tight control over the supply chain from manufacture to local distribution – which is easier said than done. For the time being, our government has decided that parallel imports are a good thing and that is the playing field we have to work with. If you are affected by parallel imports, do assess parallel goods and marketing materials carefully to see if there are any grounds for taking action to protect your customers and your market share. And if you are an importer, take care with your marketing.

  • Jenni Rutter is a special counsel at Kensington Swan, specialising in Intellectual Property matters. [email protected]

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