May 2022
Oli Wong
1. Introduction
Parallel importation of genuine goods refers to the act of importing legal products manufactured by the rights holder or its authorized persons directly from foreign countries in the name of individuals or companies without obtaining official regional authorization. Products that enter the domestic market through this channel are genuine parallel imported products, also commonly known as “grey goods.”
An importer violates the provisions against unfair competition in the Fair Trade Act of Taiwan (hereinafter, the “Act”) when engaging in freeriding after its parallel importation of genuine products (as elaborated below). Conversely, if an intellectual property rights holder constrains competition by leveraging the clauses of a licensing agreement or even abuses its dominant position in the market as a result of the licensing agreement, it may also violate the provisions against competition restrictions under the Act. In fact, there is a possibility that the parallel importation of genuine goods or the use of licensing contracts to prevent the parallel importation of genuine goods may both violate the Act.
This article introduces and analyzes Article 21 (false advertising) and Article 25 (other deceptive or obviously unfair acts) of the Act, which may involve parallel importers of genuine goods.
2. Consumers’ misidentification due to the falsehood of genuine parallel imported goods
Under Article 21, Paragraph 1 of the Act, no enterprise may make or use false or misleading representations or symbols on the matter that is relevant to goods and is sufficient to affect trading decisions on goods or in advertisements, or in any other way make it known to the public.
According to the decision opinion of the Intellectual Property Court, any false or misleading representations or symbols of genuine parallel imported goods or their advertisements to deliberately cause the consumers to misidentify the sources of the goods are likely to violate the provisions on false products or advertising under Article 21, Paragraph 1 of the Act.
An importer is required by law to specify the name, telephone number and address of the importer when importing products. In light of different sources of genuine parallel imported products, there are naturally differences between products made by original manufacturers and the so-called “grey products” in terms of product quality or even after-sale services. Therefore, product importer information is an important matter that affects the trading decisions of consumers and is certainly a matter related to trading decisions with solicitation effect under Article 21, Paragraph 1 of the Act. At this juncture, if a parallel importer of genuine goods does not remove information about the domestic importer or fails to specify information such as the name, telephone number, and address of the importer in the name of the parallel importer of the genuine goods, these both constitute false and untrue labeling in violation of Article 21, Paragraph 1 of the Act.[1]
In practice, parallel importers of genuine goods mostly just import products and do not change product labeling or engage in any labeling act. However, from the perspective of competition law, it seems that a parallel importer of genuine goods should actively specify that the products sold are parallel imports of genuine goods so that consumers can easily identify their differences from the products sold by the domestic agent to reduce the likelihood of violating this article.
3. Do parallel imports of genuine goods exploit the fruit of the labor of others?
Under Article 25 of the Act, except as otherwise stipulated by the Act, an enterprise shall also not engage in other deceptive or obviously unfair acts sufficient to undermine trading order. The so-called “obvious unfair act” refers to an act that engages in competition or business transactions by an obviously unfair method.
A domestic agent has invested massive market costs or expenses in product promotion so that the product becomes well-known to consumers. Therefore, if a parallel importer of genuine goods engages in any active act with respect to the contents of the goods and the sources, name, and address of the importer, and other matters to cause consumers to erroneously believe that the goods are imported for sale by the agent, such a selling act is the so-called “freeriding” act.[2] Such an act to exploit the fruit of the labor of others is culpable in business competition ethics. Therefore, the Fair Trade Commission includes the “parallel importation of genuine goods and active act to cause the misbelief that the goods are products imported for sale by the domestic agent” as a type of obviously unfair act that “exploits the fruit of the labor of others (Article 7, Paragraph 2, Subparagraph 2(5) of the Principles for Handling Cases under Article 25 of the Fair Trade Act).
The Fair Trade Commission used to opine that if a parallel importer of genuine goods misuses the trademarks of others, or actively imitates the unique marketing performance of an authorized agent or a directly-operated store, causing consumers to erroneously believe that since it is an authorized agent or a directly-operated store, they enjoy the same services and benefits. Such an act of the parallel importer of genuine goods is an act of unfair competition and violates Article 25 of the Act[3]
If a parallel importer of genuine goods uses a domestic agent’s trademark extensively in its business activities without actively distinguishing its distribution channels from those of the domestic agent, this is very likely to cause consumers to erroneously believe that the parallel importer of genuine goods has a certain commercial relationship with the domestic agent. In this connection, such a parallel importer of genuine goods obviously attempts to cling to the goodwill of others and has the intention to exploit the fruit of the labor of others, and such conduct is an active act to mislead consumers in violation of Article 25 of the Act.[4]
It should be noted that since the application of Article 25 of the Act is governed by the “principle of supplementarity,” if other specific provisions of the Act have covered specific conduct (such as conduct that meets the definition of “competition restriction” or “unfair competition), Article 25 of the Act can no longer apply.[5]
4. Conclusions
When genuine parallel imported products are sold or advertised, it is required to specifically indicate on the products and advertisements that the products are parallel imports of genuine goods and to fully inform consumers of the sources, origin, and importer of the products. It is even more necessary to avoid using the trademark or name of the domestic agent and to actively distinguish the distribution channels of the regional or domestic agent in order to avoid consumers’ confusion about the sources of the products or misbelief that the parallel importer of the genuine products is the domestic agent or distributor or has a cooperation relationship[6] with the domestic agent to reduce the likelihood of violating the Act.
Finally, whether the parallel importation of genuine goods or their advertising violates Article 21 or Article 25 of the Act should still be determined by the specific facts of individual cases. However, it remains to be seen if there are more specific findings in the subsequent depositions of the Fair Trade Commission or court decisions to avoid or reduce legal risks.
(The authors’ opinions do not represent the position of this law firm.)
[1] The analysis opinion in Paragraph 2 of the Gong-Yen-Shih-Zi-003 Circular of April 22, 1992 from the Fair Trade Commission and the 107-Min-Gong-Shang-Zi-4 Civil Decision of the Intellectual Property Court (which became final after the 109-Tai-Shang-Zi-2158 Ruling of the Supreme Court was rendered).
[2] The analysis opinion in Paragraph 3 of the Gong-Yen-Shih-Zi-003 Circular of April 22, 1992 from the Fair Trade Commission .
[3] The (90)-Gong-Chu-Zi-121 Disposition of August 31, 2001 from the Fair Trade Commission.
[4] Same as Note 3.
[5] This pertains to the application of the “principle of supplementarity” for Article 25 of the Act. Please refer to Article 2, Paragraph 3 of the Principles of the Fair Trade Commission for Handling Cases under Article 25 of the Fair Trade Act.
[6] The 97-Min-Zhu-Su-Zi-11 Civil Decision of the Intellectual Property Court.