Select Committee on Trade and Industry Eighth Report


78. In considering the way forward for the UK and EU on international exhaustion, it is important to understand what the current situation is with some of our major trading partners. As would be expected, different countries outside of the EEA apply international exhaustion to varying degrees. Evidence we have received is somewhat diverse in its interpretation of the existing legal provisions, particularly concerning America. The Parallel Traders Association told us that in the US, Japan, Australia and New Zealand "there is no restriction as to where the trade mark owner initially puts his goods on the market- regardless of whether he sold them outside the EC or in another country. If he puts the goods on the market he cannot stop anybody else from dealing in these goods".[237] The TMPDF stated that, in terms of international exhaustion, "the USA in particular will not adopt such a regime comprehensively when contrary to US trade interests. Europe would put itself at a disadvantage to the US by adopting such a regime".[238] They go on to explain that the suggestion that in the US and Japan intellectual property rights are already subject to forms of international exhaustion, arises, to some extent, from a misunderstanding of the systems in force.[239] We have not found it easy to gather authoritative and consistent information on the doctrine of exhaustion as it is applied worldwide. There would be some benefit in an international body undertaking to set out clearly and unambiguously the situation of exhaustion as applied to intellectual property rights in the major trading nations. We recommend that the Government seeks to have such a task undertaken by the World Trade Organisation.

The United States of America

79. We had a useful informal exchange with a number of those involved in intellectual property rights whilst in America.[240] Generally speaking, the US applies the international exhaustion principle in the area of trade marks. Under US law the "first sale" defence (subject to valid contractual provisions limiting further sale) is available to traders re-selling goods in the US made by or with the authority of the right owner, wherever such goods are first made or first sold.[241]

80. However, as noted earlier, the Customs Regulations in the US have recently been amended in light of the Lever Brothers Co. v United States of America case. Trade mark owners can now apply for the restriction of certain 'grey' market goods that bear genuine trade marks that are identical to (or substantially indistinguishable from) those appearing on articles authorised by the US trade mark owner for importation or sale in the US, that thereby might create a likelihood of consumer confusion in circumstances where the grey market goods are "physically and materially different". The restrictions are not applicable if the articles carry a label that 'this product is not a product authorised by the United States trade mark owner for importation and is physically and materially different from the authorised product'.[242] We understand that as yet no such cases have been brought to the authorities' attention.

Australia and New Zealand

81. The Australian Government took an interest in parallel importing several years ago and this had led to a number of changes in restrictions, on a sector by sector basis. In 1991, for example, in the book sector the 'thirty day rule' was introduced whereby parallel importing was permitted unless the local distributor began selling the book within thirty days of the book being released anywhere else in the world. More recently, the Government passed two acts that fundamentally change the copyright parallel importing laws. One was the Copyright Amendment (No 2) Act 1998, which removed the parallel importing restriction on goods in which copyright subsists only in "accessory "items, for example, labels, packaging or written instructions. Prior to this, there was international exhaustion of trade mark rights but not of copyright and patents (although the doctrine of implied licence was applied to these latter rights). The effect of this was that if a trade marked good was also copyrighted, then the copyright could be used to block parallel imports, even though the trade mark was exhausted. In 1988, the Copyright Law Review Committee had recommended that: "If the simple expedient of affixing or attaching a label in which copyright subsists to any goods at all entitles the owner of the goods to exclude others from marketing similar goods, the sooner the practice is stopped the better. However imaginatively labelled or packaged a bottle of liquor may be, the product is liquor. The same may be said of cigarettes, perfume and cosmetics".[243] The Copyright Amendment (No 2) Act 1998 means that from 31 January 2000, copyright can no longer be used to block parallel imports in this way.

82. The other Act has allowed the parallel importation of sound recordings since the end of 1998. A defendant must prove that imported recordings are legitimate; the penalties for importing, manufacturing or trading in all pirated intellectual property products were increased. Mr Deacon from the British Phonographic Industry told us that, in Australia, CD imports were now coming in from Indonesia and Thailand, countries with very low intellectual property protection. Their indications are that "piracy has gone up to something like 30%".[244] Mr Kennedy stated that for the Australian record industry in a couple of years "it would be Armageddon".[245] Conversely, there are reports that the Australian Consumer and Competition Commission has stated that since liberalisation, prices have fallen without great impact on record companies.[246]

83. In New Zealand, a study published in June 1998 on the effect of the restrictions on parallel importing on copyright goods in New Zealand looked at motor vehicles (new and used), books and music compact discs.[247] It came out in favour of lifting restrictions on parallel importing and the New Zealand Government acted accordingly. In their evidence, the Publishers Association stated that "the latest New Zealand legislation may increase the penalties for piracy, but by determining that the legitimacy of a product derives from its legality in the country of origin, the local distributor now has to undertake the burden of proof in a remote country (not his own) - for which he may have neither the knowledge nor the resources. Books are seriously vulnerable to counterfeit production and 'overprinting'."[248]

237  Q225 Back

238  Ev, p100, paragraph 16 Back

239  Ev, p100, paragraph 19 Back

240  The Committee visited the USA 23-28 May 1999 Back

241  International Exhaustion: A Review of the Economic Issues, Stefan Szymanski, IPI Back

242  Department of the Treasury, United States Customs Service, Gray market imports and other trademarked goods. (Effective from the end of March 1999). Back

243   Parallel importing: A Theoretical and Empirical Investigation. Report to the Ministry of Commerce. Prepared by NZIER, section 4.2, quoting CLRC, Australian Senate, 1997 p50-51 (Http:// Back

244  Q354 Back

245  Q354 Back

246  FT 04/03/99 Back

247  Parallel importing: A Theoretical and Empirical Investigation. Report to the Ministry of Commerce. Prepared by NZIER Back

248  Ev, p161-162 Back

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