The Opening Up of Parallel Imports into Hong Kong

Introduction

The Hong Kong Government revisited the debate on whether to relax legislation and permit parallel imports. Whilst increasing copyright protection against parallel imports in the provisions of the Copyright Ordinance in 1997, it recently (in 1999 and 2000) swung the pendulum in the opposite direction in revising the Trade Marks Ordinance to provide for the opening up of markets to permit parallel imports.

What are parallel imports?  

"Parallel imports" are products legitimately produced and marketed in a particular territory with the consent of the intellectual property rights owner but then imported into a country outside the territory without the authorisation of that owner. They are not pirated or counterfeit products, nor should they be equated with inferior products. What is attractive about parallel imports is that they are often cheaper in the place of exportation and can then be imported and sold in Hong Kong for a profit.

Existing Law  

The present provisions in the Trade Marks Ordinance (Cap. 43) concerning parallel imports are cumbersome and ambiguous:

"the right to the use of the trade mark given by registration as aforesaid shall not be deemed to be infringed by the use of any such mark as aforesaid by any person –

(a)  in relation to goods connected in the course of trade with the proprietor or a registered user of the trade mark if, as to those goods or a bulk of which they form part, the proprietor or the registered user conforming to the permitted use has applied the trade mark and has not subsequently removed or obliterated it, or has at any time expressly or impliedly consented to the use of the trade mark; or

(b)  ............"

So where goods bearing the trade mark of the trade mark owner are sold in a foreign market, the trade mark owner will not be able to claim a trade mark infringement when those goods are parallel imported into Hong Kong. The importer can rely on the fact that the trade mark was applied onto the goods by the trade mark owner, who did not remove the mark, and so impliedly consented to the trade mark being used.

The International Position  

On the international arena, there is no consensus on the issue of parallel importation. The Agreement on Trade-Related Intellectual Property Rights (TRIPS) under the World Trade Organisation emphasizes that nothing in the Agreement shall affect the issue of exhaustion of intellectual property rights. In this respect, there is no specific provision either in favour of or against the issue of international exhaustion of rights and so each WTO Member is free to formulate its own policy on parallel imports. International exhaustion of rights means a trade mark owner has the right to circulate goods bearing his trade mark anywhere in the world, the trade mark owner's proprietary rights are then said to be "exhausted" and he therefore cannot take action against a parallel importer for trade mark infringement.

In the European Union, the position has not been coherently consistent despite the main intentions behind the formation of a "unified Europe". Articles 28 and 29 of the EEC Treaty prohibit import and export restrictions between member states, which follows the fundamental principle of free movement of goods within the Community. However, Article 30 of the EEC Treaty allows restrictions on free movement if they can be justified for the protection of industrial and commercial property.  Following from this, the EC Trademark Harmonisation Directive of 21 December 1988 was issued to harmonise the trademark laws in each of the Member States. Article 7 of the Directive concerns the principle of exhaustion of trade mark rights which states :

"1. The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.
 

2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialisation of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market."

The whole point of the Directive was to achieve uniformity in Member States. However, in a series of cases commencing from 1995, the courts of various Member States adopted different interpretation of the Directive.

On the other side of the hemisphere, in Australia, following heavy lobbying from industry heavyweights, measures were taken to relax legislation to permit parallel imports into Australia via the Australian Trade Marks Act 1995. A similar approach was adopted in Singapore, where their latest Trade Marks Act 1998 also provides that a trade mark is not infringed if used in relation to goods which have been put on the market under that mark by the registered proprietor or with his express or implied consent.

Changes made to the Hong Kong Trade Marks Law  

In keeping with the international standards of trade marks reform, Hong Kong ushered in its long awaited revised Trade Marks Ordinance on 16 June 2000 ("the New TMO"), although this has not yet been brought into force.

The amendments to the provisions governing parallel importation of trade marked articles and the adoption of international exhaustion of rights attracted deeply divided views and vigorous debate. Eventually, the decision was taken to balance the view of both sides, virtually adopting the same stance as Article 7 of the European Community's Trademark Harmonisation Directive except in even broader terms. Section 20 of the New TMO provides for the exhaustion of rights conferred by a registered trade mark and also allows for limitations to this in order to safeguard the rights of trade mark owners.

Under s. 20(1) a trade mark owner cannot prohibit the use of his trade mark on goods which have been circulated anywhere in the world under that trade mark by himself, or with his express or implied consent or upon conditional or unconditional consent. The effect of the provision of conditional or unconditional consent adds a broader perspective, not previously contemplated in the international arena.

Under s. 20(2) of the New TMO a trade mark owner can take action against a third party where the condition of the parallel imported goods has been changed or impaired after they have been put on the market anywhere in the world, and where the reputation or distinctiveness of the trade mark is adversely affected through the circulation of such goods in Hong Kong. The purpose is to encourage those intending to parallel import to take responsibility for their importation.

In a territory such as Hong Kong, permitting parallel imports is consistent with its policy of free trade and open competition which will benefit individual consumers and the economy as a whole.