Parallel imports concern the sale of a manufacturer’s original product outside his distribution network. German and European trademark and patent law provide ways of preventing this. Under certain conditions the manufacturer can prohibit a parallel importer or other reseller from selling the original product. This is of great practical significance in the case of goods the prices of which may vary considerably from country to country, in particular pharmaceutical products and medicines, or branded prestige products that are sold through selective distribution networks via authorised dealers and whose sale by retailers outside these networksneeds to be prevented.

1. Inadmissibility of parallel imports

The inadmissibility of the sale of an original product can essentially result from one or more of the following:

  • the fact that the product was not intended for sale on the European market
  • the changes which the distributor has made to the product or to the original packaging
  • the sale of the product, particularly in the case of prestige-branded products, via supply chains outside the manufacturer‘s own distribution network (so-called “nonauthorised” or “grey market sales”)
  • in the case of patented pharmaceutical products, or those protected by a so-called supplementary protection certificate, or the fact that the product was imported from the accession countries of the European Union’s Eastern Enlargement.

1.1 Inadmissibility because the product was put into circulation outside the European Union
In contrast to the law in numerous other countries outside the European Union, in particular the USA and also Switzerland, German and European law on intellectual property rights does not recognise exhaustion world-wide but solely Europewide. If the maker of a product which is protected by trade mark in Europe puts it into circulation outside the European Union, the product may not be sold in the European Union without his consent. The manufacturer can prohibit the sale of his product in the European Union on the basis of his trade mark if he has put it into circulationoutside the European Union and it was not intended for sale in European Union countries. In countries outside the European Union in which the principle of world-wide exhaustion applies, as for example the USA or Switzerland, this is not possible. The manufacturer cannot prohibit the sale of his product within these countries solely on the basis that it was intended for other countries.

Resulting from the territorial limitation, the owner of a German trademark or a Community trademark can always defend parallel imports from third countries based on this trademark.

Distribution of original goods outside the distribution system of the manufacturer  – possible reasons for inadmissibility:

1.2 Changes to the product or its  packaging
Furthermore, the owner of a trademark can prohibit parallel imports from EU member states, if there are “legitimate reasons”, which according to § 24 II German Trademark Act/Art. 13 II CTMR is expressively the case if the product’s original packaging has been changed and he was not notifie of this in advance.

Even where advance notificatio of the change to the packaging has been given, as a rule the manufacturer can prohibit the resale of his product by third parties in the Federal Republic of Germany if the control number has been removed from the product or its packaging.  This applies in particular if the control number details the place and time of production, or if it is apparent to the consumer that a control number has been removed.

The manufacturer is only obliged to tolerate repackaging and any other changes to packaging if the changes do not damage his legitimate interests. One of the conditions for this is that the reseller must indicate on the packaging that it has in fact been repackaged. The reseller is also obliged to ensure that the changed packaging is not defective or incorrect (e.g. the translation on a package insert) and that it has a proper, businesslike appearance. If these conditions are not fulfille the trademark proprietor can prohibit the sale of the product. In Germany, there is an established and differentiated judicial practice which, as a rule, allows for a reliable legal assessment.

1.3 Sale of an original trademark product outside the selective distribution network (“non-authorised” or “grey market sales”)
In order to safeguard marketing quality, German and European law permits the manufacturer’s marketing partners to be bound by marketing requirements under certain conditions of competition and antitrust law. If a product which is sold via an authorised selective distribution network to a third-party, non-authorised distributors or retailers in breach of the terms of the selective distribution network, trademark law permits the manufacturer under certain conditions to take action directly against the non-authorised distributor and to prohibit him from selling the product.

On the one hand, the manufacturer may take direct action against the non-authorised distributor if, for example, the latter has removed control numbers or made them unidentifiable even if the number only contained details of the distribution channels, or its removal or obliteration is not discernible to the consumer. The security of an authorised distribution network can therefore be effectively maintained by means of a control number system which gives information about the product’s distribution channels within the selective distribution network.

