imported into Australia by someone other than the authorised distributor. Brand owners and their authorised distributors frequently object to this practice because it reduces their control over the distribution of their goods. Not only does this undermine existing distribution channels and pricing structures, but can result in products that have been crafted specifically for an overseas market being distributed in the Australian market where they may not meet consumer expectations or quality standards, tarnishing a brand’s reputation. Government theory, by contrast, is that parallel imports increase competition and benefit consumers by keeping prices down. Some products such as pharmaceuticals (for public safety reasons) and books (as a result of strong industry lobbying) cannot freely be parallel imported. But for most other products, Australia’s intellectual property legislation permits the importing of genuine products. If an importer can source a supply of products overseas at a sufficiently reduced wholesale rate, then it can be a profitable business model to parallel import them to Australia, even once transport and import duties are added. Until recently, intellectual property rights holders were powerless to prevent these parallel imports because section 123 of the Trade Marks Act provides that ‘a person who uses a registered trade mark in relation to goods…does not infringe the trade mark if the trade mark has been applied to…the goods by, or with the consent of, the registered owner of the trade mark’. In other words, if the brand owner authorised the products to be manufactured – anywhere in the world – then the brand owner must have consented to its trade mark being applied to the products. Once the products enter the distribution chain, the brand owner has lost control of them. Although distribution agreements might try to restrict where the products end up, there is little that the brand owner can do once the products leave the factory. Title in the products can pass through multiple parties; the brand owner no longer has the ability to stop products being on-sold. There are a number of instances where an attempt to parallel import has backfired on the importer because the products sourced from overseas were actually counterfeit, but provided that the products are genuine, it has traditionally been very difficult for brand owners and their local distributors to prevent the imports. Recent cases Three recent cases looked closely at the circumstances surrounding a brand owner’s ‘consent’ to the use of its trade mark on products. The impact for importers is that they can no longer be certain that the section 123 defence will apply. Even if the products are genuine, it is possible that the brand owner’s consent to the use of its trade mark is conditional on the products only being distributed in a particular region or that there is no chain of consent from the Australian trade mark owner to the manufacturer overseas. Sporte Leisure vs Pauls International Prior to this decision, a parallel importer could expect that the fact that the goods in question were genuine goods meant that the trade mark had been applied to them with consent of the brand owner. Having consented to the trade mark being applied to the goods, the brand owner could not succeed in a trade mark infringement case if an unauthorised person brought the goods to Australia. Sporte Leisure creates an element of doubt for parallel importers by introducing the concept of ‘conditional’ consent. Arguably, this concept does not exist in the legislation however, for now, the case law exists and must be respected. In Sporte Leisure the trade mark owner, Greg Norman Collection (GNC), authorised an overseas company to manufacture clothes with GNC trade marks, solely for sale in a specific region. The goods passed through various hands, before Paul’s International imported them to Australia. The critical issue was whether the trade marks were applied to the garments with the consent of GNC at the time of manufacture. If there was such consent, Paul’s could rely on section 123 of the Trade Marks Act and there would be no trade mark infringement. The court found that GNC had not consented to the use of the trade mark on the garments outside of the defined territory as set out in the licensing agreement with the manufacturer. As such, Paul’s could not rely on the defence provided by section 123 of the Trade Marks Act. Consequently, Paul’s had breached that Act. Facton vs Toast Sales Group In this case the applicants (G-Star) were a group of companies that collectively own and use the trade mark G-Star globally.The respondent, Toast Sales, conducted pop up sales at various locations where it sold a range of clothing brands and accessories that included clothing branded G-Star. Toast Sales purchased goods bearing the trade mark G-Star from numerous sources including Attr@ttivo, a Greek company that had entered into a contract with G-Star, licensing it to only sub-distribute to retailers who were approved by G-Star. G-Star had not approved the sale by Attr@ttivo of clothes and accessories bearing the trade mark G-Star to Toast Sales. Toast Sales argued that it had not breached the Trade