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LEGALITY OF PARALLEL IMPORTS UNDER INDIAN TRADEMARKS LAW IN THE LIGHT OF KAPIL WADHWA JUDGEMENT

February 1, 2025

*Mr. Sahil Singh

INTRODUCTION

In the context of Trade Marks law, the term “Parallel Imports” refers to the purchase of goods from the trade mark owners or their authorised personnel through legal trade channels in a different market and subsequently, importation of such goods for sale to the general public in a different market without authorisation. They are also popularly known as “Grey Market”. Parallel import provision is not mandated by the TRIPS. It is upon the of liberty of member countries to include it or not. However, it is important to assess that which principle of exhaustion is followed to determine the legality of parallel imports.

DOCTRINE OF EXHAUSTION

The doctrine of first sale/exhaustion is critical in this regard, which states the moment the first sale happens, the trademark owner has exhausted the trademark rights covering that product by first sale. This means that once the goods with the registered trademark are sold, the trademark holder cannot object the further resale of the same unless there is a change in the conditions of the goods. Exhaustion can broadly be categorised into 3 types:

  • National Exhaustion: Under national exhaustion the trademark owner loses legal rights to control domestic resales of products once they authorize their initial release to the market. The first authorized sale of a product exhausts the trademark owner's limits to interfere with a domestic reselling or distribution of that product. The trademark owner maintains authority to determine foreign imports of a product but must approve such imports to prevent parallel importation. National exhaustion serves as the primary trademark policy in the U.S. which grants rights to owners for blocking imports regardless of foreign purchase authenticity. The principle enables trademark owners to regulate their distribution networks at their home territory for quality control purposes while potentially creating barriers for consumers to obtain affordable parallel imports.
  • Regional Exhaustion: The regional exhaustion doctrine allows trademark owners to let their rights expire regarding authorized product sales throughout a specific regional block. Any legally sold product in this area can circulate and be sold repeatedly with no interference from the trademark owner. The owner can implement regulations to manage products that enter from locations outside of their designated regional market. European Union operates as the prime illustration of regional exhaustion rules since products that have received legal distribution in any European Union member nation can circulate throughout the entire bloc without triggering trademark infringement. Under this principle member states achieve trade liberalization and enhanced regional economic integration through competition which enables them to retain import control power. The principle establishes a harmony that protects trademarks but stimulates free trade access between collaborating member nations.
  • International Exhaustion: International exhaustion functions as a legal principle which releases trademark ownership rights for products whenever they get marketed legitimately throughout any geographic area worldwide. When international exhaustion is applied the trademark holder loses their rights to block any product sale or importation into other countries. Free movement of genuine goods worldwide becomes achievable through this principle which lets products move freely between markets. Through national exhaustion consumers obtain equitable pricing opportunities combined with expanded product choice options from diverse markets. International exhaustion creates both beneficial market efficiency through competitive prices and challenges trademark ownership when controlling product distribution in different markets. This doctrine is important in the context of parallel imports as it helps to identify up to which market (i.e. internal, regional or international) parallel imports are valid. Therefore, it serves as a pre-requisite to parallel imports.

LEGALITY OF PARALLEL IMPORTS UNDER THE INDIAN TRADE MARKS LAW

The legality of parallel imports under the Trademarks Act of 1999 can be assessed by examining section 30(3) and (4) of the Act. It is understood that Section 29 of the Trademarks Act pertains to infringement whereas Section 30 of the act sets out certain exceptions to such infringement.

Section 30 (3) of the Act states that once a person lawfully acquires a good bearing a registered trademark and deals with that good by selling in the “market” or otherwise, it does amount to infringement. Further subsection 4 of the same section states that Section 30 (3) shall not apply in case the proprietor of the mark has valid reasons to prevent further dealings in the goods, especially, when there is a change in the conditions of the goods after they have been put in the market.

Here under both the provisions, the term ‘market’ has been used without specifying whether it is national or international market, thereby raising the question whether the Trademarks Act of 1999 follows the principle of national or international exhaustion. This issue came up in the case of Kapil Wadhwa & Ors. v. Samsung Electronics Co. Ltd. & Anr. (2012).
KAPIL WADHWA & ORS. V. SAMSUNG ELECTRONICS CO. LTD. & ANR.

