What are parallel imports or grey goods?
When does parallel importation constitute trademark infringement?
What are parallel imports or grey goods?
Parallel imports (also referred to as 'grey goods') are genuine products imported from another country without the consent of the rights holder. The parallel import is then sold (eg, in South Africa) at a lower price and without the usual guarantee or after-sales service. A parallel importer is a party which purchases genuine products in another country and imports these into South Africa for resale. The reason for this is often that the goods are considerably cheaper in the originating country and the profit margin will be greater if the products are sold in South Africa, rather than through authorised or approved distributors.
Non-South African companies usually appoint an authorised importer or distributor to sell and market their products in South Africa. The authorised distributor is then liable for sales of the product and after-sales services (eg, providing guarantees and warranties).
One of the downfalls of parallel importation is that owners and manufacturers do not have proper control over what the parallel importer does with the brand and product. This therefore raises the question of whether parallel importation is lawful in South Africa.
Under Section 34(2)(d) of the Trademarks Act, parallel importation is lawful. This section provides that a registered trademark is not infringed by "the importation into or the distribution, sale or offering for sale in the Republic, of goods to which the trade mark has been applied by or with the consent of the proprietor thereof".
Although parallel importation is permitted, Section 25(2) of the Consumer Protection Act provides that "a person who markets any goods that bear a trade mark, but have been imported without the approval or licence of the registered owner of that trade mark, must apply a conspicuous notice to those goods in the prescribed manner and form". The basis of this section is to make the consumer aware that such goods are not covered by any guarantee of the authorised distributor, thus enabling the consumer to make a well-informed choice. According to Section 25(2), the notice must be applied to the goods in a visible place, where the consumer is likely to see it, and in a legible size. The vendor must also draw attention to such notice, in plain language, and explain its meaning to the consumer.
In accordance with Regulation 8(2)(c), if grey goods bear a trademark, a notice must clearly state that the goods have been imported without the approval of the registered trademark owner. Under this regulation, the notice must also state that "NO GUARANTEE OR WARRANTY WILL BE HONOURED" by any authorised importer of such goods. This regulation protects consumers and enables them to make a well-informed choice, as they are aware that they are paying a reduced price for the product because no after-sales guarantees or warrantees are provided. However, the disadvantages of purchasing grey goods often outweigh the associated cost savings.
When does parallel importation constitute trademark infringement?
Following the Protective Mining case, use of genuine goods does not constitute trademark infringement.(1) However, in Television Radio Centre (Pty) Ltd v Sony Kabushiki Kaisha,(2) it was held that where a person (ie, the importer) alters the goods, they are – to the extent to which they have been altered – no longer the genuine goods to which the trademark was affixed by the registered owner. To determine the degree of infringement, one must consider:
- the nature of the goods; and
- the nature, purpose and extent of the alterations.
In Sony, the appellant had imported into South Africa video cassette recorders which had been made for use in the United Kingdom. The appellant had modified the video recorders in order for them to receive the local version of the phase alternating line (PAL) signals in South Africa, where the PAL television system is slightly different to that used in other countries. The court found that the appellant's conduct constituted trademark infringement, as the converted video recorders were different from those originally imported.
In Jazz Cellular CC v Nokia Corporation,(3) the court held that where goods have been altered to such an extent that they can no longer be said to be the genuine or original goods, this can constitute trademark infringement and, therefore, are counterfeit goods as contemplated in the Counterfeit Goods Act.
Therefore, it appears that parallel imports which have been altered – to the extent to which they have been altered – could constitute trademark infringement and, by extension, counterfeit products.
For further information on this topic please contact Natasha Mohunlal at KISCH IP by telephone (+27 11 324 3000) or email ([email protected]). The KISCH IP website can be accessed at www.kisch-ip.com.
Endnotes
(1) Protective Mining and Industrial Equipment Systems (Pty) Ltd v Audiolens (Cape)(Pty) Ltd ((282/85) (1987) ZASCA 33; (1987) 2 All SA 173 (A) (March 30 1987)).
(2) Television Radio Centre (Pty) Ltd v Sony Kabushki Kaisha t/a Sony Corporation (1987 2 SA 994 (A)).
(3) Jazz Cellular CC v Nokia Corporation (TPD September 22 2006 Case 2926/06 (Unreported)).