With new government in chair, the manufacturing sector in India is bristling with the new found vigour and hope for bouncing back of Indian economy and moving in right direction and on path of development. The Government is outreaching the foreign investors with a call to “Make in India”, i.e. to invest and set up manufacturing units in India. However, the ambiguous position of the laws of the land pertaining to the parallel imports of the goods would be raising a serious question on the success of said calls made by the Government to offshore investors.

As there exists no clear law which provides the Parallel import of goods a legal sanctity or be termed as a legal right but at the same time it does not call parallel imports of goods as an infringement of right of the brand owners in India.

Though the implications of parallel imports have been felt by brand owners in India for a long time, it is only past 5 years since then the issues relating to the same have been agitated before Courts.

The evolution of the law relating to parallel imports in India has been majorly because of judicial interpretation of laws particularly by Delhi High Court, in four separate cases, have interpreted the law and have decided differently at different times and these collectively form the keystone of law relating to grey market goods in India.

In first case while dealing with the issue of parallel imports in India, Delhi High Court, in Samsung v. G.Choudhary, assumed India follows the principle of international exhaustion of trademark rights, and while borrowing the “material differences doctrine” from the US Courts held that if there are differences, physical or non-physical, between the product meant for sale in India and the imported product, the trademark proprietor will have the right to stop further commercialization of the imported goods.

In another case of Samsung v. KapilWadhwa before the Delhi High Court, the material differences doctrine was challenged by the parallel importer and it was stated that mere importation of a slightly different product would not amount to infringement unless the good was materially changed or physically altered. Brand owner countered andcontented that the act of importation of a product not meant for sale in India would itself tantamount to change or impairment of the goods. Further it was argued that India in fact follows the principle of national exhaustion of trademark rights; The Single Judge agreeing with the brand owner’s contention interpreted the expression “the market” used in the Trademarks Act, 1999 to mean a domestic market and held that India indeed follows the principle of national exhaustion.

In the same matter the Division Bench of the Delhi High Court while deciding the appeal took a diametrically opposite view and held that the expression “the market” used in the Act is ambiguous.The external aids of interpretation were relied upon to reach a conclusion that India follows the principle of international exhaustion.The Division Bench went on to hold that material differences in a regime of international exhaustion would only apply where the condition of the goods have been physically and actually altered after being acquired by the importer. However, the Division Bench did appreciate that differences in warranty and after sale services had the potential to harm consumers. The Parallel Importers were also directed to conspicuously put a disclaimer in their premises stating that the Brand owner will not be responsible for any warranty or after sale services for any products purchased from them. One would wonder if the solution provided is would really work. Considering the Parallel importers and distributors, would the disclaimer possibly percolate down to the end consumer remains anybody’s guesswork?

In another two matters – before a Single Judge of the Delhi High Court, relief was granted to Philip Morris Brands Sarl against retailers of grey market Marlboro cigarettes. Not only did the products fail to comply with the local packaging and labelling laws but were also bereft of the mandatory health warnings. The Single Judge while deciding the said cases considered the findings of the Division Bench in the Samsung case and held that even in the regime of international exhaustion, there would be onus upon the Parallel Importers to prove that the goods sold by them had been “lawfully acquired”. Therefore, this would effectively require Parallel Importers to disclose documents such as an import license, bills of lading, invoices, receipts of payment of import duty, excise, etc. The Parallel Importers would also be required to divulge the source from where they obtained the goods and whether these sources are legitimate. Here the burden to prove legitimacy of the imported goods would become extremely high for the Parallel Importers.

Samsung had filed a Special Leave Petition and challenged the findings of the Division Bench of the Delhi High Court before the Supreme Court of India which is pending for adjudication. The issue justifiably requires the attention of the Apex Court as in deciding which principle of exhaustion India follows, there may be huge implications on not only the brand owners and importers but also the economy of the country. Perhaps this is why there have been parties from both sides have filed intervention applications in the matter includingassociations such as the International Trademark Association (INTA).

Arguments from the Brand owners against international exhaustion has been that it stifles innovation, hampers technology transfer, reduces incentive to invest in a market, encourages counterfeiting and is detrimental to consumers amongst other things. On the other hand, importers contend that national exhaustion violates the basic principle of free trade and commerce especially when the world is rapidly evolving towards the model of conducting business electronically.

With the matter now pending in the Supreme Court of India, we can only wait whether parallel imports are given a status of legal right or are held as an infringement.