  • Facts: Samsung Electronics Co. Ltd. and Samsung India Pvt. Ltd. (referred to as the "Respondents") own the trademark rights to "SAMSUNG" in India. They had initially filed a lawsuit against Kapil Wadhwa and several other distributors (now the "Appellants") for importing Samsung printers from authorized dealers in foreign markets and selling them in India without permission, often at lower prices. The Appellants also used meta-tags linking their website to Samsung’s which the Respondents argued was a violation of their trademark rights. As a result, the Single Judge of the Delhi High Court held in favour of the Respondents stating that The Trademarks Act of 1999 follows the National Exhaustion Principle. Subsequently an appeal was filed before the Division Bench of the same court.
  • Issue before the Division Bench: Whether the Trademarks Act 1999 follows the principle of National or International exhaustion?
  • Judgement (Rationale): The Division Bench held that the Trademarks Act 1999 follows the International Exhaustion Principle. In arriving at the above conclusion, the court discussed the following:
    • The court reproducing Section 30(3) of the Trademark Act emphasized on the use of the word “market” where the provision does not specify whether international or national market. The court highlighted printing error under Section 30(3), citing the gazette notification where it stated ‘Not infringement of a trade by reason only of’ should read ‘Not infringement of a trade mark by reason only of’.
    • The court further revisited subsection 3 of Section 30 and broke it into 3 parts: (i) goods
      bearing a registered trademark are lawfully acquired by a person; (ii) the sale of the
      goods in the market by that person; and (iii) not constituting infringement of the trade
      mark.
    • The court criticized the Single Judge's abrupt conclusion that source of lawful acquisition under Section 30(3) must be limited to the domestic market. The appellate court finds that there is no explicit statutory basis to impose such a restriction.
    • The Court further discussed the statutory provisions of seven different jurisdiction regarding the same and noted that where the countries wanted the principle of National Exhaustion, they have expressly used the expressions indicating the same such as internal market, market in the community, market in the country etc. However, if the term only “market” has been used, it has been implied to include both national and international market.
    • The Court highlighted India’s Stance at the Uruguay Round Discussions, where India’s position was to permit parallel import and favour the of Exhaustion of Rights pertaining to parallel imports. As per the TRIPS agreement, it is upon the liberty of the member countries whether to follow or not to follow any Principle of Exhaustion of Rights pertaining to parallel imports.
    • In this context, the court highlighted that Section 107A of the Patents Act and the Copyright Act already recognize international exhaustion, supporting a harmonized interpretation across IP laws (citing a Report of the Standing Committee on the Copyright (Amendment) Bill, 2010.)

The court partially upheld the appeal ruling that the appellants are still prohibited from using meta-tags that link their website to the respondent's. However, they are allowed to sell Samsung printers and ink cartridges/toners, provided they display in their showrooms that these products are imported from abroad. Additionally, they must inform customers that Samsung does not offer any warranty or after-sales service for these goods and that any such support is solely provided by the appellants only.

CONCLUSION

The Kapil Wadhwa case played a crucial role in clarifying the stance of Indian trademark law on parallel imports. The Division Bench of Delhi High Court ruled in favour of International Exhaustion Principle, allowing the resale of trademarked goods imported from foreign markets. This judgement reinforced the principle that once goods are lawfully sold anywhere in the world, the trademark holder cannot restrict its resale in India unless there is a valid reason like change in the product’s condition. This judgment is crucial for businesses involved in parallel imports as it provides clarity on their legal standing. It also benefits consumers by promoting competition and ensuring access to genuine products at competitive prices. However, the appeal from this decision is still pending before the Supreme Court and this judgement only holds persuasive value on other High Courts in the country.

REFERENCES:

  1. Soumil Jhanwar, Exhaustion and Parallel Imports in the New Indian Trademark Law, 13 INDIAN J. INTELL. PROP. L. 118, 119 (2023).
  2. Sneha Jain, Parallel Imports and Trademark Law, 14 JIPR. 14,15 (2009).
  3. Saurabh Suman & Sakshi Snehi, Exhaustion of Trademark Right and Parallel Importation, 1 INT'l J.L. MGMT. & HUMAN. 56, 59 (2018).
  4. The Trade Marks Act, 1999, §30(3), No. 47, Acts of Parliament, 1999 (India).
  5. The Trade Marks Act, 1999, §30(4), No. 47, Acts of Parliament, 1999 (India).
  6. Sanya Kapoor, An Indian Perspective towards Parallel Imports and Trademark, Infringement, 2 INDIAN J. INTEGRATED RSCH. L. 1, 5 (2022).
  7. Kapil Wadhwa & Ors. v. Samsung Electronics Co. Ltd. & Anr, 2013 (53) PTC 112 (Del) (DB).

Author:
* Mr. Sahil Singh
3rd Year B. A. LL. B. (Hons.) Student,
Alliance School of Law, Alliance University.

Disclaimer: The opinions expressed in the article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of the Alliance Centre for Intellectual Property Rights (ACIPR) and the Centre does not assume any responsibility or liability for the same.