REPORT ON SPECIAL TOPIC

ASIAN PATENT ATTORNEYS ASSOCIATION INDIA 60 TH & 61 ST COUNSIL MEETINGS CHIANG MAI, THAILAND OCTOBER 27-31, 2012 BY Amarjit Singh Himanshu Kane REPORT ON SPECIAL TOPIC THE LEGAL AND PRACTICAL MEASURES TO PREVENT PARALLEL IMPORTS PARELLAL IMPORTS AND TRADEMARK LAW The Trademarks Act, 1999, through Section 30, contains specific provisions dealing with the exhaustion of rights. Section 30 of the Act provide as under: 30. Limits on effect of registered trade mark - (1) Nothing in Section 29 shall be construed as preventing the use of a registered trade mark by any person for the purposes of identifying goods or services as those of the proprietor provided the use- (a) is in accordance with honest practices in industrial or commercial matters, and

2 (b) is not such as to take unfair advantage of or be detrimental to the distinctive character or repute of the trade mark. (2) A registered trade mark is not infringed where (a) the use in relation to goods or services indicates the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of services or other characteristics of goods or services; (b) a trade mark is registered subject to any conditions or limitations, the use of the trade mark in any manner in relation to goods to be sold or otherwise traded in, in any place, or in relation to goods to be exported to any market or in relation to services for use or available or available or acceptance in any place or country outside India or in any other circumstances, to which, having regard to those conditions or limitations, the registration does not extend; (c) the use by a person of a trade mark (i) in relation to goods connected in the course of trade with the proprietor or a registered user of the trade mark if, as to those goods or a bulk or which they form part, the registered proprietor or the registered user conforming to the permitted use has applied the trade mark and has not subsequently removed or obliterated it, or has at any time expressly or impliedly consented to the use of the trade mark; or (ii) in relation to services to which the proprietor of such mark or of a registered user conforming to the permitted use has applied the mark, where the purpose and effect of the use of the mark is to indicate, in accordance with the fact, that those services have been performed by the proprietor or a registered user of the mark;

3 (d) the use of a trade mark by a person in relation to goods adapted to form part of, or to be accessory to, other goods or services in relation to which the trade mark has been used without infringement of the right given by registration under this Act or might for the time being be so used, if the use of the trade mark is reasonably necessary in order to indicate that the goods or services are so adapted, and neither the purpose nor the effect of the use of the trade mark is to indicate, otherwise than in accordance with the fact, a connection in the course of trade between any person and the goods or services, as the case may be; (e) the use of a registered trade mark, being one of two or more trade marks registered under this Act which are identical or nearly resemble each other, in exercise of the right to the use of that trade mark given by registration under this Act. (3) Where the goods bearing a registered trade mark are lawfully acquired by a person, the sale of goods in the market or otherwise dealing in those goods by that person or by a person claiming under or through him is not infringement of a trade by reason only of- (a) (b) the registered trade mark having been assigned by the registered proprietor to some other person, after the acquisition of those goods; or the goods having been put on the market under the registered trade mark by the proprietor or with his consent. (4) Sub-Section (3) shall not apply where there exist legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market.

4 The Courts in India have granted injunctions preventing parallel imports. However, common feature of these suits have been not the violation of the trademark Act but the allegation that the importers were passing off the parallel imported goods leading to confusion in the minds of the public and also damaging the reputation of the plaintiffs. Under the Indian Trademark Act 1999 points out that Section 30(3)(b) do permit parallel imports. As the parallely imported goods are genuine i.e. they have been put in the market by the trademark owner or with his consent, parallel importation is allowed. The rules regulating such parallel importation are found in Section1 (2)(n) of the Customs Act. However, Section 30(4) authorizes a right holder to restrict such parallel imports where a legitimate reason exists. What exactly constitutes a legitimate reason has not been discussed as yet, by the Indian Judiciary. JUDICIAL PRECEDENTS ON PARALLEL IMPORTS. In a case involving parallel imports and trademarks, CISCO Technologies v Shrikanth, the plaintiffs invoked Section 29(6)(c) and dealing with the defences under the Customs Act were successful in getting an ex parte order directing the Customs authorities to notify all ports to bar imports of defendants goods and also appointing a local Commissioner to cease all goods bearing the mark in issue and inventory the same. The issue of parallel imports in relation to the Trademark Act, 1999 was first dealt with in a comprehensive manner by the Delhi High Court in the case of Samsung Electronics Company Ltd. and Anr. v Mr. G. Choudhary and Anr. In this case an ex parte injunction was granted to the plaintiff thereby preventing the defendant from importing genuine Samsung products into India from China. It was held:

