NAPIB - National Association of the Parallel Importers in Bulgaria

Trademark protection and its correlation to competition legislation and the freedom of commodities movement

The principled position is that the legal protection of a trademark creates exclusive rights for its owner and is an instrument for protection of the owner’s interests. From the trademark owner’s point of view this protection aims at:

encouraging the owner to invest in promoting the quality of the products sold under this trademark, as well as in future products bearing the trademark;

guaranteeing recoverability of the investments, by “protecting” at the same time the trademark owner against the occurrence of fraudulent traders, who would distribute their production by using the owner’s trademark and thus harm the reputation of the trademark;

create a property monopoly on the trademark, and in this way prevent anyone from disposing with the goods that bear it.

From the viewpoint of the economic analysis, monopoly rights of the trademark owner guarantee higher profits, which in turn creates a stimulus for investment. Thus the monopoly on the trademark is efficient by encouraging competition among identical goods with different trademarks at one and the same market.

On the other hand the monopoly trademark right allows its owner to introduce a limitation of the movement of commodities under the trademark in pursuit of higher profits. Limitations are mostly by way of the so-called “market segmentation”, demonstrated in determining the commodity price according to the criteria of the specific market. Other common limitations are artificial increase in the demand by limitation of the quantities that are sold; choice of special places where the goods are sold; sale of the commodity only in specific cases; supply of special services accompanying the commodity.

The limitations thus introduced, however, are in contradiction to the interests of the retail traders of the respective commodity, who have bought goods under a famous trademark with the intention of selling them and realizing profit, and relying on the trademark popularity. With a view to the monopoly that trademark legislation creates, the next traders of goods bearing this trademark find themselves in a situation in which they are owners of the trademark goods without being able to dispose of it, as the trademark owner has a monopoly on the distribution of goods bearing this trademark.

The limitations on the distribution of goods bearing the respective trademark result in an increase in their prices and thus infringe the consumers’ interests. Having on the one hand the right of a monopoly on the trademark and the corresponding right for limitation of the freedom of distribution of goods under the same trademark, and on the other hand – the principles of competition promotion and freedom of the movement of goods on an international scale, the question arises of how far the protection framework for the trademark should go and what can counteract it so that it can create a balance in this system.

Here the right of competition protection (competition legislation) and the doctrine for rights exhaustion come to the rescue, whose aim is to reduce to a minimum the obstacles in trade while simultaneously guarantee the right of the trademark owner. Figuratively speaking, the competition legislation (respectively the right exhaustion doctrine) and the trademark legislation stand in opposite starting positions – trademark legislation creates conditions for the existence of a monopoly, whereas competition legislation aims at limiting it.

Operation mechanism of the exhaustion of the trademark right doctrine and the parallel import doctrine >>

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