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Making Sense of the "Grey" in Grey Goods

Mary Still, Dean Gerakiteys and Mathew Fenwick, Clayton Utz

Mary Still, Dean Gerakiteys and Mathew Fenwick at Clayton Utz explore the judicial interpretation of various sections of the Australian Trade Marks Act 1995 in relation to "grey goods".

Clayton Utz

Trademarks are a badge of origin, a representation to the world that goods and services, as marked, are associated with a particular source. Trademark law has developed internationally to protect consumers and enterprises from the wrongful appropriation of a brand’s reputation.

As with its international counterparts, the Australian Trade Marks Act 1995 (the Act) grants the registered owner of a trademark an exclusive right to use or authorise the use of that mark. However, this right is not absolute and the Act contains a number of carve-outs that are designed to balance the rights of registered owners and other persons that may have a legitimate interest in using registered trademarks. This includes, for example, suppliers of goods to which a trademark has been affixed.

Importantly, ownership of a registered trademark is not intended to confer an unfettered ability to control the trademarked goods. Trademarks are a badge of origin, not a badge of control. This distinction is of central importance in relation to the parallel importation of goods in respect of which a trademark is registered. This is the practice where goods, genuinely branded with a registered trademark, are purchased overseas by a person and imported for sale in Australia without the authorisation of the relevant trademark owner. These goods are generally referred to as ‘grey goods’.

Section 123 of the Act provides parallel importers, in limited circumstances, with a defence to trademark infringement. The section relevantly provides that:

In spite of section 120, a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark.

This article considers the judicial interpretation of this defence and the wider implications for both traders and importers.

SECTION 123: A TALE OF FOUR CASES

Transport Tyre Sales Pty Ltd v Montana Tyres Rims & Tubes Pty Ltd (1999) 93 FCR 421 (Montana)

In Montana, a Japanese company, Ohtsu, manufactured tyres under the trademarks Ohtsu, Falken and Falken RX, which it had registered in various jurisdictions. As part of its commercial operations, Ohtsu engaged Transport Tyre Sales (TTS) as its Australian distributor. At some later stage, Ohtsu, by a deed of assignment, transferred ownership of the Australian marks to TTS, with a second deed granting Ohtsu an option to reacquire the marks for a nominal sum. Montana Tyre Rims and Tubes (Montana) purchased these tyres in Singapore for sale in Australia. At first instance, the assignment was held to be ineffective to transfer ownership of the marks, a finding that was reversed on appeal. In a cross-claim, TTS alleged that Montana had infringed its trademarks in relation to acts prior to the date of assignment. There was no allegation of any infringement after that date.

The Full Federal Court held that section 123 had to be considered by reference to the owner of the registered marks at the relevant time, which in this case was Ohtsu. By moulding the marks on the tyres during manufacture, there was no doubt that Ohtsu had applied the marks within the meaning of section 123. Accordingly, Montana could rely on the defence because, at the time the marks were applied, Ohtsu was the owner of the trademarks.

Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd (2012) 202 FCR 286 (Sporte Leisure)

In Sporte Leisure, Great White Shark Enterprises LLC (GWS) was the registered owner of two trademarks for use in apparel, footwear and headwear. GWS licensed the marks to Greg Norman Collections Inc (GNC). GNC subsequently granted a sub-licence to an Indian company, BTB Marketing Pty Ltd (BTB), to use the marks in India. However, BTB manufactured certain garments for the purpose of filling a purchase order for the supply of goods to companies outside India. Paul’s Retail bought the garments, imported and sold them in Australia.

Central to this case were the terms of the licence agreement between GNC and BTB. Importantly, the licence agreement expressly limited the use of the marks to the manufacture, marketing, distribution and/or sale of the products to India. The Full Court noted that the inescapable fact was that the supply of goods outside of India was contrary to the express terms of the licence. In those circumstances, GNC could not be said to have consented to the application of the marks to those goods. Accordingly, Paul’s Retail could not rely on the defence afforded by section 123.

Paul’s Retail Pty Ltd v Lonsdale Australia Limited (2012) 294 ALR 72 (Lonsdale)

The Lonsdale decision was interesting in that ownership of the relevant marks was held by two related but nevertheless legally distinct entities in separate jurisdictions. Lonsdale Sports Limited (LSL) was the registered owner of the marks in various countries throughout Europe whereas Lonsdale Australia Pty Ltd owned the marks in Australia.

LSL had granted a licence to Punch GmbH (Punch) to sell goods bearing the Lonsdale marks in various countries throughout Europe. Punch entered into an arrangement to sell goods bearing the marks to Unicell, a company incorporated in Cyprus. In order to meet its obligations under the contract, Punch arranged to have the goods manufactured in China. The marks were also applied to the goods in China. Paul’s Retail then bought the goods from Unicell for parallel importation into Australia.