5 Indian law is quite liberal in permitting parallel imports of genuine goods bearing registered trademarks, provided such goods have not been materially altered after they have been put on the market. The general rule is that once trademarked goods are released anywhere in the world, by or with the consent of the trademark proprietor, that proprietor cannot assert its trademark rights to prevent imports of such goods into India, provided that such goods remain materially unaltered. In other words, once genuine goods are released into commerce anywhere by or with the proprietor's consent, all associated Indian trademark rights are exhausted. Such consent may be express or implied, direct or indirect. The underlying rationale for liberal exhaustion is that trademarks are deemed to connote trade origin and not control. The trademark proprietor may, however, impose contractual restrictions on a third party, such as a foreign licensee, against importing genuine goods into India, provided, that such restrictions pass muster under the Trademark Act and the MRTP Act, Indian's competition statute. Subsequently, if such genuine goods are imported into India, the trademark proprietor s remedy against the importer would be through a claim for breach of contract and not for trademark infringement. The issue of exhaustion was not expressly addressed in the 1958 Act, but the New Act statutorily introduces this concept. Section 30 of the New Act provides that where the goods bearing a registered trademark are lawfully acquired, the further sale or other dealings in such goods by the purchaser or by a person claiming to represent him is not considered an infringement if the goods have been put on the market under such mark by the proprietor or with his consent. Such goods may not have been materially altered or impaired after they were put on the market, however. A cause of action for trademark infringement may be available to the proprietor against an importer where the genuine goods have been materially altered without the proprietor's consent after they were put on the market. The burden of proving such consent is on the importer. A cause of action on the grounds of passing off is available if the trademark proprietor can show that the importer is passing off the goods in a misleading or improper way causing confusion in the minds of the public. As in other

6 forms of intellectual property rights, Indian courts routinely follow English precedent in the absence of guiding applicable Indian precedent. Even though the opinion of the court seems to indicate towards a pro-parallel import tendency, the injunction was granted on the facts of the case. In the case of Xerox Corporation v. Shailesh Patel the plaintiff owned the trademark Xerox and claimed that the defendants act of importing and selling second hand Xerox machines constituted trademark infringement. The defendants argued that their acts were covered under section 30(3), which recognises the principal of international exhaustion. Justice Sanjay Kishen Kaul of the Delhi High Court agreed with the defendants, holding that the import of (second hand) Xerox machines that have proper documentation is permissible under the Trademark Act, provided that there is no change or impairment in the machine. Subsequently in another case M/s General Electric Company v Altamas Khan and others the Delhi High Court passed an interim injunction restraining the defendant from dealing in General Electric (GE) dehumidifiers without authorization from the plaintiff. The defendant was found to be trading as GE Dehumidifiers and to be misrepresenting itself as a GE dealer. The imported products at issue were not supposed to be sold in India and the accompanying warranties were useless since GE did not sell dehumidifiers in India. The defendant had further tampered with the products by erasing the serial and model numbers, which help to identify and track the origin of the products. Thereafter, in the case of Louis Vuitton Mallettier v Abdul Salim and others1 a suit was instituted by the plaintiff as the registered proprietor of the aforesaid marks/logo/monogram seeking order against the defendant No. 1 carrying on business as defendant No. 2 from selling, offering for sale, advertising or dealing in hand bags, wallets luggage, footwear, leather and imitation of leather and goods bearing the aforesaid trademarks/logo/monogram. The cause of action for the suit

7 was the import by the said defendants of counterfeit goods of the plaintiff bearing the aforesaid trademarks/logo/monogram. Injunction was also claimed restraining the said defendants from importing the aforesaid goods bearing the trademarks/logo/monogram of the plaintiff and from passing off the same as plaintiff s goods. It is the case of the plaintiff that the Deputy Commissioner of Customs, Mumbai had seized the contents of a container which had arrived at Mumbai on 7th October, 2005, for the reasons of containing counterfeit goods of well known brands including of the plaintiff. The plaintiff on investigation found amongst the seized goods its counterfeit goods also. The court ruled in favour of the plaintiff and held that: The defendants No. 1 & 2 are proved to be illegally importing counterfeit goods of the plaintiff and infringing the registered trademarks/logo/monogram of the plaintiff. The defendants are not entitled to do so and the plaintiff is entitled to a decree for permanent injunction in terms of para 28 (a) & (b) of the plaint. RECENT UPDATES ON PARALLEL IMPORTS Samsung Judgment In a pioneering judgment on the issue of parallel imports, the Delhi High Court in Samsung Electronics v Kapil Wadhwa in 2012 held that the concept of international exhaustion does not have a place under Indian trade mark law. According to the Court, India has only adopted the principle of national exhaustion. The Court reasoned that Indian trade mark law does not distinguish between the import of genuine and non-genuine goods. Any goods bearing an identical or deceptively similar mark (compared to a registered trade mark), imported without the permission of the registered trade mark proprietor, is considered as infringing. The Court exquisitely applied several principles of statutory interpretation to the provisions of Indian trade mark law in order to reach this conclusion. This judgment opened the door for right holders to prevent parallel imports of even genuine goods into India.

