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Blurring the Boundaries

Parallel importing is the practice of importing goods for sale by retailers who are not part of a manufacturer's distribution chain. This practice usually involves branded goods which have a high market value within the European Economic Area ('EEA'). They are imported from countries outside the EEA where the prices are usually lower or resale within the EEA at prices which undercut the same or similar products already on the market. These imported goods are often referred to as 'grey goods'.

Parallel importers, and the retailers they supply, argue that without parallel importing the restrictions insisted on by manufacturers are unfair as they deny consumers the opportunity to benefit from competition by keeping prices artificially high within Europe.

In contrast, manufacturers and their retail distribution outlets hold the opinion that parallel imports infringe intellectual property rights and damage their business by selling goods otherwise than in accordance with their high standards of sales support. The issue is whether consumers want to pay for those standards or would prefer a 'pile them high, sell them cheap' approach.

Previous Legal Position
In 1998 there was a case involving the parallel importing of Silhouette branded sunglasses. The European Court of Justice (ECJ) concluded that, unless a manufacturer gives permission for parallel importing, it is not permissible to import and sell within Europe branded products originally sold outside Europe. This judgement was considered to be the general position of parallel imports until the UK Davidoff case.

In the Davidoff case, the subject of parallel importing was a range of luxury toiletries and cosmetics in the Cool Water range. These products were sold at a lower price in the Asia/Pacific region than in the EEA. In the Asia/Pacific region the goods were distributed subject to an agreement requiring the licensed distributor not to sell them outside that region. In practice, neither the distributor nor the manufacturer sought to restrict sales by purchasers in this way. The question was whether the manufacturer had consented to the parallel importation of the goods. The judge decided that Davidoff had given 'implied consent' by not effectively imposing an express prohibition on its goods being resold in Europe. Following this decision by the UK courts, the matter was referred to the ECJ in the hope that it would clarify the issue. Two other cases were also referred by the UK courts to the ECJ. These cases both involved the sale of Levi's jeans in Tesco stores.

The issues in the Tesco/Levi case were whether Tesco could legitimately sell Levi 501 jeans which it parallel imported cheaply from the US and Eastern Europe to sell in stores in the UK. Tesco was selling these jeans for £25 a pair in its UK stores as opposed to the usual price in excess of £45 a pair. Tesco claimed that by selling the jeans this cheaply it saved British consumers £42 million. Tesco's view was that it was giving the consumer what it wanted at the price it wanted. Levi argued the sale of its jeans in a supermarket context within the UK diminished its premium brand reputation. Levi had previously refused to supply Tesco with its jeans for sale in Tesco's supermarkets on the basis that Tesco could not provide the high level of sales support which Levi required to be provided to its customers. Levi effectively claimed that such sales service could not be given by staff in Tesco as they would not be able to advise consumers on the best fit and style.

Who was right? Was the ambience of an authorised Levi outlet and advice on fitting worth an extra £20 a pair? Should the consumer or the manufacturer have the right to decide?

Opinion of the Advocate General to the European Court of Justice
Both the Davidoff and the Tesco/Levi cases referred by the UK courts to the ECJ became the subject of an opinion of the Advocated General Christine Stix-Hackl. This opinion was complex and difficult to interpret and resulted in both Tesco and Levi claiming that it marked a victory for them.

The Advocate General concluded that it is for the national court to determine whether the trade mark owner had consented to the placing of and distribution of its products within the EEA. This would establish whether the trade mark proprietor had consented to the placing of and distribution of its products within the EEA and whether it retained any exclusive right to control such distribution with the EEA. At first sight this would seem to be a positive conclusion for Tesco: UK national case law at the time implied consent where a trade mark owner failed expressly to forbid the resale of its products within the EEA. The Advocate General then went on to say, however, that a national law which constitutes a general presumption of a waiver or an equivalent presumption is in principle precluded. This appeared to suggest that the decision in Davidoff was wrong, indicating a victory for Levi in this case and brand owners in general.

Confusingly, the Advocate General recognised that importers also have rights which merit protection by the court, seemingly a positive point for Tesco and consumers.

With reference to the Davidoff matter, also referred to the ECJ, the Advocate General said there would be legitimate reasons which may justify a trade mark owner opposing further commercialisation of products bearing its trade mark. Those would include any actions of third parties which affect the value, allure or image of the trade mark or products which bear that mark. The actions in mind were the removal of bar codes and the like which enabled the manufacturer to track products.

The ECJ
The Advocate General's opinion was not binding on the European Courts of Justice. Her role is to act independently and propose legal solutions to the ECJ. From her opinion it appeared there was no clear-cut winner. The ECJ subsequently handed down its opinion to be taken up by the UK courts. The result was rather different.
In forming its opinion, the ECJ considered the following questions:

" Can consent to marketing in the EEA be implied?
" Can consent be implied from silence of a trade mark owner?
" Is ignorance of a trade mark owner's opposition to importation into the EEA relevant?

Therefore, consent could only be implied if the trade mark owner had clearly showed an intent to abandon its right to oppose the placing of the goods on the market for the first time in the EEA. Such an intent would normally be shown by an express statement of consent but could be inferred from facts and circumstances relating to the placing of the goods on the market outside the EEA. Implied consent could not be inferred if the trade mark owner did not communicate to a purchaser of goods outside the EEA its opposition to the importation of goods into the EEA. The ECJ took the view that it is for the parallel importer to prove consent to the importation of the goods into the EEA. The ECJ also stated that ignorance of third parties of the trade mark owner's wishes was not relevant in assessing whether trade mark rights had been exhausted.

The UK courts have since followed (as they must) the ECJ's ruling and this now represents the current position. The results seem to be a clear victory for brand owners and an unfortunate position for parallel importers and ultimately those consumers who want low prices and are not concerned about having assistance to choose their next pair of jeans.

Further Information
Shelley Beaumont is a solicitor at leading law firm Halliwell Landau, specialising in intellectual property law for the giftware sector. Shelley can be contacted at the firm's Manchester office on 0161 835 3003.

September/October 2010
issue 61
available now