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Regarding to The United Nations Convention on Contracts for the International Sale of Goods (CISG), article 42 addresses that “The seller must deliver goods which are free from any right or claim of a third part based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property......."; And some restrictions are stipulated following this provision. However, it doesn’t address whether parallel imports are legal or not either. When disputes on this matter arises, it can only be resolved by national court pertaining its national laws on parallel imports.
Implication from the United States and European Union
Since WTO provisions allow member countries to establish their own rules for parallel imports, the flexibility leaves each country to legislate on the basis of their various national situations, such as economic development, trade policy etc.
The United States
The position of the United States on parallel imports, generally speaking, adheres to the principle of territoriality. It is governed by both statute and case law. The main statutes are the Tariff Act, the Lanham Act, and the Customs Regulations. Existing legislation and recent court decisions demonstrate that the United States is not likely to departing from its current position that parallel imports are not allowed and that exhaustion is limited to nationwide boundaries. [FN18] Section 526 of the Tariff Act prohibits the importation into the US of merchandise bearing a trademark registered in the US and owned by a US entity, unless the importer has written consent from the trademark proprietor. [FN19] The gist of the section is on consent to importation, not consent to affixing the mark onto the product and the prohibition requires no proof of likelihood of confusion. The intended beneficiaries of the section are American citizens who had purchased trademarks from foreigners. [FN20]
Over the years, the Customs and the Treasury Department have promulgated regulations supplementing and providing exceptions to the operation of Section 526. [FN21] These exceptions allow Customs to refuse seizure of parallel imports where: the US and foreign marks are owned by the same entity (the "same entity" exception); Or both trademark proprietors are subject to common ownership or control (the "common control" exception). [FN22]
However, there are further exceptions put forward by the Federal Supreme Court of the United States, based on the "same entity" exception and the "common control" exception. In other words, under certain circumstances, the "same entity" exception and the "common control" exception are not applicable. One situation is when material difference exists between parallel imports and legally authorized products, parallel import is prohibited. The other situation is: when the US trademark owner is independent from the foreign manufacturer, or the US trademark owner authorizes foreign independent companies to manufacture trademarked goods, parallel import is also prohibited. Regarding to the first situation, the court in Nestle ruled that the threshold of "material differences" between products should be kept quite low because the potentially confusing differences are not always blatant and it is by subtle differences that consumers are most easily confused. [FN23] In Societe des Produits Nestle v Casa Helvetia, [FN24] the court held that to establish trademark infringement, the domestic trademark proprietor need not prove that the Defendant''s imports are of inferior quality. It is sufficient to show that they are materially different. If material difference exists between goods sold simultaneously in the same market under the same name, a legal presumption of consumer confusion automatically arises. [FN25] Furthermore, Section 43 of the Lanham Act, it provides for civil liability against making false representations or advertisements of products, including misrepresentations. This act has been used to block parallel imports by claiming their materially different quality.
The US Customs Regulations amended in 1999 were also of importance to rule parallel imports. The Regulations now permit parallel importation of materially different goods manufactured abroad by entities that are affiliated with the US domestic trademark proprietor, provided that the products bear a prominent and legible label stating that the product is not authorized by the US trademark owner for importation and is physically and materially different from the authorized product. [FN26]
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