A double-whammy for Australian distributors? Parallel importing and infringement threat damages changes

Parallel importing defence expanded

It is now easier to import ‘genuine’ branded goods into Australia without infringing the trade marks relating to that brand.

In our flagship magazine, The Gatherer, we let you know about an upcoming Act which will make significant changes to Australia’s parallel importation laws.

As of 25 August 2018, the parallel importation provisions of that Act are now in force, although other sections of the Act have not yet commenced.

Previously, the parallel importation defence in the Trade Marks Act 1995 required an importer to prove that the trade mark was applied to the imported ‘infringing’ goods by or with the consent of the owner of the Australian trade mark.

In cases where goods change hands through a number of intermediaries before being imported to Australia, this made things difficult for alleged parallel importing infringers.

The new law provides that there will be no infringement where, after making ‘reasonable inquiries in relation to the trade mark’, a reasonable person would have concluded that the trade mark had been applied to the goods by, or with the consent of, a person who was, at the time of the use of the mark or consent to such use:

  • the registered owner of the trade mark
  • an authorised user of the trade mark (i.e. a licensee)
  • a person permitted to use the trade mark by the registered owner
  • a person permitted to use the trade mark by an authorised user who has power to give such permission under paragraph 26(1)(f)
  • a person with significant influence over the use of the trade mark by the registered owner or an authorised user; or
  • an associated entity (within the meaning of the Corporations Act 2001) of a person mentioned above.

This effectively means that companies in a corporate group will be deemed to be ‘associated entities’ and, if an ‘associated’ overseas entity of the Australian trade mark registration owner uses the mark on goods overseas, those goods could be imported into Australia without infringing the Australian trade mark registration.

This may have a deleterious effect on the businesses of local authorised distributors. In fact, the new law specifically targets “a situation where the initial owner of the mark in Australia assigns the mark to an Australian distributor (with some requirement for the mark to be assigned back or otherwise controlled by the previous owner)”. Whether there remains any scope for trade mark owners to prevent such importation through avenues such as the Consumer Law or the tort of passing off remains to be seen.

The new law also takes aim at trade mark licence terms that limit the territories for which the licence is granted – providing that even if a licence to sell branded goods expressly excludes Australia, it will still effectively be a consent that provides a defence to parallel importing into Australia.

Importantly, the new law does not require the importer to prove actual consent to application of the trade mark to the imported goods, just that a reasonable person would conclude that there was consent.

Just what will constitute the ‘reasonable inquiries in relation to the trade mark’ remains to be determined by a Court. The Explanatory Memorandum to the new law states:

“The exact nature of the inquiry will depend on what the hypothetical objective reasonable person would do in the circumstances. Requesting and receiving a certificate of authenticity from the supplier would be sufficient in most circumstances. However, the extent of the inquiries will be determined by the facts of the situation. For example, where the supplier is widely known or suspected to supply counterfeit goods or where the goods are being offered at suspiciously low prices or through dubious trade channels, more searching inquiries may need to be made, such as contacting the trade mark owner to confirm consent. Conversely, by way of example, if the goods are purchased from a retailer widely known to be the licensed distributor of the trade mark owner at the normal price of genuine goods in the relevant market, then no further inquiries may be needed.”

The “reasonable person” test in the new law is intended by the lawmakers to be objective, and is not intended to involve determining the subjective knowledge of the actual importer. The question is intended to be: What would a hypothetical reasonable person in the importer’s situation (with the information obtained from the reasonable inquiries) conclude?

Punitive damages for unjustified threats of proceedings

The new law will also create a right for the recipient of threats of trade mark infringement proceedings to obtain ‘additional damages’ (often referred to as punitive damages), the amount of which is not necessarily going to be linked to the damage suffered by the alleged infringer as a result of the threats.

Previously, the amount of damages obtainable by an alleged infringer was limited to that actually suffered by the alleged infringer as a result of the threats. This could often deter alleged infringers from commencing an unjustified threats action, as the maximum potential compensation that could be obtained by way of damages would, at least in some cases, not justify the expenditure of legal costs of running the case.

The new additional damages might be awarded if the court considers it appropriate to do so having regard to:

  • the flagrancy of the threat
  • the need to deter similar threats
  • the conduct of the defendant that occurred after the defendant made the threat
  • any benefit shown to have accrued to the defendant because of the threat; and
  • all other relevant matters.

(These new provisions will also apply in respect of unjustified threats of infringement of patents, designs and plant breeders’ rights.)

The part of the new Act creating these new damages rights has yet to commence, but it will do so, at the latest, on 24 February 2019.

What does this mean for Australian businesses?

Taken together, these new provisions may require some trade mark owners to conduct more stringent investigations into potentially infringing conduct before sending a cease and desist letter, in order to lessen the risk of a significant adverse damages finding.

The Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Act 2018 is not fully in force. The Act can be found here. 

Stay tuned for further updates regarding other changes ushered in by the above Act.   

Wrays Industry Insights, Insights