There have been two significant developments over the last week in cases where an Australian importer and retailer has asserted the “parallel importation defence” in response to claims of trade mark infringement. This is part of an ongoing trend whereby the courts are narrowly construing the defence and, in a commercial sense, making the practice of importing goods from overseas - outside authorised distribution channels - a potentially risky business.

In the first case, Paul’s Retail sought to defend infringement claims relating to the importation of goods bearing the GREG NORMAN and SHARK trade marks. The proceedings were brought by the registered trade mark owner, Greg Norman Corporation (GNC), and its Australian licensee, Sport Leisure Pty Ltd.  The goods in dispute were manufactured by GNC’s authorised licensee in India and imported into Australia by Paul’s Retail.  Paul’s Retail asserted that the GREG NORMAN and SHARK trade marks were applied by the Indian licensee with the consent of the registered trade mark owner, GNC.  However, the licence agreement between GNC and its Indian licensee limited the license to use of the trade marks in connection with the manufacture, marketing, distribution and sale of goods within India.

It is clearly settled law that the importation of goods in these circumstances involves use of the registered trade marks which have been applied to the goods, and the importer is therefore liable to an action for infringement by the Australian registered trade mark owner unless it can establish the defence of “parallel importation”.  The statutory defence is set out in section 123 of the Trade Marks Act which provides that there will be no registered trade mark infringement: 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 mark.

In this case, the trial judge and Full Federal Court held that GNC could not be said to have consented to the application of the marks to the goods in circumstances where the Indian licensee knew that the goods were to be supplied outside India.  The goods were therefore manufactured outside the scope of the Indian licence, were not “genuine”, and Paul’s Retail was not in a position to rely upon section 123 of the Act.

Last week, Paul’s Retail sought special leave to appeal to the High Court, arguing that the result of the Full Court’s finding is that registered trade marks are being used to exercise territorial control over legitimate goods; and, this places an unreasonable burden upon Australian importers to prove, not only that a supplier is licensed by the registered trade mark owner, but that all other licence conditions relating to the manufacture and supply of the goods have been met. 

The High Court refused to special leave to hear the Greg Norman case on the basis that the Full Court’s construction of the section 123 defence was not in doubt.

A few days later, the Full Court dismissed a separate appeal by Paul’s Retail in relation to LONSDALE branded goods.  The facts in the second case were different, though the Full Court again relied upon the terms of an overseas licence to deny Paul’s Retail the benefit of the section 123 defence.

Lonsdale Sports Limited (Lonsdale) is the owner of various LONSDALE trade marks registered overseas.  The Australian registered LONSDALE trade marks are owned by Lonsdale Australia Limited (Lonsdale Australia), part of the same corporate group as Lonsdale with a common ultimate holding company.   Lonsdale granted a licence to a Germany company, Punch GmBH (Punch) whereby Punch was authorised to promote, distribute and sell products bearing certain LONSDALE marks within Europe.

In August 2011 Paul’s Retail attempted to import in Australia nearly 300,000 units of Lonsdale goods from a US-based company, TMS LLC.  TMS acquired the goods from a Cypriot company, Unicell Ltd, who had acquired the goods from Lonsdale’s European licensee, Punch. The goods, valued in excess of $2 million, were seized by Australian Customs.

Paul’s Retail asserted that the goods were genuine goods, the LONSDALE marks having been applied by Punch with the consent of Lonsdale.  Paul’s relied upon section 123 of the Act, in conjunction with the Champagne Hiedsieck principle (drawn from UK authority), arguing that it should not be prohibited from importing goods bearing marks which had been applied with Lonsdale’s licence.  To the extent the consent of the Australian registered trade mark owner, Lonsdale Australia, was required this may be inferred from the fact that Lonsdale and Lonsdale Australia are part of the same corporate group with common ownership.

According the trial judge, there were a range of factual barriers to the defence mounted by Paul’s Retail.  First, the LONSDALE marks which appeared on the goods Paul’s Retail proposed to import were not precisely the same LONSDALE marks which Lonsdale had licensed Punch to use.  To that extent, Punch was not licensed to apply the marks and the goods were therefore “counterfeit”.  Secondly, Lonsdale Australia played no role in the application of the LONSDALE marks to the goods and there was no evidence of any steps taken by Lonsdale Australia which may amount to the consent required by section 123 of the Act.  The corporation which applied the LONSDALE marks – Punch – was not a member of the same corporate group as Lonsdale Australia.

The trial judge left open the possibility that – even if the factual scenario were different and the goods bore LONSDALE marks which were the same as those registered and owned by Lonsdale Australia, and these marks were applied by Lonsdale or by Punch with its consent - Lonsdale Australia’s consent may not be implied in order to enliven section 123 of the Act.  Paul’s Retail pointed to a UK case, Revlon Inc v Cripps and Lee Ltd, where the court was prepared to imply the consent of a registered trade mark owner in circumstances where the registered owner and the entity applying the mark were in the same corporate group. The trial judge in the Lonsdale case noted that this approach has not yet been accepted in Australia.

On appeal, the Full Court took a different approach and focussed upon the fact that the goods Paul’s Retail sought to import had been sold by Punch to Unicell ex-warehouse in China.  In circumstances where the licence from Lonsdale to Punch was limited to Europe, Punch’s sale of goods bearing the LONSDALE marks in China was unlicensed.   The court held that this condition of the Punch licence (i.e. the territorial limitation on the licence) is relevant to resolving the ultimate question of whether the mark was applied with the consent of the registered trade mark owner.  As Punch’s conduct was outside the scope of the Lonsdale licence to Punch, no question arose as to whether Lonsdale Australia’s consent may have been implied.

Disappointingly, the Full Court declined to make any findings in relation to the broader and more interesting question of whether the commonality of ultimate control of Lonsdale and Lonsdale Australia obviated the need for explicit consent by Lonsdale Australia, or the application of the Revlon v Cripps & Lee case.   The Full Court did, however, take the opportunity to state clearly that the Champagne Hiedsieck principle has no application in Australia beyond the statutory defence provided by section 123 of the Act, and the ordinary language of the section is not to be confined by reference to competing theories or doctrines such as “exhaustion of rights” or the doctrine of “territoriality”.

What next?

Paul’s Retail has until 10 October 2012 to seek special leave to appeal the Lonsdale decision to the High Court. The High Court may take the same approach as in the Greg Norman case, content that the Full Court is appropriately applying the section 123 defence, including taking into account territorial licence restrictions in considering the question of consent, though it is possible that the High Court may seize upon the differing facts of the case to address the question of common corporate control and the application of Revlon v Cripps & Lee.

In the meantime, a number of principles emerge with significant practical implications:

  1. The importation of goods bearing trade marks registered in Australia constitutes trade mark use, and may give rise to trade mark infringement unless the importer is able to establish that the marks were applied to the goods by or with the consent of the Australian registered owner of the marks.
  2. The defence of “parallel importation” is limited to section 123 of the Act and the Champagne Hiedsieck principle does not have any broader application.
  3. The importer bears the onus of establishing the defence.
  4. In considering whether a registered owner has consented to application of the relevant trade marks, where an overseas licence imposes territorial restrictions and a licensee knowingly manufacturers and supplies goods for sale outside its licensed territory, an Australian importer is unlikely to benefit from the section 123 defence.
  5. It remains an open question as to whether the consent of an Australian registered trade mark owner will be implied as a result of a commonality of corporate ownership between that entity and an overseas entity which applied relevant trade marks to goods imported into Australia. 

In these circumstances, a range of options and strategies may be available to brand owners to stymy parallel importation; and there are clear pitfalls into which importers may fall.