Brand owners interested in stopping parallel imports of their trademarked goods have been assisted by the recent decision of Nicholas J of the Federal Court of Australia in Sporte Leisure Pty Ltd v Paul’s International Pty Ltd (No 3) [2010] FCA 1162 (Sporte Leisure).

In the Sporte Leisure case, the Court held that Greg Norman branded clothing which had been manufactured by the exclusive Indian distributor of Great White Shark Enterprise's Inc, had been made outside the terms of its licence agreement and therefore the importation of those goods into Australia infringed various "Greg Norman" trade marks. However, before we discuss the Sporte Leisure case we first make some comments about what we mean when we talk about the ‘parallel importation’ of trademarked goods.

Parallel Importation

Parallel importation occurs when a trade mark is applied to goods overseas either by the owner of the trade mark in the overseas country or under a licence granted by them and the goods are then imported into Australia by someone who does not have the consent of the brand owner to do so. Importantly, the goods are ‘genuine’ rather than counterfeit.

The unauthorised parallel importation and sale of goods often competes with the sale of the same goods by an authorised Australian distributor. Somewhat understandably, the distributor is unlikely to look favourably upon competition by the parallel importer if the distributor has made a significant financial investment in order to obtain their distributorship.

The legality of the parallel importation of trademarked goods into Australia has long been problematic.

The Trade Marks Act 1995 (Cth) (Act) was amended in 1995 to include, in section 123, a new defence to infringement of a registered trade mark. Section 123 says:

“… a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark.” [emphasis added]

The stated purpose behind the introduction of this section was to give statutory protection to the legitimacy of parallel importation of trade-marked goods. In a 1995 report of the Australian Law Reform Commission, the ALRC said that as a result of this section, “importing and selling genuine trade marked goods by an ‘unauthorised’ Australian importer will not infringe the registered proprietor’s trade mark in Australia”. However, the position has not been quite so simple in practice.

What are the Trade Marks Issues Involved?

There are two legal arguments that are often made by parallel importers of trademarked goods in at attempt to avoid liability for trade mark infringement. First, parallel importers usually argue that the importation of legitimately trademarked goods does not involve a “use” of the trade mark by the parallel importer and therefore no question of infringement arises. Second, they argue that even if they have used the trade mark by importing the goods their conduct is excused by section 123 of the Trade Marks Act.

One difficulty with section 123 stems from the words: “with the consent of, the registered owner of the trade mark”. If the overseas trade mark owner and the Australian trade mark owner are one and the same then the position is clear: a parallel importer has a good defence to a claim for trade mark infringement. However, if the trade mark in Australia is registered to a person different to the overseas trade mark owner then the question of ‘consent’ is more problematic.

Sporte Leisure is the latest in a series of cases since 2007 that have touched on similar issues. Given that, it is worthwhile looking briefly at those cases by way of background.

In the 2007 case of Brother Industries v Dynamic Supplies1, the defendant obtained from Brother America unbranded printer drum units manufactured by Brother Japan and packaged those units in packaging that bore Brother’s trade marks. In that case, the Court commented that the fact that Brother America and Brother Japan are related entities within the same corporate group did not affect the clear and ordinary meaning and operation of section 123. The consent to apply Brother’s Australian trade marks to or in relation to a product had to be given by Brother Japan. It considered that Brother Japan’s consent was not to be implied from the fact that another member of the Brother corporate group may have given its consent.

The 2008 case of Polo/Lauren Company v Ziliani2 involved legal claims against a parallel importer based on copyright instead of trade marks. In that case, a Full Court of the Federal Court said that the Polo/Lauren Company had brought its claims in copyright (and not based on trade marks) because “[t]he importation into Australia of genuine goods bearing a trade mark legitimately affixed overseas is not an infringement of the local trade mark”3. However, this statement puts the position a little too broadly. Because the Court was dealing with copyright claims only, its statement does not bind other judges who are dealing with trade mark claims.