Following a recent decision of the European Court of Justice (decision dated 23.04.2009 – C-59/08 – Copad v. Dior), the manufacturer may, as an alternative, prohibit a non-authorised distributor or retailer who has obtained the products from an authorised dealer within the distribution network from reselling them solely on the basis of his trademark, if as a result of the sale by this third party, e.g. a discounter, the prestige value of a branded product is impaired. Exhaustion of the manufacturer’s trademark rights does not apply in this case either, so that he is able to obtain a sales prohibition directly against such third party.

1.4 Import of pharmaceutical products from the accession countries of the EU-Eastern Enlargement
The European Union has a special mechanism for prohibiting the parallel import of pharmaceutical products which even allows for the prohibition of the parallel import of pharmaceuticals within the European Union itself. The mechanism allows the owner of a patent or supplementary protection certificat to prohibit the sale of the pharmaceutical product in European Union countries, even if it was marketed with his consent within the European Union, namely in the new Member States in Eastern Europe.

The countries in question are those which became member states of the EU in 2004, i.e. the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia and those which became member states of the EU in 2007, i.e. Bulgaria and Romania, as well as the Republic of Croatia, which became a member state in 2013.

The background to this ruling is that in these countries, in general, there is no equivalent to the Western European standard of patent or supplementary protection. Parallel imports from these Member States into other EU states where the pharmaceutical product is protected by patent or supplementary protection certificat can be conceivably prevented under this ruling.

If the patent protection or a supplementary protection certificat for the pharmaceutical product was applied for in a Member State at a time when no equivalent protection could be obtained in one of the new Member States cited above, the patent proprietor can prohibit the import of the product from such states into another Member State of the European Union, provided that his intellectual property rights are still in force there. By way of exception, the rule on exhaustion of intangible property rights, which as a rule is applicable in other cases of the marketing of goods in the European Union, does not apply under this special mechanism if the pharmaceutical product had been marketed in the countries named above.

This special arrangement applies only to the ten named sates. No equivalent arrangement exists for the accession countries Malta and Cyprus. If a pharmaceutical product has been marketed in the latter countries with the manufacturer’s consent, his intellectual property rights are basically exhausted and he can only oppose the product’s import into other EU Member States on the grounds of general principles (see in particular 2.1. above).

2. Claims and litigation available to the manufacturer

In the instances cited above of an infringement of the manufacturer’s rights by the parallel importer or non-authorised distributor, the proprietor of the rights may assert all the claims to which he would otherwise be entitled in the event of an infringement of his industrial property rights, in particular claims to a cease-and-desist order, information about the distribution channels and the scope of the illegal sales, destruction and compensation.

2.1 The right to a cease-and-desist order, and border confiscatio
The manufacturer can enforce the right to a cease-and-desist order by recourse to the interlocutory legal process, which enables a prohibition order to be issued within a few days. One condition for issue of a preliminary injunction however, is that the manufacturer acts quickly; as a rule, no more than a month may elapse from the date that the illegal sale of a product by a parallel importer or non-authorised distributor has been discovered and the filin of the application for the issue of a preliminary injunction.

The manufacturer can call on the customs author ities in the Federal Republic of Germany to monitor inadmissible parallel imports. He can request that the customs authorities confiscat suspicious goods temporarily and notify an agency named by him. He can then prevent them being resold by recourse to the courts. In order to do this he must firs ensure that the customs authorities have a description as precise as possible of the identifying features of the suspected products, and once the manufacturer has received notifcation of the confscation, he must act very quickly – within two weeks – to fil a court order prohibiting sales.

The confiscatio of illegally sold original products at a country’s borders is not possible at the European level. EU border confiscatio regulations do not permit the seizure of original products. The German customs authorities, however, are able to confiscat parallel import products at the border.

2.2 Claims for damages
In cases of trademark infringements too, a claim for damages often enables the intellectual property rights holder to demand the surrender of the entire profi that the parallel importer has made from parallel sales and for which he must render accounts.

The German Federal Supreme Court has recently held that this applies to the parallel sale of pharmaceutical products which cannot be sold under a different trademark for pharmaceutical law reasons. This decision however presupposes that the rights holder can also demand the surrender of the parallel importer’s entire profi from the illegal sale of other medical products, provided it can be assumed that the product would not be accepted on the market if it had been sold under a different trademark.

Published on
April 2014