Delhi High Court issues landmark judgment on parallel imports

Brand owners have been dogged with the problem of the influx of grey-market goods into India. They face the following dilemma: how can they take action against a party who is selling goods that are genuine, but are not earmarked for a particular territory?

Until recently, the jurisprudence on grey-market goods was blurry in India. However, a 156-page judgment of the Delhi High Court in Samsung Electronics Company Ltd v Kapil Wadhwa (IA No 7774/2011 and IA No 10124/2011 in CS (OS) No 1155/2011, February 17 2012) has analysed the issue of parallel imports in great depth, and is now possibly the most exhaustive and clear judgment on the issue.

In the present matter, Samsung Electronics Company Ltd instituted a civil suit against three defendants for importing Samsung printers from various countries and selling them in India without authorisation from Samsung. In addition, the defendants advertised the printers on their website and in newspapers using Samsung's trademarks and logos, and also linked their website to that of Samsung.

Samsung contended that such acts infringed its trademark rights under the Trademarks Act 1999. The main defence taken by the defendants was that their acts were perfectly legitimate, since India follows a regime of international exhaustion.     

After examining the arguments put forward by the parties, the court concluded that India follows the principle of national exhaustion, rather than international exhaustion. The court based its findings purely on the plain interpretation of various provisions of the Trademarks Act.

First, the court found that the import of goods in the course of trade without the right holder’s permission amounts to trademark infringement. In reaching this conclusion, the court interpreted Section 29(1), read in conjunction with Section 29(6)(c) of the act. Section 29(1) states as follows:

“A registered trademark is infringed where a person, without the permission of the registered proprietor or a permitted user, uses an identical mark in the course of the trade in relation to goods or services, in such a manner so as to render the use of the mark likely to be taken as being use as a trademark.”

Further, in Section 29(6), 'use' is defined as including the “import or export of goods under the mark”.    

Therefore, reading both sections together, the court found that any party which imports goods into India without the permission of the trademark owner can be held liable for trademark infringement. The court specified that this applies only where the mark has been put to further use “in the course of trade”; therefore, the import of goods for end-user consumption, as opposed to the further sale of those goods, would not constitute infringement.

Second, the court held that the Trademark Act does not distinguish, either expressly or impliedly, between the import of genuine or non-genuine goods. Therefore, it would be wrong to presume that the act seeks to limit only the import of non-genuine or counterfeit goods: in the absence of any legislative provision distinguishing between genuine and non-genuine goods, any goods bearing an identical or deceptively similar mark that are imported without the permission of the mark owner would be considered as infringing.

Third, the court found that the word ‘market’ in the act cannot be construed as meaning an ‘international market’. The court rejected the defendants' contention that they had the right to sell imported goods under Section 30(3) of the act: this section does not confer a ‘right’ to sell imported goods, but only acts as a defence when the mark owner has exhausted its rights within the domestic market.

When interpreting Section 30(3), the court defined the term ‘market’ as meaning ‘domestic market’ based on the fact that Section 30(3) provides as follows:

“Where the goods have been lawfully acquired, the sale of the goods in the market does not constitute infringement if the trademark has been assigned to another person after the goods have been purchased.”

Since a mark owner may have registered a particular trademark in many jurisdictions or markets, an assignment in one jurisdiction cannot in any way diminish the owner's rights in any other jurisdiction or market. Therefore, a plain interpretation of Section 30(3) implies that the ‘market’ is only the geographical territory where the mark is registered and can be assigned. Since the act itself does not distinguish between the domestic and international markets, it was prudent to follow the plain meaning of Section 30(3).

Fourth, the court held that Samsung had "legitimate reasons" to stop the parallel importation of the goods, including:

• the material differences between the goods;
• the likelihood of consumer confusion;
• the risk of dilution of Samsung's trademark;
• the risk of loss of goodwill and reputation;
• the disruption of authorised distribution channels;
• potential liability under the Legal Metrology Act (packaging and labelling);
• potential liability under the Consumer Protection Act; and
• misrepresentation through advertisements, hyperlinking and meta tagging. 

Market forces that are beyond the control of brand owners (eg, a differential pricing regime) have so far worked to the benefit of unauthorised importers. However, this judgment provides much-needed direction to rectify the channels of trade, and gives mark owners the tools they need to control the use of their marks.

Nishchal Anand, Anand and Anand, New Delhi

The author's firm represented Samsung in this case