In 2009, in E&J Gallo Winery v Lion Nathan Australia4, a Full Court of the Federal Court held that the parallel importation of wine did constitute use of the “Barefoot” trade mark by the parallel importer5. However, the Full Court’s judgment was overturned by the High Court of Australia earlier this year. Relevantly for present purposes, the wine in question had initially been sold to a distributor in Germany but had ultimately found its way to Australia and had been sold in Australia. The High Court held that the sale of this genuine “Barefoot” branded wine in Australia constituted use of the relevant trade mark in Australia by the registered trade mark owner. However, the High Court expressly said that it left open the question whether the importer had also used the trade mark (in addition to the registered trade mark owner)6. Given that, it is likely that the reasoning of the Full Court (which did consider that issue) will still be persuasive in later cases.

The Sporte Leisure Case

In Sporte Leisure, “BTB” was licensed by “GNC” to manufacture and sell Greg Norman branded clothing in India. GNC is the head licensor of the Greg Norman marks registered in India and Australia and elsewhere. It was conceded in the case that the trade marks in question had been used as trade marks when the goods were imported for sale into Australia. Therefore, the key issue was the issue of consent.

Under the terms of its licence, BTB had agreed not to sell outside India the clothing it made in India, unless it had GNC’s consent. Despite that, it sold a shipment of clothing to “Sunsport”, a company which operates primarily in Pakistan. That shipment was to be delivered to Pakistan via Singapore. However, the Singaporean-based agent of Sunsport procured the sale of the goods to Paul’s Retail, which imported them into Australia. The Court held that in doing so Paul’s Retail infringed the Greg Norman trade marks. Nicholas J said:

“Where a registered owner consents to another person applying the registered mark to goods on condition that the goods must not to be supplied outside a designated territory, the registered owner would not usually be regarded as having consented to the application of the mark to goods which the other person knows at the time he or she applies the mark are to be supplied by him or her outside the territory.”7 [emphasis added]

Section 123 says that what matters is whether the trade mark was applied to goods with the consent of the registered owner and not, for example, whether the later sale of those goods was authorised by the trade mark owner. In the Sporte Leisure case, it appears that BTB made a special batch of clothing for Sunsport and, therefore, BTB knew that the application of the mark to those goods was outside its licence. The result may well have been different if Paul’s Retail had obtained legitimate “Greg Norman” clothing from retailers in India and then imported that clothing into Australia. The Court said that whether a trade mark owner has consented to the application of a trade mark to particular goods ultimately depends on the facts of the case.

Practical Lessons

The Sporte Leisure case provides an additional weapon to trade mark owners in combating parallel imports if the products in question originate from a licensed manufacturer who knew that the application of the trade mark to those particular goods was not authorised by its licence agreement. However, the broader question of the legality of the parallel importation of trademarked goods remains problematic.

If the Full Court’s reasoning in the E&J Gallo Winery case is correct (i.e. that parallel importers “use” a trade mark when importing goods into Australia for sale), then it appears that the only defence available to a parallel importer is that provided by s 123. In Sporte Leisure, the Court rejected the argument that an owner must also establish that the marks on the relevant goods have not been applied by or with their consent.

Ultimately, whether the owner of the registered trade mark in Australia has consented to the application of that mark to goods made overseas will depend on the facts of the particular case. However, it appears to be open to brand owners to combat parallel imports of trademarked goods by structuring their affairs so that the owner of the mark in Australia is not the same as the overseas mark owner and otherwise taking steps to negate the argument that the trade marks were applied with the consent of owner of the Australian mark.

The possibility of brand owners circumventing Australian trade marks law by ensuring that Australian trade marks are held by the Australian distributor and not the overseas brand owner has been recognised for some time and was criticised in the report of the Intellectual Property and Competition Review Committee” (Ergas Report) in September 2000. The Ergas Report recommended that the “Trade Marks Act be amended to ensure that the assignment provisions are not used to circumvent the intent to allow the parallel importation of legitimately trade marked goods”. In 2001, the Federal Government accepted this recommendation and stated that: “the Trade Marks Act will be amended accordingly”. Despite the fact that legislation was introduced in 2006 to amend other sections of the Trade Marks Act, section 123 was left untouched.