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Parallel Importing on Websites

by Attilio Gorini e Fernando de Assis Torres

March 01, 2010

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These state-granted ownerships guarantee exclusivity rights on a businessperson’s own creation (Art. 129 of Law No 9,279/96) and establish an owner’s right to contest practices that may compromise his creation and ultimately bring him losses. Among these, we note Internet advertising and selling of products manufactured in the Brazilian market.

Website owners freely purchase the products on the Brazilian market and offer them to foreign companies for prices well below those practiced by the right-holding company and its exclusive distributors in the foreign market, a practice known as parallel importing.

Parallel importing involves introducing into a given country’s domestic market a genuine product acquired legally in another country, without the consent of the trademark’s owner. This phenomenon is also commonly called parallel market or gray market.

The main problem that trademark owners face is the absence of consistent treatment of parallel importing in international treaties and conventions, which relegates discipline of the practice to each country’s rule of law. In some markets, parallel importing is lawful and completely unrestricted, while others categorically prohibit the resale of goods originally purchased in a foreign market. It is therefore necessary to analyze the legislation of the country receiving the product in order to assess the parallel import’s lawfulness.

It goes without saying that treatment of the practice is closely tied to the principle of exhaustion of rights or trademark expiration, which is the understanding that exclusive rights on a trademark “expire” once the owner introduces the product into the market or authorizes someone to do so (Art. 132 of IP Law No 9,279/96).

In other words, lawful parallel importing necessarily depends upon the trademark owner’s consent, expressed or implied, in the country of destination. Otherwise, the first insertion of the product in the domestic market, through importation by an unauthorized third party, does not constitute national exhaustion of rights.

There is little controversy regarding explicit consent to import goods, since this requires simply presenting the instrument containing the trademark owner’s authorization.

The issue becomes more complex when considering unspoken or implicit consent from the trademark owner. Brazil’s case law shows a number of different understandings as to when consent is considered to be given. The main ones are as follows:

> Parallel importing is legitimate when there is a contractual or corporate relationship between the trademark owner (or licensee) and the party that sells the product in the foreign market (importer purchases goods directly from a manufacturer in the official distribution network, for example), or when the trademark owner and the importer a prior commercial relationship, in this case consisting of successive importations of the product, without any opposition from the rights holder; or

> The trademark owner’s failure to repress parallel importing where it originates, i.e. in the market where the products are originally purchased. This repression is understood to be effected through preventive measures adopted by the owner with their distributor/licensee, or through opposition against the actual parallel importer, depending on the locations of origin and destination of the unduly imported goods.

It is our opinion that in either of these two situations, preventive measures cannot be required of the rights holder in the absence of supposed or unmistakable knowledge about the unlawful occurrence. We must not impose on the rights holder, as a rule, the burden of investigating possible parallel importers, among other reasons because such a requirement would often entail arduous and difficult probing.

Therefore, some material proof of knowledge about the parallel importing is needed, and only the actual case will confirm whether the owner was negligent or diligent with regards to exportation of his products.

Particularly as concerns violations through the Internet, the effects do not spread in any predetermined way, as any web user, independent of their country of origin, can buy the products advertised on websites.

However, the fact that purchasing parallel imports occurs through the Internet does not exempt the website owner from responsibility, nor does securing a Brazilian domain name (.com.br) legitimize the practice. In fact, repression of this practice is enforceable in the website owner’s home location.

Additionally, introducing parallel imports into foreign markets could be repressed through customs inspections, depending on each country’s judicial system. As noted above, this measure is not necessarily required to rule out possible unspoken consent, but it could be effective in more extreme situations involving a large quantity of goods being sent abroad, and could also be an important way to control the sale of products.

Finally, it is possible to coordinate with the domain name registration agency or Internet site host to remove the website from the Internet. This is an appropriate measure especially when there is insufficient information to determine the residence of the party practicing parallel importing.

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Attilio Gorini

Advogado, Agente da Propriedade Industrial

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Fernando de Assis Torres

Partner, Lawyer

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