Economic and Legislative Aspects of Parallel Import. Parallel Import Problems

Due to the ignorance of the nature of parallel import in international trade, and more often due to uncleanly interests of the parties concerned, for many years parallel import has been anathematized and referred to as “grey market”, a situation, which still exists.

This enforces the incorporation of the “National Association of Parallel Importers in Bulgaria”, registered by the court in the beginning of 2006 as a non-profit organization for public benefit activity aiming to counteract any unfair competition and to control monopoly.

The phenomenon “parallel import” appeared in the beginning of 20th century and ever since has been the object of discussions. Bulgarian legislation does not contain a legal definition of the term either, but it can be encountered more and more often in articles by various Bulgarian authors, in resolutions of the Commission on Competition Protection, as well as in discussions related to issues of the intellectual property.

The term “parallel import” is defined as a type of international trade in which original goods from abroad are imported in a country, bearing the registered trademark and produced according to the requirements of the trademark owner, who hasn’t consented to the distribution of these goods on the territory where they are imported. Some authors add to this definition the clarification that parallel import is an import of foreign goods by a multitude of importers, who are not licensed distributors of the trademark.

Parallel import opponents oppose it to the trademark rights and claim that it affects the rights of the owner of the trademark. But they leave apart a very important aspect concerning the inseparable connection to the Doctrine for exhaustion of trademark. Exhaustion of rights and parallel import are two separate activities, which develop sequentially in time. Only after the exhaustion of the rights there are conditions for parallel import of goods.

The aim of the idea of trademark rights exhaustion (concerning restriction at a given time) is to balance the interests and make it possible for the rights of the trademark owner to “exist” together with the principles of the free movement of the goods and breaking the monopoly.

The restriction to the trademark owner is reduced to a restriction to his right to control the process of distribution at a given time.

There are two approaches in settling the issue about the place where the exhaustion of the right occurs - national and international.

In the case of national approach, the exhaustion of rights occurs after the first sale of the trademark commodity, done by the trademark owner in a country where the trademark is registered. After that moment any trader may implement parallel import of the same goods.

Bulgarian legislation concerns the issue of the exhaustion of rights and the parallel import of branded goods. It includes the law on Trademarks and Geographical Indications (LTGI), the Customs Act and the Regulation on the Border Measures for Protection of Rights over Intellectual Property. LGTI is of high importance. In Art.15 of that law concerning Art.13 the moment at which the exhaustion of the rights over branded goods is clearly defined, and thus the national exhaustion of the right is defined as a rule.

Legal organization is voluminous and complicated, but careful and thorough and mainly conscientious reading shows that the legislator aims at defending the rights of the trademark owner and protection of intellectual property, but not allowing misuse of the monopoly situation. Why in spite of the legal regulations, the presence of resolutions of the Supreme Court of Cassations (¹ 1071 dated 2004, ¹ 249 dated 2006), stating that once the branded goods have been placed on the Bulgarian market by the owner of the trademark, any following import of the same goods, i.e. parallel import, is no a violation of LGTI. The case in question concerns commodities with original trademark, not imitation of the original goods. The obstacles of any kinds continue persisting although the Commission on Competition Protection has admitted that parallel import is admissible and necessary for Bulgarian market.

There are many signals coming in the Agency on behalf of the parallel importers about some actions undertaken by trademark owners for detained original goods, labeled with the said trademarks. This can be explained. However it is inexplicable why the customs, the police, the prosecution authorities, despite of the existing legislation provisions, despite the trademark holders do not contest the originality of the goods, these goods continue being detained and voluntarily or no are placed in service of the trademark holders.

The illegal withholding of goods by the authorized bodies leads to huge losses for the importers as the legal procedures drag on for years. In the final reckoning this injures the consumers as well.

The main question remains – why the attacks toward the parallel import are going on?

There may be only one answer – shady economic interests. Indisputably there is certain decrease in profits for the trademark holders, but on the other hand this benefits the customers.

The parallel import provides the customers the opportunity to purchase branded goods at lower price.

They emphasize on the argument that the parallel import is a kind of conceal of false goods. This hypothesis cannot be true – in such a case a violation of the intellectual property rights will be apparent.

Another argument brought forward by the parallel import opponents is that the state deductions (fees, duty, excises etc.) are evaded. But this is preposterous. The same thing would apply to the official importers (distributors) in the event of insufficient customs control.

Even more absurd is the argument that the parallel import is leading to decrease in the general state budget income. Just the contrary - by destroying the monopoly there the conditions for competitiveness arise, which makes the branded goods accessible to more customers and thus increases the turnovers and respectively the incomes into the state budget. Obviously the parallel import deprives the trademark holders of a part of their profit, but on the other hand the so called loss for them is a profit for the parallel importers and the customers.

The profit distribution between many persons is a mechanism of public benefit, having proved its usefulness and it constitutes the base of the prosperous economic systems.

President of NAPIB: Georgi Yordanov

http://www.napib.org