Memorandum submitted by A&G Imports
1. A&G is a wholesaler of perfumes and
other cosmetic products, and has been involved in the parallel
import business for over 16 years. It is the largest parallel
importer of cosmetic products in the UK. We would like to address
some of the questions raised by the Enquiry in so far as they
relate to parallel trading in cosmetic products. It may be helpful
to provide a very brief summary of how the grey market in cosmetic
products works. The description is a general one. We must emphasise
that not all brand owners operate in the same manner, and our
comments should not therefore be taken to extend to all of them.
2. PARALLEL TRADING
2.1 Many brand owners operate selective
distribution systems. This means that products will only be supplied
to authorised distributors who may be subject to a contractual
requirement only to sell to other authorised distributors or consumers.
There may also be a contractual requirement not to sell or promote
the product outside a particular territory. It is likely that
any such requirements will only be known by the original contracting
parties, as it is not standard practice for brand owners to mark
their products as only being for sale in a particular territory.
2.2 Some products are marked with numerical
codes which indicate to the trade mark owner the retailer, authorised
distributor or territory to which the product was originally supplied.
2.3 Although they operate a selective distribution
system, some brand owners will supply large volumes of current
product to traders dealing in the grey market on the basis that
the parallel traders will not disclose this to the authorised
2.4 Some brand owners will also supply volumes
of products to authorised distributors which they must be aware
cannot possibly be disposed of through the authorised channels
(for example, a small dealer may be supplied with 1,000 bottles
of perfume, even though his turnover clearly indicates that he
cannot possibly sell more than 100).
2.5 Some re-sellers may remove the numerical
code identifying them to the brand owner before they sell on their
3. There are two specific questions to which
A&G wish to respond:
4. Why does "grey" and parallel
trading occur? What are the costs and benefits to producers and
4.1 One of the reasons why parallel trading
in cosmetic products occurs is that many brand owners over-supply
their authorised distributors to such an extent that it is impossible
for them to dispose of all the product through the authorised
channels. Some brand owners also directly supply known traders
in the grey market in order to achieve sales quotas.
4.2 The obvious benefit to the producer
is that they dispose of far greater volumes than they would be
selling only through the authorised channels.
4.3 The benefit to consumers is that the
product is more easily available at a lower price.
5. SHOULD MORE
5.1 A&G is not advocating that brand
owners should receive no protection for their trade marks. Neither
is it A&G's intention to in any way devalue the brands. However,
some trade mark owners are now using their marks to randomly enforce
their selective distribution systems in a discriminatory manner.
5.2 A parallel trader may purchase a product
from outside the EC, from within the EC or from the brand owner
itself. With respect to the second category, it is impossible
for the parallel trader to know whether the goods are within the
EC with the trade mark owner's consent or not if the goods are
not marked. It is possible that goods purchased within the EC
from a seller who guarantees that they are in free circulation
were originally sold to a distributor outside the EC, even though
the majority of grey goods purchased in the EC originate from
EC authorised distributors. The whole nature of the parallel market
is such that all traders are extremely reluctant to disclose their
sources of supply, and in many instances would not sell product
if it was a requirement that they do so.
5.3 The potential impact of the Silhouette
decision on the cosmetics industry could be to prevent parallel
traders dealing in goods whose rights have been exhausted within
the EC. For example, a parallel trader could purchase product
from an authorised distributor in Germany who has been over-supplied.
It is likely that this distributor will remove any codes which
may identify him to the brand owner. The product may be sold several
more times before it ends up in a shop. The final purchaser is
assured that the goods are in free circulation, but has no way
of proving this. The impact of Silhouette has been to allow
trade mark owners to pursue an action for trade mark infringement,
should they choose to do so, on the basis that the goods are not
in the EC with their consent. General experience post Silhouette
indicates that there is no consistency. Some consignments can
be sold without interference, others may be the subject of an
action. In our view this amounts to excessive protection of the
marks and uncertainty for dealers in these products.
5.4 To summarise, it is generally felt within
the grey market that the effect of the Silhouette decision
has been to enable some brand owners to deliberately supply product
to the grey market, and then randomly use trade mark infringement
actions to prevent the final sale of those products when it is
convenient to do so. Selective distribution systems can be enforced
by controlling supplies to authorised distributors, and some brand
owners have successfully achieved this.
5.5 Grey traders would welcome some form
of certainty. If a product were clearly labelled to the effect
that it was only for sale in a particular territory, then this
would be clear to parallel traders, who would then know they may
not be free to deal in it.