However, the terms of the sale contract and the commercial dealings between the parties meant that the goods were, at law, sold to Unicell in China not in Europe. Although the licence agreement permitted the goods to be manufactured in China, the promotion, distribution and sale of the goods was subject to an express territorial restriction (being certain countries in Europe). The Full Court held that the entire transaction was impugned as outside the terms of the limited licence granted to Punch and as such a consideration of the defence under section 123 did not relevantly arise.

However, for completeness, the Full Court noted that, for the purposes of section 123, consent by LSL to the use of the marks was not equivalent to consent by Lonsdale Australia. This is despite the fact that Lonsdale Australia and LSL were members of the same corporate group. That is, Lonsdale Australia’s consent was considered necessary despite “a commonality of ultimate control”.

Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd (2016) 243 FCR 152

In this case, Scandinavian Tobacco Group Eersel BV (STG) was the worldwide owner of various tobacco marks. Trojan Trading Company (Trojan) was a parallel importer of STG products. In order to comply with Australian plain packaging laws, Trojan would repackage the tobacco products prior to their resale. The Full Court agreed with the submissions by Trojan, holding that section 123 directs attention to any prior application of the mark by or with the consent of the registered owner. On this interpretation, “if the registered owner has applied its mark to the relevant goods, then it will be open to another person to purchase the goods, remove the mark, and then re-apply it for the purposes of resale”. It followed that Trojan could rely on the defence.

Considered in the light of the preceding cases discussed, this result is unexceptional. Rather, it is the Court’s comments in relation to a notice provided under section 121 of the Act that are of greater import.

SECTION 121

Section 121 of the Act allows the registered owner of a mark to issue a notice prohibiting certain acts, namely:

applying the trademark to registered goods, or using the trademark in physical relation to them, after the state, condition, get-up or packaging in which they were originally offered to the public has been altered;

altering, or partially removing or obliterating, any representation of the trademark applied to registered goods or used in physical relation to them;

if the mark has been used together with other matter, obliterating the mark without obliterating the other matter;

applying another trademark to registered goods or using another trademark in physical relation to them; and

the use of any matter likely to injure the reputation of the trademark.

Although this list is exhaustive, it is only a defence to trademark infringement if it can be established that the goods were acquired in good faith and without notice of the prohibition, or were acquired from someone who had so acquired them. Importantly, section 123 of the Act is no answer to infringement under section 121. A section 121 notice therefore affords registered owners a degree of control over the application of their mark that may substantially constrain the ability of other interested persons to use the mark, including parallel importers. Interestingly, it appears that had STG provided the relevant notice, it would not have been possible for Trojan to repackage the goods so as to comply with Australian plain packaging laws. The corollary of this is that STG could wholly constrain the parallel importation of its tobacco products.

WHERE TO FROM HERE?

Proving consent is critical to establishing that grey goods have not been imported in contravention of the Act. It is clear however that in practice, would-be parallel importers may have great difficulty in establishing consent and making use of the defence afforded by section 123 of the Act.

While the intention of the legislature may not have been to afford trademark owners a monopoly over the control of their goods, the cases above demonstrate that certain steps can be taken by brand owners to limit the availability of the defence to importers of similarly branded products from overseas.

International brand owners can readily structure their affairs so that the Australian trademark owner is legally distinct from the owner of the trademarks in other jurisdictions in which similarly branded goods are available for sale. Australian courts continue to show a reluctance to follow English case law in this respect. The Australian position is that the defence under section 123 will not be available, even where the mark has been applied by a company within the same corporate group, if the importer cannot prove that the Australian trademark owner has consented to the application of the mark.

As a practical matter, it can also be difficult for would-be parallel importers to establish consent by conduct. To do so generally requires that the would-be importer have visibility as to the conditions under which the trademark has been applied. Needless to say, such information is not usually publicly available or easily accessible.

In Australia, would be importers of parallel goods must therefore carefully investigate the circumstances in which a trademark has been applied to the goods which they wish to import.

If the registered owner of the relevant trademark in Australia is different to the owner in another jurisdiction (even if within the same corporate group) then the importer must ensure that the Australian trademark owner has consented to the importation and sale of the goods in Australia.

Even if the registered owner in Australia is the same as overseas, the would-be importer will need to satisfy themselves that the trademark owner has either:

applied the mark to the goods themselves;

or consented to the application of the trademark to those goods for sale in Australia.

Brand owners wishing to protect the way in which their products are packaged should also seriously consider the scope of section 121 and the protections afforded by the application of a notice of prohibition to ensure that they are able to control what may be done with the packaging of their products. Similarly, would-be importers and retailers should ensure strict adherence to the terms of any such notice.

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