Delhi High Court considers exhaustion of trademark rights in MARLBORO case

Are parallel imports and grey-market sales of trademarked goods permitted in India? This depends on whether India follows the principle of international exhaustion of trademark rights or that of national exhaustion.

The Delhi High Court was required to consider this question in Philip Morris Products SA v Sameer (CS(OS) 1723/2010 and IA 11288/2010) in respect of the grey-market sale of MARLBORO-branded cigarettes. The court held that Indian law recognises the principle of international exhaustion of trademark rights as long as the importer can establish that it has lawfully acquired the goods in the country where the goods were placed on the market by the trademark proprietor. If the importer fails to discharge this burden, then the grey-market sale of such goods would be prevented.

In the present case, small traders and retailers made grey-market sales of MARLBORO-branded cigarettes. The cigarettes had been placed on the market by Philip Morris for sales outside of India and differed in packaging and quality to the Marlboro cigarettes manufactured and sold in India by an affiliate of Philip Morris. The importation and sale of such Marlboro cigarettes was not authorised by Philip Morris. Accordingly, Philip Morris filed a suit against the small traders and retailers seeking to prevent the unauthorised sale of such cigarettes. Philip Morris contended that such unauthorised sale amounted to infringement of its registered trademark in India.

The court considered the provisions pertaining to the exhaustion of trademark rights in Section 30(3) of the Trademarks Act 1999, which is full of ambiguities. In essence, it provides that, once the trademarked goods have been put on the market by the trademark proprietor or with its consent, subsequent dealings of the goods do not amount to infringement as long as those goods were acquired lawfully by the purchaser or the importer.

Two questions required consideration. The first referred to the scope of the term ‘market’ - was it to be interpreted as meaning 'the domestic market' only, or did it refer to the international market? The court, following the decision of the division bench in Samsung (FAO(OS) 93/2012), held that there was no reason to restrict the term ‘market’ to the domestic market; rather the term ‘market’ referred to the global market. The effect of this interpretation is that India recognises the principle of international exhaustion of trademark rights.

The second question was in which circumstances a purchaser or importer can be regarded as having ‘lawfully’ acquired the trademarked goods (ie, whether such acquisition needs to be considered from the point of view of the law of the land in which the goods were acquired or from the point of view of Indian law). According to the court, the legality of such acquisition must be considered based on the law of the land in which the acquisition was made, and not Indian law. However, the court held that the burden of establishing that the goods were lawfully acquired in the country of purchase rested on the purchaser/importer. If the purchaser/importer was unable to establish that such purchase was lawful in the country of origin, then the sale of such imported goods in the grey market would constitute infringement. If the purchaser/importer establishes that such acquisition was lawful in the country of origin, then the sale of such imported goods on the grey market would not amount to infringement.

In this case, the defendants did not appear before the court. The court thus concluded that they had failed to discharge the burden of establishing that the Marlboro cigarettes had been lawfully acquired in the country of origin; hence, the sale of the Marlboro cigarettes amounted to infringement of Philip Morris’ trademark rights in India. Accordingly, an injunction was issued.

Even if grey-market goods have been lawfully acquired by the parallel importer, the trademark proprietor can still prevent the sale of the goods in India on grounds of infringement if it is able to establish that there are legitimate reasons to oppose such sale (including, in particular, that the condition of the goods has been changed or impaired after they were put on the market). Therefore, if the parallel importer alters the packaging of the goods to such an extent that their condition can be said to have been changed or impaired, the trademark proprietor is entitled to prevent the sale of the goods in India. However, the court in this case did not need to consider this issue, as the defendants had failed to discharge the burden of proving that the goods had been acquired lawfully.

Mustafa Safiyuddin, Legasis Partners, Mumbai