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Parallel Import

Parallel Import

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The contemporary business world has become fundamentally tied in with the progress of globalization. As a result, few industries are able to exist and sustain themselves in a purely national context.

An example of the challenging issues caused by such globalization is the international trade of fast-moving consumer goods (and to a lesser extent pharmaceutical products), as well as the ways in which such products find their path to consumers’ hands. More precisely, the ways that products are moved across borders and how this movement is affected by the relevant national intellectual property (IP) protections in place reveals the distinction between international and national IP rights. The presence of the “parallel import” issue has sparked a controversial debate over which of the two regimes is preferable. 

Parallel import – which in some circles is considered the premier example of a “grey” practice – encompasses products that are “genuine” goods (i.e., not counterfeit goods), since they have been manufactured by, or for, or under license from the brand owner, but which are then imported into a different jurisdiction from that intended by the brand owner. Deeming such practices “grey” for their ambiguity in terms of being either beneficial or detrimental depending on one’s point of view – both in the competition and intellectual property contexts – goes to show the inherent difficulty in establishing an effective universal set of rules. 

In Serbia, the relevant regulatory framework was created in 2013 when the creed of national exhaustion of rights was initiated. This doctrine meant that a trademark holder could prohibit the trademark’s use on goods placed on the Serbian market by another without his direct authorization. Exclusive distributors promoted this initiative as it was their interests that were mainly affected by the presence of parallel imported products, including the “free ride” that parallel importers gained from the exclusive distributors’ advertising activity. All of this led, in April 2015, to the commercial court in Belgrade making a decision that would serve as a defining point of legislation in this regard. Since then, exclusive distributors have had the right to sue those engaged in parallel import activities on the basis of national exhaustion of intellectual property.

Disagreeing with the court’s decision, local distributors asked the Serbian Commission for the Protection of Competition for an official opinion, claiming that the court’s ruling put exclusive distributors in an unfairly dominant position. The Commission, in presenting its point of view, made it clear that it would base its conclusion on what would be the most beneficial situation for the end consumer. It then opined that competition in this case should be split into two kinds: (a) static –situations in which parallel imports bring immediate benefits to consumers by making the products cheaper; and (b) dynamic –situations in which parallel imports damage or negatively affect innovation tendencies of the trademark holder (i.e., the diversification of their portfolio), resulting, in the long-term, in a detrimental effect on the end consumer. The Commission’s final opinion, perhaps unsurprisingly, was that emphasis should be put on balancing these two considerations. Moreover, the Commission emphasized the importance of having every participant in the market – especially those with a potentially dominant position – act so as not to hurt the market’s competitiveness. 

Finally, the entire situation does not bring us much closer to reaching a universal stance on the matter, apart from perhaps educating us somewhat further. With Serbia’s ascension to the EU looming, and considering all of the regulatory updates made en route to it, it will be very interesting to see how this issue will play out in the coming period, as the above-mentioned balancing act between the two factors threatens to become ever-more difficult.

By Dragomir Kojic, Partner, and Relja Mirkov, Senior Associate, Karanovic & Nikolic

This Article was originally published in Issue 3.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.