Principle of Exhaustion of Rights – Parallel Importation of Trademarks

Principle of Exhaustion of Rights – Parallel Importation

Section 29 and section 30 of the Trademarks act, 1999 describes the principle of Exhaustion of rights of parallel importation of trademarks. Defendants distributing, retailing and selling grey market printers of the plaintiffs in the market and not the ones supplied by the plaintiff. The Printers being sold by the defendants without proper maximum retail price stickers and not earmarked to be sold in Indian market.

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Let me now deal with the submissions made by the defendants in seriatim:

Firstly, I have already dealt with the submissions of the defendants that India follows the principle of international while analyzing Section 30 (3) by contextually reading the same and arrived at the finding that the said submission is without any force.

Secondly, the submissions of the learned counsel for the defendants that the imports amounts to the goods lawfully acquired by a person is also incorrect and the same stands dealt with in the discussion relating to section 30 (3).

Thirdly, I have already discussed the conception of market in my discussion on Section 30 (3) in great detail and thus the submissions of the defendants that there is a worldwide free market and importation is allowed and is not an infringement is also rejected. The same does not hold true that Indian Act is narrower in terms when it comes to the concept of market.

Fourthly, I have already rejected the parliamentary material which is not statement of objects and reasons and even it is assumed to be so that they are not true aid of construction of the provision where the language speaks otherwise. I have rejected the other aids including write ups and maps which cannot be guide to the interpretation. Thus, the said argument is again without any force and is rejected.

Fifthly, I have also dealt with the decision of Xerox reliance of the defendants as per my view is misconceived. Similarly, I am also not basing my decision on the basis of ex parte order passed in earlier case of Samsung Electronics Co.Ltd. Versus G. Chaudhary and thus it does not call for discussion as I have independently formed an opinion on the basis of plain and contextual reading of the provisions as well as the comparative analysis with UK Law.

Sixthly, the defendants have argued that Section 30 (4) has to construe as if it is a proviso to Section 30 (4). Although, there is no need to examine the said submission as the case of the defendant as per my view does not even come within the purview of the Section 30 (3). Still I am examining the said submission in following manner. The reading of section 30 (3) and section 30 (3) shall not apply in some cases but no where it uses the language as “provided” which may make it in as much as that of the proviso. The said section 30 (4) is at the best the exception to section 30 (3) but cannot be assumed to be proviso when it is couched in such language. It is well settled that the provision which acts as an exception cannot necessarily be presumed to be proviso to the main section. This has been examine in detail by Supreme Court in the case of London rubber Co. Ltd. versus Durex products wherein section 10 (1) and (2) of the Trademarks Act, 1940 which are exceptions to each other were contended to be proviso to each other. The Supreme Court recorded the submission in the following words and thereafter rejected the same: “Mr. Pathak, however, contends that sub-section (2) is merely a proviso to sub-section (1) and as such it cannot apply to a case which squarely falls under section 8(a). Being a proviso to sub-section (1), the argument proceeds, it must apply to the matter contained in the main provision and that since sub-section (1) applies only to a case where a competing trademark is already on the register it cannot apply to a case falling under section 8 (a) which provision deals, according to him, only with cases where there is no mark on the register. He contends that the language used in sub-section (2) is in material respects identical with that used in sub-s. (1) and thus establishes the mutual connection between the two provisions. A similar argument was advanced before the High Court and was rejected by it, in our opinion rightly.” (Emphasis Supplied).

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“The question, however, is whether sub-s. (2) Can be regarded by itself or it is, as contended by Mr. Pathak, only a proviso to sub-s. (1) And being a proviso it must apply only to cases which are contemplated by the main enacting provision, that is, sub-s. (1) of s. 10. He concedes that sub-s. (2) is not described by the legislature as a proviso to sub-s. (1) but he wants us to construe it as a proviso because it occurs in the same section as sub-s. (1) and its language is similar to that of sub-s. (1).” (Emphasis Supplied)

“In support of this contention he has referred us to Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax(,). That was a case where this Court was considering the proviso to Art. 286(2) of the Constitution and the Court held that a proviso was meant only to lift the ban under Art. 286(2) and nothing more. Bhagwati J., who delivered the judgment of the Court has observed thus: “It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other.” These observations, however, must be limited in their trademark application to a case of a proviso properly so called and there is no justification for extending them to a case like the present where the legislature has, when it could we I do so if that were its intention, not chosen to enact it as a proviso. The decision therefore, affords no support to the contention.” (Emphasis Supplied)

Thus, it is clear that in cases where one provision is exception to another the same cannot be called as proviso to the same on the basis of the assumption unless the legislature expressly enacted the same to be properly so called proviso. In the given case, if I apply the said principle, it is clear that the terms of Section 30 (4) cannot be cut down by treating it as a proviso. The submission of the defendant is thus rejected as unmeritorious.

