Grey im­ports caus­ing grey hairs

While le­git­i­mate, sell­ers of par­al­lel im­ports are obliged un­der law in SA to dis­close goods’ lack of war­ranties

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - AYE­SHA DAWOOD

PAR­AL­LEL im­ported prod­ucts are le­git­i­mate man­u­fac­turer prod­ucts that are brought into a coun­try through unau­tho­rised dis­tri­bu­tion chan­nels and im­ported with­out the per­mis­sion of the man­u­fac­turer, who is the holder of in­tel­lec­tual property.

They are not coun­ter­feited or pi­rated prod­ucts. They may have been and are some­times pur­chased from le­git­i­mate cross-bor­der third-party sup­pli­ers in dif­fer­ent coun­tries and brought into a coun­try. They could also have been man­u­fac­tured for dis­tri­bu­tion in a dif­fer­ent coun­try and brought into a coun­try for re­sale.

Coun­tries’ laws dif­fer on the sale of par­al­lel im­ports; it is al­lowed in some coun­tries and not in other coun­tries.

Par­al­lel im­ported prod­ucts, also re­ferred to as grey mar­ket im­ports, cut man­u­fac­tur­ing com­pa­nies’ au­tho­rised dis­trib­u­tor­ship chan­nels’ re­turn on in­vest­ment. Hence man­u­fac­tur­ers and their au­tho­rised dis­trib­u­tors are dis­in­clined and gen­er­ally do not cover war­ranties for par­al­lel im­ports.

Un­der South African law they are not obliged to cover war­ranties for par­al­lel im­ports and a seller of par­al­lel im­ports is obliged to tell you so. In fact, a par­al­lel im­port seller must do so — con­spic­u­ously in terms of the South African Con­sumer Pro­tec­tion Act of 2008 which pro­vides that “a per­son who mar­kets any goods that bear a trade­mark, but have been im­ported with­out the ap­proval or li­cence of the

Dis­putes on par­al­lel im­ports will emerge as they hinge on dif­fer­en­tial pric­ing sys­tems

reg­is­tered owner of that trade­mark, must ap­ply a con­spic­u­ous no­tice to those goods in the pre­scribed man­ner and form”.

Par­al­lel im­ports are le­gal in SA and in har­mony with ex­ist­ing trade­mark, copy­right and patent law in SA. Notwith­stand­ing, we need to be mind­ful of on­go­ing de­bates about the prin­ci­ple of ex­haus­tion of rights which lim­its a patent holder’s right. Once a patented prod­uct is sold, the man­u­fac­turer’s rights are ex­hausted by the act of first sale and sub­se­quent re­sale of the prod­uct can­not be pro­hib­ited and the de­bate around whether per­mis­sion of the IP holder should be ob­tained and whether the ex­press con­sent re­quire­ment is re­stric­tive.

It is worth con­sid­er­ing that as a con­se­quence of the ex­haus­tion prin­ci­ple (no re­stric­tions on sub­se­quent sale), par­al­lel im­por­ta­tion pre­vents mar­ket seg­men­ta­tion and its at­ten­dant profit max­imi­sa­tion for a spe­cific enti- ty, hence man­u­fac­tur­ers tend to be wary of par­al­lel im­ports. Trade poli­cies may have a dif­fer­ent take and see the value of par­al­lel im­ports in global trade and in cre­at­ing a mar­ket for free move­ment of prod­ucts.

Dis­putes on par­al­lel im­ports will emerge as they hinge on dif­fer­en­tial pric­ing sys­tems that af­fect the in­tel­lec­tual property holder’s rights. In ad­di­tion, in cer­tain sec­tors they may just as well in­vite com­pe­ti­tion as well as bring into play a range of po­ten­tial an­titrust is­sues. Par­al­lel im­port dis­putes need to be re­solved in­ter coun­try as the agree­ment on trade re­lated as­pects of in­tel­lec­tual property rights, gov­erned by the World Trade Or­gan­i­sa­tion (WTO), does not al­low for coun­tries to bring par­al­lel im­por­ta­tion le­gal dis­putes to the WTO.

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