DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY

2020-2021

INTELLECTUAL PROPERTY RIGHTS

SUBMITTED TO: SUBMITTED BY:

Dr. RMLNLU ROLL NO. 81

SECTION-‘A’
ACKNOWLEDGEMENT

I would like to take this opportunity to thank my teacher, Prof. Bhati, for his immense guidance in
the making of this project and the selection of the title. I would also like to thank my parents for
their help in the editing and formatting of this project.
The research done in order to make this project has enhanced my knowledge on the subject and I
am immensely grateful to my teachers for providing me an opportunity to research on the topic
and present the findings of the same.
THANK YOU!

Regards,
Megha Gupta
170101081
INDEX

INTRODUCTION .......................................................................................................................... 4
PRINCIPLE OF EXHAUSTION ................................................................................................... 5
TYPES OF EXHAUSTION ........................................................................................................... 5
EVOLUTION OF PARALLEL IMPORTS IN INDIA……………………………………………7
ANALYSIS .................................................................................................................................... 8
CONCLUSION .............................................................................................................................. 9
BIBLIOGRAPHY ........................................................................................................................ 10
INTRODUCTION

The act of parallel imports can be defined as when a genuine and original product, which is legal
in a particular country, is imported into another country, usually at a price lower than that of the
original product and sold in competition with the original product which was originally designed
to be sold in that particular market.

For ex.- A genuine perfume by a brand named X is imported in India at a lower price than what
is legally being sold by the makers, in the Indian market. This imported product is now sold at a
lower price than the one officially sold by X, putting the two in direct competition with each
other. This newly created market with the imported good is also referred to as the “grey market”.

Certain things must always be kept in mind while discussing parallel imports. These products,
though genuine and not counterfeit, are not meant to be sold in the market that they are imported
and sold in. These products can also not cash in on any warranty or benefits offered with the
product as they are sold in that market, without the consent of the proprietor.

Parallel imports can damage a brand’s economy and business. The marketing activities of the
grey products are outside the ambit of the authorized proprietors and therefore there is a chance
that the two strategies may be inconsistent with each other. This may end up discrediting the
brand’s image in the market.

In this article, the author aims to comprehensively lay out the complexities of parallel imports,
the principle of exhaustion and the evolution of the same in the Indian courts.
PRINCIPLE OF EXHAUSTION

Principle of exhaustion is an established international doctrine. As per this principle, the rights of
the owner/proprietor of a product, with regard to copyright, are “exhausted” after the first legal
sale made by him. This essentially means that once the product has been sold to the original
purchased by the proprietor of the product, the latter no longer has any right over the product or
what the purchaser chooses to do with the said product.

For ex.- Once a person has bought a perfume from the brand X, X no longer has any copyright
claims on the product. The person who bought the perfume is now free to do whatever he wants,
including reselling the product.

This doctrine is also known as the First Sale doctrine.

The main purpose behind this doctrine is that the proprietor of the product should not benefit
from a re-sell after he has already received his profit from the original sale.

TYPES OF EXHAUTION

The principle of exhaustion is governed by Article 6 of the TRIPS agreement.

1)National exhaustion- This is when the owner of the right exhausts his IP rights after making
the original sale in the territory where he holds the IP. However, he could still oppose the re-sale
of the product marketed abroad.

2)International exhaustion- This is when the owner of the right exhausts all his IP rights
universally after making the first sale.

3)Regional exhaustion-This is when the owner of the right exhausts his right not only nationally
but in the entire region, after making the first sale.

For the purpose of this exhaustion, “region” can be defined as a well-defined group of nations.

PRINCIPLE OF EXHAUSTION IN INDIA

The TRIPS agreement had made it clear that every country could choose its own exhaustion
regime. This, in turn, means that every nation has the flexibility to allow or not allow parallel
imports. The principle of exhaustion and parallel imports have been dealt with in the Trademarks
Act of 1999.

