Select Committee on Trade and Industry Minutes of Evidence


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 IN COSMETIC PRODUCTS

  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 distributors.

  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 products.

  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 consumers?

  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 OR LESS PROTECTION BE GIVEN TO BRANDS AND ARE TRADE MARKS INSUFFICIENTLY OR EXCESSIVELY PROTECTED?

  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.

March 1999


 
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