8 Division Bench But the above case was over ruled by a Division Bench of the Delhi High Court. The Court has set aside the judgment of the Learned Single Judge which held parallel imports to be violative of trademark rights granted to the owner of the trademark. The Division bench of Justice Pradeep Nandrajog and Justice Siddarth Mridul set aside a single bench order in which the appellants have been restrained from importing printers, ink cartridges/toners bearing the trade mark Samsung/SAMSUNG and selling the same in India. The court s judgment came over a petition filed by Kapil Wadhwa, an erstwhile authorized dealer of Samsung products especially printers. The grievance of Samsung Electronics was that the appellants were purchasing, from the foreign market, printers manufactured and sold by it under the Trade Mark SAMSUNG/Samsung and after importing the same into India were selling the products in the Indian market. It was argued that the same constitutes infringement of the company s registered Trade Mark in India. But, while effecting sale of Samsung/SAMSUNG printers and ink cartridges/toners, the respondents shall prominently display in their showrooms that the product sold by them have been imported from abroad and that the respondents do not give any warranty qua the goods nor provide any after sales service and that the warranty and after sales service is provided by the appellants personally, the bench added. It was held that we accordingly conclude that the market contemplated by Section 30(3) of the Trade Marks Act 1999 is the international market i.e. that the legislation in India adopts the Principle of International Exhaustion of Rights, the bench held. Dell Case As in the Samsung case, music was also played in a case involving Dell computers. Three Indian importers (Venktron Digital Systems, Sapphire Micro

9 System and Momentum Technologies) imported around 500 Dell laptops into India from China. During the process of clearing the consignment at Customs, an alert was registered by Dell India Pvt Ltd for possible trademark infringement of their trademark Dell. Consequently, after hearing all the parties, the Customs Commissioner passed an order in favour of the three importers, based on interpretation of Section 30(3) (b) of Trade Marks Act, 1999,which provides that where the goods bearing a registered trademark are lawfully acquired, further sale or other dealing in such goods by the purchaser, or by a person claiming to represent him, is not considered an infringement by reason of the goods having been put on the market under the registered trademark by the proprietor or with his consent. However, such goods should not have been materially altered or impaired after they were put in the market. As in the Samsung case, the Dell matter is likely to go into appeal and it would be interesting to see how courts interpret this section of the Trade Marks Act. MEASURES TAKEN BY CUSTOMS TO PREVENT PARELLAL IMPORTS In compliance of its TRIPS obligation, the Government of India has notified the Intellectual Property Rights (Imported Goods) Enforcement Rule 2007 ( the Rules ) vide Notification No. 47/2007-Cus. (N.T.) dated 8 May 2007. The Rules lay down a detailed procedure for regulations of prohibitions of parallel import. Under the Rules, the brand owner is required to give a notice, in the prescribed format, to the customs requesting for suspension of clearance of goods suspected to be infringing trademark right. Such notice will be registered by the customs on execution of an indemnity bond and the brand owner has to indemnify customs against all liability and expenses on account of such suspension of imported goods. On registration import of all goods suspected to infringe the trademark rights will be suspended and proceedings for confiscation of goods will be initiated under Section 111 (d) of the Customs Act. Confiscated goods will be either destroyed or disposed off outside the normal channel of commerce with the consent of the brand owner.

10 The brand owner is also required to bear the costs towards destruction, demurrage and detention charges incurred till the time of destruction or disposal, as the case may be. The Rules do not apply to personal baggage or small consignments intended for personal use. INDIAN PATENT ACT AND PARALLEL IMPORTS Similarly, the Indian Patents law clearly allows parallel imports, even though, understandably, there has been no dispute with respect to parallel import involving patent infringement. Section 107A (b) of the Patents Act, 1970 provides that importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product shall not be considered as an infringement of patent rights. COPYRIGHT LAW AND PARALLEL IMPORTS India, having undertaken an international exhaustion regime for patents and trademarks, has also proposed an amendment in the Copyright Act, 1957. The Copyright Amendment Bill, which was passed by the Lok Sabha on May 22, 2012 (Rajya Sabha passed it on May 17), originally contained a provision recognising international exhaustion. However, this was dropped in the final version that was eventually passed, ignoring even the recommendation of the Standing Committee. Unfortunately, as has happened in many such cases, no debate took place in the Parliament on this point. On March 29, 2012, the Central Board of Customs & Excise issued a circular clarifying the legal position on the issue. The genesis of the debate was the Delhi High Court Order of February 2012 in a Samsung Case (the judgment which is set aside in appeal). The said Circular clarifies that parallel import is allowed under Indian Patents Act, 1970 and Trade Marks Act, 1999. \\192.168.1.100\Documents\vibha\REPORT 23.10.2012.doc