Any would-be importer of grey goods now needs to investigate carefully the circumstances under which the trade marks have been applied.

The Full Federal Court has recently confirmed the trend of recent decisions by reading restrictively the defence of "consent" available to the importers of grey or parallel goods (Paul’s Retail Pty Ltd v Lonsdale Australia Limited [2012] FCAFC 130).

What are grey goods?

Grey or parallel goods are genuine goods imported into Australia by someone other than the trade mark owner or an authorised licensee. Trade mark owners generally discourage or object to this practice as it lessens their control over the distribution of their goods.

Grey goods are generally sold at a discounted price or may be of a different standard or quality from goods intended by the trade mark owner for the Australian market.

Trade mark owners are often powerless to prevent parallel imports because trade marks have consistently been treated under Anglo-Australian law as badges of origin, not as badges of control.

The Lonsdale / Paul's Warehouse case

The decision of Justice Gordon in Lonsdale Australia Limited v Paul’s Retail Pty Ltd [2012] FCA 584, which we previously reported on, was appealed to the Full Federal Court:.

The facts were as follows. Paul's Retail, a discount chain, imported 'genuine' Lonsdale branded goods into Australia, goods that could legitimately have been sold in Europe because the trade marks were applied under licence from the European trade mark owner. The owner of the European trade marks was a company related to Lonsdale Australia.

Lonsdale Australia, as owner of the Australian trade marks, sued Paul's Retail for trade mark infringement; Paul's Retail relied on the 'parallel importation defence' under section 123 of the Trade Marks Act, which says that an importer does not infringe if the trade marks were applied "... by, or with the consent of, the registered owner of the trade mark."

The section 123 defence is a statutory embodiment of the well established principle in the United Kingdom case, Champagne Heidsieck [1930] 1 Ch 330, which refused to treat trade marks as badges of control and stated that they were badges of origin, designating a genuine source. In that case the French champagne company unsuccessfully sued for trade mark infringement when its champagne was imported into Britain. Champagne Heidsieck's concern was that its champagne destined for the British market was differently formulated from its champagne sold in France. Champagne Heidsieck was unsuccessful because the goods were genuine goods, not counterfeit, even though they were differently formulated. The principle in that case, embodied in section 123 of the Trade Marks Act frequently prevents action from being taken against parallel importation of grey goods.

In the case of the parallel importation of the Lonsdale goods, the trial judge found that the section 123 defence was not established because:

  • no chain of title could be established linking Lonsdale Australia to the goods and there was no evidence to suggest that Lonsdale Australia played any role in the application of the trade marks to any of the imported goods;
  • the Licensee that applied the marks was not a member of the same corporate group as Lonsdale Australia. In this case, there was separate ownership of the trade marks in Europe and Australia and separate manufacture (under licence) in each jurisdiction; furthermore the principle of implied consent when dealing with related companies had not been definitively accepted into Australian law for the purposes of parallel importation; and
  • there was no evidence to suggest that Lonsdale Australia had done or failed to do anything else that could be considered consent under section 123 of the Act.

On appeal, the Full Court held that it was not necessary to decide the three issues considered by the trial judge. This was because even if Paul’s Retail could establish that Lonsdale Australia was bound by its related company's consent, there was in fact no consent by that related company.

This was because the licence granted by Lonsdale Australia's related company was limited in its terms to "the non exclusive right to promote, distribute and sell products bearing the trade marks in [Europe]". To extend the consent to Australia would be to deny the evident intention of the parties to the licence.

The Full Court made some other important observations:

  • section 123 must be read according to its ordinary meaning and cannot be confined by competing doctrines of “territoriality” or “exhaustion of rights”. Whether a mark is applied with the consent of the owner is a factual question, the answer varying according to the particular circumstances of each case;
  • the surest guide to the meaning of sections 123 and 120 (infringement) is the wording of the Trade Marks Act itself;
  • section 123 embodies the principle in Champagne Heidsieck (as held by the High Court of Australia in 2010 in Gallo) but neither Champagne Heidsieck nor section 123 can operate to make trade marks a badge of control;
  • section 123 is exhaustive of the circumstances in which consent can be a defence to infringement; and
  • importation and sale of goods already marked constitute “use” for infringement purposes.

Implications for trade mark owners

This case was unusual because the owners of the Lonsdale trade marks in Europe and Australia were different. Split ownership can often help in taking action against parallel imports but the Full Court's decision case has wider implications.

Any would-be importer of grey goods now needs to investigate carefully the circumstances under which the trade marks have been applied. Even when the same company owns the trade marks in all relevant jurisdictions, it may be difficult to know whether the trade marks have been applied in breach some licence agreement. This considerably increases the risks for importers of grey goods and will restrict the available pool of "genuine" goods that can safely be imported into Australia by discounters.