Exhaustion of Trade Mark Rights – Parallel Imports
The concept of “parallel imports” does not have a strict legal definition, but it generally embodies the idea of unauthorized import of genuine goods bearing a trademark, which have been previously released by the rightful owner on the market for the territory of another country. Such import is economically justified when there are significant differences in the prices of goods bearing a mark in different countries, enabling the parallel importers to buy where the price is low and sell where the price is high.
Underlying the concept of parallel imports is the so-called definition concerning exhaustion of trade mark rights. The right to a registered trade mark is absolute, requires everyone to comply and gives monopoly power to its holder to use the mark and to prohibit third parties from using an identical or similar sign in the trade of their business without the consent of the rightful owner. This exclusive right of the owner is not unlimited, because the contrary would hamper free trade turnover of goods bearing his/her brand. Therefore, the law provides for the principle of exhaustion of rights to a trademark, under which the exclusive right of the owner to prohibit third parties to use a mark is limited to the first sale of goods bearing the mark, i.e., if and when the owner puts the brand product on the market for the first time.
The problem with parallel imports arises precisely in relation to the issue of geographic territory, for which the right of the trademark owner has been considered as exhausted, i.e. which is the market area in respect of which the trademark owner is entitled to give consent, respectfully refuse entry of goods bearing the trade mark. Worldwide two legislative solutions, motivated by various economic arguments, have been adopted:
1. Global exhaustion of trade mark rights (adopted in the U.S.) – once the owner of a mark releases goods bearing the mark in one country (a market), it is considered that its rights arising from registration of the mark are exhausted in respect of other countries (markets) worldwide.
2. National exhaustion of trade mark rights – it is considered that the right of the trademark owner is exhausted only to the specific market where the product was released, but not to any other market (of any another country).
The concept of exhaustion of trade marks is governed by Article 7, Paragraph 1 of the First Council Directive 89/104/EEC, which provides that “trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the owner or with his consent.” The article is implemented in the national laws of the member states of the European Union. The provisions are also laid down in article 13 of (EC) Regulation 40/94 on the Community Trade Mark. The article says: “A Community trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trademark by the proprietor or with his consent.” This system is called the Community wide exhaustion.
By adopting the Law on Marks and Geographical Indications (Trademark Law – in force since 15.12.1999) and until its accession to the EU, Bulgaria applied the regime of national exhaustion. The text of Article 15 of the Law on Marks and GIs, in its version of 01.01.2007, cites directly the text of Article 7, Paragraph 1 of the First Directive, and as such, it may be concluded that Bulgaria has adopted the principle of Community wide exhaustion of trade mark rights.
In view of the above, it is right to conclude that parallel imports would be illegal in the cases where goods bearing a mark have not been previously released with the consent of the proprietor on the Bulgarian market or to any other market for the territory of an EEA country (for example, the goods have been purchased from a market in the U.S. and are imported into the country – State of the EEA without the consent of the trademark owner).
Protecting the right of the trade mark owner in cases of illegal parallel imports shall be carried out through a general civil court proceeding. Therefore, it is extremely important for the delivery of judgments, in cases involving such disputes, for the Bulgarian courts to know and consider European law, due to the principle that the equal treatment/exercise of rights is the purpose of harmonizing national legislation with that of the EU.
In the period after 2000 to 2009, several decisions on parallel imports have been issued by the Bulgarian Courts but as a whole the legal precedent characterized itself as being inconsistent. The main reason being the different interpretation of the provisions of the Law on Marks and GIs, and the erroneous interpretation that infringement of a registered mark concerns only the importation of counterfeit goods, i.e. goods bearing the mark without the consent of the owner. It is important to emphasize that no provision in the Law on Marks and GIs, does not distinguish between counterfeit and genuine goods, and in accordance with Article 73, paragraph 1 of the Law, for an act of infringement of a trademark to occur it is sufficient to establish commercial use of a sign identical or similar to a registered trade mark (including import of goods bearing such mark) without the consent of the rightful owner.
In May 2009, in view of the controversial court practice, including this of the Supreme Cassation Court, in the interpretation and application of Article 73 paragraph 1 of the Law in connection with article 13 paragraph 2 item 3, in disputes concerning infringement of trade mark rights, brought under Article 76 of the Law, the Chairman of the Supreme Cassation Court of Republic of Bulgaria requested for the General Assembly of the Commercial Division of the Supreme Cassation Court to issue an interpretative decision concerning the following question:
1. Under Article 73, paragraph 1, in conjunction with Article 13, paragraph 2, Section 3 of the Law on Marks and Geographical Indications, does the import, without the consent of the rightful owner, of genuine goods bearing a mark with the consent of the rightful owner, constitute an act of infringement of registered trade mark?
Following the general meeting of the Commercial Division of the Supreme Cassation Court of the Republic of Bulgaria issued an interpretative decision referring to the following reading of the law: “The import of genuine goods without the consent of the mark owner, but which goods have had a sign of the mark placed on them with the consent of the mark owner, does not constitute a violation of the right over a registered mark in the sense of art.73 par. 1 in connection with art. 13 par. 2 of the Law on Marks and GIs. ”
In view of the above described practice, and the fact that Bulgaria is a member of the EU, an alarming conclusion can be made that the legal practice and precedent concerning the regime of parallel imports does not correspond to the one already established in the rest of the EU.
Therefore, as a result of the conclusion of the issued interpretative decision of the Supreme Cassation Court and the lack of harmonized legal practice with that of the rest of the EU, Bojinov & Bojinov, in its capacity of a legal representative, has filed a petition before the Sofia Court of Appeals to proceed with a request to the European Court of Justice concerning the interpretation of Directive 89/104 / EEC of 21.12.1998 and in particular Articles 5 and 7 on the following issues:
1. Do parallel imports constitute a breach of trade mark rights?; and
2. Is the rightful owner of a mark entitled to a specific civil-defence against parallel imports under Article 76 of the Law on Marks and GIs or not?
At present the matter is still pending and no decision has been issued by the Sofia Court of Appeals.