Sixthly, the submission of the defendants that there are other entities, what are also doing the importation within the knowledge of the plaintiffs and for the same reason, the plaintiff are estopped from suing the defendants and seeking injunction. In reply, the plaintiffs submit that the defendants have now informed about the same and they shall be taking necessary action accordingly. I have given due consideration to the submission and reject the same as incorrect. I have already arrived at the finding that the importation of goods under the trademark is an infringement envisaged under Section 29 (1) read with Section 29 (6) with no exception as to genuine or non-genuine goods. Therefore, by virtue of the acts of defendants being an infringement, the third party misuse cannot be pressed into service to escape the liability of infringement which is well settled principle in view of dictum of Pankaj Goel versus Dabur India Limited and Castrol Limited v. A.K. Mehta of Division Bench of this court. (Pankaj Goel versus Dabur India Limited, 2008 (38) PTC 49 (Delhi) held that merely because others are carrying on business under similar or deceptively similar trademark or have been permitted to do so by the plaintiff, cannot offer a licence to the world at large to infringe the trademark of the plaintiff. It was further held that even otherwise, the use of similar marks by a third party cannot be a defence to an illegal act of passing off. In Castrol Limited versus A.K. Mehta, it was held that a concession given in one case does not mean that other parties are entitled to use the same). In that view of the matter, mere fact that there are other traders in the market who are also doing similar acts is inconsequential in law when it comes to testing the acts on the defendants on thresholds of statutory infringement. Therefore, the said submission of the defendant is equally without force.

Seventhly, the submission of the defendants that the concept of material alteration is distinct from that of material differences in US. The said submission needs no examination as in my view the case of defendant does not even fall with Section 30 (3) which talks of domestic market where the trademark is registered. Thus, the question of examining the said concepts and differences in the context of the provisions existing in different statutes does not arise. The judgments relied upon the defendants to urge this point of material differences and material alteration also warrants no discussion.

The submission is thus not considered as the defendants has failed to show how its case falls within section 30 (3) even. Eighthly, the submission of defendants that the private arrangement between the plaintiff No. 1 and plaintiff No. 2 cannot contract out the law of the land which is otherwise is also rejected. This is due to the reason that the legal position as emerging from the analysis done above is to the effect that Section 30 (3) operates an exception to an infringement under Section 29 within the same market. Therefore, it is only the registered proprietor or permitted user who can cause such importation. In that view of the matter, there is no reason to accuse the plaintiffs to contract out the law as there is no such legal position as contemplated by the defendants.

Ninthly, the distinctions between EU directives vis a vis Indian statute so far as its comparison with Section 30 (4) with Article 7 of EU directive is concerned, the same are immaterial as the conclusions which I have set out herein are not based on legitimate reasons and thus the said discussion is again unwarranted. Tenthly, so far as the other admissions are concerned as alleged by the defendant. The one which relates to the plaintiffs themselves recognizing the legitimate reasons as an exception to international ex falls within the same domain that the plaintiffs cannot suffer on the counts of admissions made on the basis of mistaken position in law as discussed above and the same admissions are inconsequential in law. Further, the other admissions as pointed by the defendants do not clinch the issue as either they are not clear or ambiguous which do not aid the case of the defendants. Eleventh, the submissions of the defendants on the aspect of guarantees given by the defendants as that of original also do not require further consideration as I have arrived at the prima facie conclusion that importation by virtue of Section 29 (1) read with Section 29 (6) is an infringing act. Thus, the said submissions of the defendants do not take the defendant’s case anywhere further.

Twelvethly, the submission of the defendants on Meta tagging being fair use as the same is the only way to describe the article which they are selling through importation which according to the defendant is permissible under the law. The said contention also becomes unmeritorious as the act of importing the products without being a registered proprietor of the trademark or permitted user is impermissible, consequently, the promotion of the same on website in order to take advantage over and above the market of the plaintiffs which the plaintiffs can control cannot in any manner categorized as fair use. Once, the plaintiffs object to the said use of the mark SAMSUNG and other trade description on internet, the same cannot be said to be fair use in order to promote infringing act.

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Thirteenth, the submissions of the defendants that there are misrepresentations in the suit and thus the injunction application is liable to be dismissed is also rejected. The reasons for the rejection of the submissions are enlisted as under: The defendants’ contention that there is a misrepresentation due to some past relations between the plaintiffs and defendants as the defendants acted as an outlet for the plaintiffs product, the same does not aid the case of the plaintiff, the same rather shows that the defendants who were earlier selling products under the permission of the plaintiffs have also started selling parallel imported products later. The plaintiff in any case refutes this contention by urging that it is only when the defendants started selling such low costs printers imported from foreign countries to the detriment of the plaintiffs, the suit has been filed and thus the prior relation is immaterial. I am convinced with the said submission as the case of the plaintiff is confined to the parallel importation of the printers and the same cannot be allowed to divert by showing past legal relations and rather it reflects upon the conduct of the defendants, The agreement dated 1st January 2001 relied upon by the defendants to show relation also shows that the defendants agreement was relating to PC Camera and further in the said agreement also contains the clause relating to market channels conflicts and to avoid such conflicts. The effect of such an agreement is rather that the defendants have subjected to such market conflicting restrictions. It is doubtful as to how the defendants if intend to use this agreement against the plaintiff can at all raise the point of exhaustion against the plaintiff if they want to rely this agreement as a past relation as they have by way of covenant subjected themselves to such market conflict minimization conditions. Thus, the past relation cannot be operated against the plaintiffs or in favor of the defendants and this has to be examined in trial.

