Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by The Parallel Traders Association

1.  THE PARALLEL TRADERS ASSOCIATION

  Established in September 1998 the PTA represents in excess of 20 companies and are founder members of European Parallel Trade Coalition, which in turn represents in excess of 40 parallel trade organisations across Europe. The PTA is committed to securing an amendment to the EU Trademark Directive to enable parallel trade from markets outside of the European Economic Area to take place.

2.  SUMMARY

  The Parallel Traders Association welcomes the decision by the Trade and Industry Select Committee to hold an inquiry into parallel trade and trademarks. We believe that the current situation, whereby brand owners are able to prevent parallel traders from importing their goods from outside of the European Economic Area, to work against the public interest.

  Last year's ruling by the European Court of Justice in the Silhouette case distorts the original intention of the Trademarks Directive. Mr Amedee Turner QC was responsible for drafting the original Directive and he has stated publicly that the Directive was only intended to deal with the situation within European Economic Area and is not intended to effect the position of goods entering the EEA from outside. This issue was not addressed in the Directive when drafted and was for further discussion. The Directive was introduced to protect manufacturers from copyright infringements, counterfeiting and "copycat" goods. The Parallel Traders Association supports these aims. However, the ECJ ruling bound by legalistic constraints, as is evident from a recent opinion of Advocate Jacobs in a case before the European Court of Justice known as Sebago, has led to a situation where manufacturers' selective and anti-competitive distribution networks, and the artificially high prices set, are protected by the Directive. This was never the intention of the Commission, the European Parliament, or Member State Governments.

  The Parallel Traders Association is calling upon the European Commission to amend the Trademark Directive to allow universal exhausion, and secure a fair deal for consumers.

 3.  WHY DOES PARALLEL TRADE OCCUR?

  Parallel trade exists for a number of reasons:

    —  First, it can occur when the price charged in one country is lower than that in another to such an extent that it makes sense for someone to ship goods between those markets.

    —  Second, parallel trade can occur when a brandowner in one country produces additional goods in order to boost sales figures, but no longer has a buyer for those goods. In these circumstances they may wish to export them to a third market to bring some revenue in while not depressing local prices.

    —  Third, parallel trade can exist where a retailer approaches a licensed distributor in a third country to gain access to stock that they have been refused access to in their own country.

    —  Fourthly, parallel trade is a direct consequence of the ability of manufacturers to dump their products on third markets, using high profits in their protected market to subsidise market share in a third market.

  There can be no doubt that brandowners value parallel trade, and use it as a mechanism to shift surplus goods to new markets. A number of our members have worked directly with brandowners. Although it will never be acknowledged publicly parallel trade is an integral part of many brandowners' corporate strategies. Therefore, we would contend that many of the complaints or arguments that brandowners advance are bogus.

  Brandowners are not opposed to parallel trade per se, far from it. They want parallel trade to continue, but only if they have total control over the system. The ECJ ruling means that at present parallel trade operates to the benefit of brandowners not consumers. Brandowners give their consent to parallel imports when they need to shift goods, dictating to consumers what goods they can and can not buy through parallel trade.

4.  PARALLEL TRADE AND CONSUMERS

  Parallel trade benefits consumers by making exclusive goods available at more reasonable prices. A wide range of goods are imported into the UK through parallel trade. The consumer benefits from the ability to buy designer goods at cut prices.

  Research by the Parallel Traders Association, and national newspapers such as The Sun and Daily Express, demonstrate the benefits that consumers enjoy from parallel imports (see annex). Parallel imported branded goods sold in supermarkets or other discount stores can be up to 75 per cent cheaper than manufacturers' recommended retail prices.

  The Parallel Traders Association agrees with the Chancellor that there is an absence of competition in certain sectors in the UK. Before it was outlawed by last year's ruling, the existence of parallel trade put pressure on manufacturers to keep prices down. A good example of this being Honda's decision to cut the price of its motorcycle range by £3,000 in the face of strong competition from parallel traders. The removal of parallel trade allows manufacturers to set their own prices without effective competition. Without this important source of competition prices are likely to rise even further.

  The Consumers' Association supports the campaign of The Parallel Traders Association. In January the Consumers' Association agreed that pursuit of an amendment to the Trademark Directive, to enable parallel trade to take place, should become the organisation's corporate policy.

  Parallel trade has also been praised by Consumer Affairs Minister Kim Howells. Speaking in the Commons Dr Howells said "I am glad that the supermarkets are pushing the edges of the envelope by exploiting the possibilities offered by so-called parallel or grey imports. They are introducing real competition into the markets for such goods".

5.  ARE TRADEMARKS EXCESSIVELY PROTECTED?

  ECJ itself has made clear that it does not object to parallel imports, and indeed pointed out that the EU could decide to harmonise rules on the basis of the situation that existed in the UK prior to the Silhouette ruling.

    "Finally, the Community authorities could always extend the exhaustion provided for by Article 7 to products put on the market in non-member countries by entering into international agreements in that sphere, as was done in the context of the EEA Agreement."

  In addition Advocate Jacobs in his opinion for the Sebago ruling said that limitation of the effect of the Directive as interpreted in the ECJ judgment in Silhouette may seem desirable and would no doubt have been welcomed in many circles.

  He went on to say that if the Directive is found to have effects that are unacceptable, the correct remedy is to amend the Directive.

  In the opinion of the PTA existing legislation without the actual benefit of limited exhaustion gives the trademark owner ample protection against copies or counterfeits and trademark law will protect the brandowner against passing off.

 6.  COUNTERFEITING

  It is the contention of many leading manufacturers that goods imported or sold by parallel traders are counterfeit goods. This is simply not true. Goods supplied by parallel traders are the same goods sold with the initial consent of the trademark owner but supplied through different distribution systems. The only difference between a parallel imported good and an authorised good is the price.

  The Parallel Trade Association agrees that steps should be taken to reduce counterfeiting. However, the need for free and fair parallel trade and the prevention of counterfeiting are two entirely separate matters, and they should be treated as such. Existence of the trademark directive does not mean that there will be fewer counterfeit goods. It may have the opposite effect as the consumer will be unable to obtain branded goods at realistic prices and may, in consequence, seek to purchase counterfeit goods.

  EU Commissioner Mario Monti has rejected the brandowners view that parallel traded goods are counterfeit, telling the Sunday Times that "we've got to firmly knock on the head the idea that parallel imports are the same as counterfeit goods—they are not. They are genuine article but traded outside the companies own channels."

7.  CONCLUSION

  The Parallel Traders strongly believes that the European Commission must revise the Trademark Directive. The Directive has been distorted by the brandowners lawyers, who have turned the legislation against the very consumers that the Directive was designed to protect. The Trademark Directive is being used to defend manufacturers selective (and we would argue anti-competitive) distribution networks, and artificially high prices, a purpose that was never intended.

  The practice of supermarkets selling discounted high quality branded goods had injected competition into the static UK retail markets. The ECJ ruling means that this source of healthy and desirable competition has been badly undermined. As the majority of branded goods that parallel traders supply to supermarkets are manufactured and/or distributed outside the EEA, manufacturers are now in a dominant position and are using this position of strength to restrict the availability of such goods.

  Tony Blair, Gordon Brown and Stephen Byers have all said publicly that prices in the UK are higher than abroad. Parallel trade is one way to ensure that consumers are able to purchase high quality goods at reduced prices. If, as Stephen Byers has said "consumers are at the heart of Government," then the UK Government must lead the campaign to secure an amendment to the Directive.

March 1999


 
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