Marks Act because it was protected by section 123 since the trade mark was applied to the clothes with the consent of the registered owner, G-Star. The court held that the section 123 defence was available to Toast Sales because G-Star consented to the application of its trade mark to the goods sold by Attr@ttivo. The fact that Attr@ttivo had breached its agreement with G-Star did not negate the fact that consent had been given at the time of manufacture. The court did not accept G-Star’s argument that its consent to the application of the G-Star trade marks on the goods sold by Attr@ttivo to Toast Sales was conditional on the goods being sold within the terms covered in the Attr@ttivo licence. It is arguably difficult to reconcile this case with the Sporte Leisure position. The net result is that the position for parallel importers is uncertain. Paul’s Retail vs Lonsdale Australia The latest decision of the Australian Federal Court in this area reinforces the position that importers may be liable for trade mark infringement if they import goods where the Australian brand owner’s consent for the use of its trade mark of the goods cannot be linked to the actual goods at the time of manufacture. Lonsdale Australia owned various registered Australian trade marks, which were assigned to it by a related company, Lonsdale Sports. Lonsdale Sports licensed a company, Punch, to promote and sell goods bearing Lonsdale trade marks in Europe. The goods sold by Punch were eventually imported into Australia and sold by Paul’s Retail, and one of these trade marks was the same as one of Lonsdale Australia’s registered marks. Paul’s Retail argued this was a case of its importing genuine goods made by an authorised supplier. It relied on the section 123 defence. The trial judge, Justice Gordon, considered the following elements in an attempt to discover whether express consent of the trade mark owner was given: Can you trace the chain of supply of the imported goods back to the Australian trade mark owner? Does the Australian trade mark owner belong to the same corporate group as the company that put the trade marks on the imported goods? Is there any other conduct by the trade mark owner that might show that it consented to application of its trade marks to the imported goods? Justice Gordon found that Paul’s Retail had not provided any evidence of any of the above. On appeal the Full Federal Court found that it was not necessary to decide the issues considered by Justice Gordon. Nevertheless these factors should be evaluated by parallel importers as part of their due diligence in order to deduce whether the trade mark owner granted express consent to the use of the mark on the goods in question and whether there is anything to extinguish that consent if the goods are brought to Australia. Even if Paul’s Retail could establish that Lonsdale Australia was bound by the consent of the related company, there was in fact no consent by that related company because the licence granted by Lonsdale Sports was limited in its terms to ‘the non exclusive right to promote, distribute and sell products bearing the trade marks in [Europe]’. In other words, the intention of the parties to the licence was that goods bearing the trade mark remained in Europe. As with the Sporte Leisure case, a very close examination of the circumstances under which the goods in question were manufactured leads to a conclusion that the Australian brand owner – as a matter of fact – did not consent to the application of the trade mark to the products. Hence, the parallel importer was denied a defence to trade mark infringement. What does this mean for parallel importers? An outcome of these decisions is that importers may be liable for trade mark infringement if they import goods where the brand owner’s consent to the use of its trade mark is expressly for specific territories. The onus is on the importer to verify whether any territorial restrictions apply to the goods being imported. Parallel importers will of course be unlikely to have access to information about the circumstances under which goods were manufactured. They must therefore proceed with caution when importing goods into Australia. If possible, importers could look to obtain assurances, warranties and indemnities from their suppliers that the products will not infringe Australian trade mark registrations. What about brand owners? A well considered trade mark protection and licensing strategy can put Australian trade mark owners in a strong position to prevent the parallel importation of goods. The courts seem willing to support brand owners where clearly drafted licensing and distribution agreements make it clear that the brand owner consented to its trade mark being applied to certain products, provided that those products remain within a specific region. This story originally appeared in Inside Retail Magazine. The August/September issue, featuring exclusive coverage of the 2013 Westfield World Retail Study Tour is available from this week. For more information, click here. * David Moore is special counsel and head of intellectual Property at Cornwall Stodart He can be contacted on (03) 9608 2264, or d.moore@cornwalls.com.au.