The defendants’ contention that there is misrepresentation due to the reason that the plaintiffs have not disclosed that the defendants were already acting as parallel importers at the time when the plaintiff was doing business with them. The defendant says this as general statement but does not talk about the plaintiffs products in specific along with the documents as to the fact that the defendant so called products which are subject matter of the proceedings like printers etc., are also available by way of parallel importation within the intellectual property rights knowledge of the plaintiff since the time both are engaged with the business. If that is not so clearing coming out, then the contention of the defendants of the trademark deserves to be rejected. Rather if one sees the document of engagement with the defendants, the agreement clearly spells out that there should be a market conflict minimization which means that the plaintiff has been always been conscious about such parallel importation with the defendant. Thus, the knowledge element cannot be ascribed to the plaintiffs. In fact, the plaintiff again disputes the same which becomes a matter of trial again.

The defendants’ contention that there is a misrepresentation due to the fact that the plaintiffs themselves are importing goods from the other countries. Again, there is no parallel which can be drawn with the situation of the plaintiff No. 2 with that of the defendants. The plaintiff No. 2 is the authorized user and rather on affidavit stated to be exclusive licensee of the plaintiff No. 1 which can clearly escape the case of the plaintiff No. 2 from Section 29 as against the defendants who are clearly dealing with the products without the consent or authorization and are guilty of infringement under Section 29.

All other submissions of misrepresentation are rejected as there is no force in the argument of concealment to the effect that there is anything which is being misrepresented by the plaintiff. The defendants have failed to substantiate any such submission on misrepresentation. There is no counter blast litigation which can be inferred at this stage nor is the knowledge of the plaintiff in relation to the defendant’s activities clearly shown towards the parallel importation of the printers. Thus, the contention of misrepresentation is without any force.

The contention that the defendants are actually purchasing the goods from the legitimate channels is also not correct that there is no misrepresentation by the plaintiff. In law, I have held that the goods are lawfully acquired by a person has to bear a registered trademark which means that the said acquisition has to be from the domestic market. Thus, the lawful channels as argued by the defendant do not fit within the purview of Section 30(3) of the Act and thus the argument is meritless.

No further submission of the defendants has remained unanswered. The judgments relied upon both the parties in relation to material alteration and material differences. Those judgments passed by US courts holding in some cases material difference in affirmative and in some negative are not relevant for the present discussion as my prima facie conclusion is based on the fact that the case of the defendants does not fall within Section 30 (3) and I have not based my findings on the basis of Section 30 (4), thus all those decisions of US and UK court do not warrant discussion. So far as other judgments of US courts holding international exhaustion are concerned and EU court holding the exhaustion are concerned, the same may hold good in the light of their legal position and in the context of the legal provisions existing therein. In the Indian context, I have already done the plain and contextual reading of the Section 30 (3) and Section 30 (4) whereby I have come to the conclusion that the said sections provide for a very limited applicability of the said principle of exhaustion within the domestic market. Even in those cases, the right to oppose the dealings is available. In these circumstances, the discussion relating to US and UK decision laying down tests for the purposes of express consent or implied consent or when can international/domestic exhaustion principle be invoked do not warrant any detailed discussion. Likewise, the detailed discussion on legitimate reasons is not required and suffice it to say that aid from the said decisions can be drawn in the limited sense as the context in which the provisions exist for opposition of dealing in UK is the same as the context in Indian Act although the principal provision of exhaustion vary in terms of concept of market. The judgments on the point of legitimate reasons also do not further warrant discussion as in the present case, I am not invoking the said doctrine of legitimate reasons in the present case in the absence of any need as the case of the defendants does not fall in Section 30 (3) even.

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In view of the above discussion, it is for me now to discuss the principles relating to grant of temporary injunction which are

(a) Prima facie case

(b) Balance of convenience

(c) Irreparable loss

The plaintiffs in the present case has been able to show prima facie case of infringement of the registered trade mark in view of my discussion above wherein Section 29 (1) read with Section 29 (6), the imports of the goods under the mark amounts to infringement of the trademark. The defendants have not able to establish any plausible to defence to such an infringement. The balance of convenience lies in favor of the plaintiffs as the plaintiffs will be more inconvenienced if the defendants are allowed to run such market of parallel importation to the detriment of the plaintiffs. The irreparable loss shall also ensure to the plaintiff in form of loss of market and depreciation in the goodwill under the mark in the event the goods which are not meant for the present market are allowed to be continued to be sold by the defendants when the statute clearly prohibits so and on the contrary no irreparable loss shall occur to the defendants as it is the case of the defendants that they are selling the genuine products and capable of selling the same. Thus, the defendants can easily switch over to the genuinely purchased printers which are emanating from the plaintiffs.

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