Section 30 of the Trademark Act deals with the principle of exhaustion. The section talks about
the rights of a “registered proprietor” i.e. the owner of the registered trademark. It clearly states
that a product which has been put on the market by the purchaser (after the first sale) will not
infringe upon the rights of the registered proprietor provided that the product has not been
tampered with before being put into the market.

However, the Act does not elaborate on the term “market” and therefore there is no legislative
embodiment when it comes to choosing national or international exhaustion. Though this
concept has evolved in India through judicial pronouncements.
EVOLUTION OF THE CONCEPT OF PARALLEL IMPORTS IN INDIA

One of the first cases concerning parallel imports in India, with regard to the Trademarks law,
was Cisco Technologies v. Shrikanth 2005 (31) PTC 538 (Del). In this case, the Delhi High
Court granted an ex parte injunction to the plaintiff and stopped the defendant from importing
computer hardware which was registered under the brand name of Cisco. In fact, the court went a
step ahead and alerted the Custom bodies and regulatory authorities that there should be no
unofficial import of the said hardware by anyone except Cisco (registered in India).

In M/S General Electric Company v. Altamas Khan, CS(OS) No.1283/2006 the plaintiff argued
that parallel imports were damaging their business by re-selling products that were not covered
under the warranty provided by the original seller. Furthermore, the product which was being
resold was sold at a lower price and therefore the proprietor’s own product became a competition
for them. The Delhi High Court agreed with this view and held the defendant liable for
infringement.

In the case of Kapil Wadhwa v. Samsung Electronics, the Delhi High Court made the picture
clearer.

The court interpreted the term “market” as a global market and stated that the international
theory of exhaustion may be applicable in India. The court further stated that parallel imports are
legal provided that the product imported through parallel imports should clearly mention that
they have been imported and that no warranty or after sale services will be provided by the
original seller of the product or the registered proprietor.

In the most recent case of Philip Morris S.A. v. Sameer & Ors CS(OS) 1723/2010 and I.A.
11288/2010 the court clearly stated that India follows the international principle of exhaustion.
While parallel imports are legal, it is the burden of the purchaser to prove that the import done for
this particular purpose is legal.
ANALYSIS

Over time, the Indian judiciary has evolved the concept of parallel imports into a fairly
comprehensive one. The main aim of the principle of exhaustion is to strike a balance between
freedom to the first purchaser to do what he wishes, with the product and the rights of the registered
proprietor.
Initially, the courts had an idealistic approach where they preferred to give injunctions when they
believed that the rights of the IP holder were being infringed. However, they have sought to take
a more pragmatic approach and through the various case laws clarified that India, in fact, take the
international approach with regard to principle of exhaustion.
The current stand of the courts also clearly state that parallel imports are perfectly legal in India
provided that there is complete disclosure of information.
For ex.-An original phone by the brand X can be imported in India and sold at a lower price than
that of the said brand in the Indian market.
However, the importer must ensure that his import is legal and before re-selling the product, he
must inform the purchaser of the fact that the product is a result of the grey market and therefore
the original seller (X) will not cover any after services or warranty of the product in question.
CONCLUSION

One of the most common misunderstanding with regard to products of the grey market is that
they are counterfeit. However, this is not the case. These products are genuine. The only
difference between them and the products being directly sold by the company is that these
products are imported from outside and sold at a lower price, putting them in direct competition
with their own products.

At the first glance, it seems that parallel imports can do great harm to businesses by cutting into
their profits. However, it also seems to be an infringement of the right of the first buyer if there is
a prohibition from re-selling that product. Therefore, the courts have tried to strike a balance
between the rights of both the parties to ensure that there is no illegal business and the person
buying the product from the grey market also has full disclosure.
BIBLIOGRAPHY

https://www.bananaip.com/ip-news-center/patent-exhaustion-in-india/

https://www.wto.org/english/docs_e/legal_e/27-trips_03_e.htm

https://selvams.com/blog/exhaustion-of-trademark-rights-in-india-the-whole-world-is-one-
market-or-is-it-2/

https://indiancaselaws.files.wordpress.com/2014/04/parallel-import-exhaustion-principle-in-
india1.pdf