Parallel import

A parallel import is a non-counterfeit product imported from another country without the permission of the intellectual property owner. Parallel imports are often referred to as grey product, and are implicated in issues of international trade, and intellectual property.

The practice of parallel importing mainly occurs for two reasons:

1) Different versions of a product are produced for sale in different markets, eg Top Gear Magazine (UK Edition) is officially sold in UK and Top Gear Magazine (Australia Edition) is officially sold in Australia. But some unofficial distributors in Australia also sell Top Gear Magazine (UK Edition).

2) Companies, either the manufacturer or the distributor, set different price points for their products in different markets. Parallel importers ordinarily purchase products in one country at a price (P1) which is cheaper than the price at which they are sold in a second country (P2), import the products into the second country, and sell the products in that country at a price which is usually between P1 and P2. See arbitrage.

Examples

Australia

Importation of computer games and computer game hardware from Asia is a common practice for some wholesale and/or retail stockists. Many consumers now take advantage of online stores in Hong Kong and The United States to purchase computer games at or near half the cost of a retail purchase from an Australian RRP store, and often the versions sold by the Asian retailers are manufactured in Australia to begin with. An example is Crysis, which was available from Hong Kong online stores for approximately $50 AUD but whose retail cost in Australia was close to $100. Crysis was sold in Asia using identical versions of the game box and disc, right down to including Australian censor ratings on the box.

Hong Kong

Importation of Colgate toothpaste from Thailand into Hong Kong. The goods are bought in markets where the price is lower, and sold in markets where the price of the same goods is, for a variety of reasons, higher.

New Zealand

The practice of luxury car dealers in New Zealand buying Mercedes-Benz vehicles in Malaysia at a low price, and importing the cars into New Zealand to sell at a price the same as or lower than the price offered by Mercedes Benz to New Zealand consumers. There are also many parallel import dealers of electronics hardware. Parallel importing is not illegal in New Zealand and has resulted in a significant lowering of margins on many products.

United States

The United States has unique automobile design legislation. Certain car makers find the required modifications too expensive. This creates demand for grey import vehicles, where certain models are modified for individual customers to meet these requirements, at a higher expense than if this were done by the original manufacturer on an assembly line. This procedure interferes with the marketing scheme of the manufacturer, who might plan to import a less powerful car and force consumers to accept it. This happened in 1981 with the Mercedes-Benz W126.

United Kingdom

The importation of Sony PSP video game consoles in to the EEA (European Economic Area) from Japan up to twelve months prior to the European launch. The unusual component of this example is that some importers were selling the console for a higher price than the intended EU price.

International approach

Parallel importing is regulated differently in different jurisdictions; there is no consistency in laws dealing with parallel imports between countries. Neither the Berne Convention nor the Paris Convention explicitly prohibit parallel importation.

Germany

In Germany, the Bundesgerichtshof has held that the doctrine of international exhaustion governs parallel importation. The European Union allows the doctrine of international exhaustion to exist between member states, but not outside the EU.

Hong Kong

In Hong Kong, parallel importation is permitted under both, the Trade Mark and (amended) Copyright Ordinance before The Copyright (Amendment) Ordinance 2007 came into force 6th July.

Japan

Japan's intellectual property rights law prohibits audiovisual articles marketed for export from being sold domestically, and such sale of "re-imported" CDs are illegal.

United States

In the United States, parallel importation is prohibited and the United States Trade Representative lobbies other governments to prevent parallel importation in their respective jurisdictions. The US also maintains a "common-control exception" for parallel imports in trademarked goods. This principle permits trademark owners to block parallel imports except when both the foreign and US trademarks are owned by the same entity or when the foreign and US trademark owners are in a parent-subsidiary relationship.

Parallel imported foodstuff, etc.

Markets for parallel-imports and locally made products sometimes exist alongside each other even though the parallel-imports are markedly more expensive. This may be for various reasons, but is mostly observed in foodstuff and toiletry.

Due to the nature of hotels, travellers often have little information on where to shop except in the immediate vicinity. Grocery shops opened to serve brand-name hotels often feature parallel-imported foodstuff and toiletry to cater to travellers so that they can easily recognise the product they have been using at home.

Foodstuff and toiletry made from different plants may vary in quality because different plants may use materials or reagents (such as water used for washing, food additives) from different sources, although they are usually subject to the same standards by internal QC or public health authorities. A person may be allergic to the foodstuff or toiletry made by some plants but not others.

To sum up, the major reasons for such a market are:

• Lack of information
• Recognisability
• Avoidance of risk due to products by different plants

Issues

A manifestation of the philosophical divide between those who support intellectual property and those who are critical of it, is the divide over the legitimacy of parallel importation. Some believe that it benefits consumers by lowering prices and widening the selection and consumption of products available in the market, while others believe that it discourages intellectual property owners from investing in new and innovative products. Some also believe that parallel imports tend to facilitate copyright infringement and software piracy.

This tension essentially concerns the rights and duties of a protected monopoly. Intellectual property rights allow the holder to sell at a price that is higher than the price one would pay in a competitive market, but by doing so the holder relinquishes sales to those who would be prepared to buy at a price between the monopoly price and the competitive price. The presence of parallel imports in the marketplace prevents the holder from exploiting the monopoly further by market segmentation, ie. by applying different prices to different consumers.

Consumer organisations tend to support parallel importation as it offers consumers more choice and lower prices, provided that consumers retain equivalent legal protection to locally sourced products (eg. in the form of warranties with international effect), and competition is not diminished.

However, such organisations also warn consumers of certain risks in using parallel-imported products. Although the products may have been made to comply with the laws and customs of their place of origin, these products or their use may not comply with those in places where they are used, or some of their functions may be rendered unusable or meaningless (which may needlessly drive up prices). Electronic devices, however, suffer less from this type of risk because newer models support more than one user language.

See also

• Exhaustion of rights

References

• Hays, Thomas (2003). Parallel Importation Under European Union Law. Sweet & Maxwell. ISBN 0-42186-300-5. (Hardcover, 488 pages)

• Stothers, Christopher (2007). Parallel Trade in Europe: Intellectual Property, Competition and Regulatory Law. Hart Publishing. ISBN 1-84113-437-6. (Hardcover, 526 pages)

The Gray Blogis a blog dedicated to parallel market legal issues.