Parallel Importation

23 Mar 2022

Parallel importing is one of the most ambiguous phenomena of international trade. On a glimpse, they seem to strictly adhere to the market’s rules and regulations, yet on a closer look, the market laws do not seem to apply to this type of activity. The term parallel importation can be defined as a good that is sold legally and subsequently exported. It is an unlicensed or unauthorized international trade that importers partake to capture customer market, as is most often referred to as ‘gray market’; however, there is nothing gray about it as the English Patent case Roussel Uclaf v. Hockley International stated in the Deltamethrin decision where it was pointed out that gray may only be the distribution channels where these goods find their way to the importing country. The patent owner is allowed to impose limited conditions when selling the products while an ordinary seller may not. It is to be noted that the products themselves are not fake or counterfeit; however, it is unauthorized because there is no privilege to be able to import these products by the owner of the Intellectual Property. Patent have territorial jurisdiction and is regulated by the patent law that each country has. If a particular product sold or imported by a third party falls within the scope of IP – patents, trademark, or copyrights that is valid in one country, then importing the product is infringing. The patent’s validity will not be affected by the invalidity or termination of a patent in another country as per the provisions in Article 4 of the Paris Convention.

Gray Market Results

Different countries struggle with different parallel products sold in the market due to fluctuating consumer demand. Pieces of jewelry, cameras, computer games, vehicles all can fall within the trade. An Example of this can be noted in 2019 when the Trump Administration considered allowing drugs intended for the foreign markets to be brought into the United States. The gray market is more commonly observed in tourist areas. There is a substantial market because the consumer cannot differentiate between an authorized and non-authorized product.

The UAE’s stance on Parallel Imports

The UAE is a party to several treaties and international organizations. An example is the UAE being a member of the Gulf Cooperation Council (GCC) and the World Trade Organization (WTO). However, in the UAE, there are no specific laws to prevent parallel imports as it is not a recognized term. Trademark owners have no right to take any actions under the UAE Trademark Law to prohibit importing original products in the UAE. The only way to prevent these products from entering the UAE is to enter into an Agency Agreement with a local agent. The UAE Agency Law provides an exclusive right to an agent to sell the products that are covered under the Agreement in the UAE. Furthermore, the commercial agents are entitled to prevent products subject to their agency from being imported into the UAE if the Agent is not the consignee. The Agent has the right to prohibit the sale by a third party and file a complaint before the customs authority prevents the concerned product from entering the country. Suppose the party has an exclusive distributor registered in the Ministry of Economic for importing and distributing goods in the UAE. In that case, that specific Agent has the right to stop any third party from importing the products that are covered under the Agency Agreement. With the help of legal experts of intellectual property, the distributer can file a complaint before the Customs Authorities to request them to prohibit importation of any concerning products that are covered under the registered Distribution Agreement by any third party in the UAE.

The UAE Commercial Agencies Law Federal Law Number 8 of 1981, which is amended by Federal Law Number 14 of 1988, is called the Commercial Agencies Law. It defined a commercial agency as an arrangement where an agent in order to distribute represents a foreign company, sell, offer or provide goods or services within the UAE for a certain profit or commission. Trading is the very essence of the commercial heritage of the UAE; hence the Nation has specific laws set in place to encourage foreign suppliers to use local sales agents. The commercial Agencies Law Article 2 has provided the conditions that apply in the country, which is:

  1. The commercial Agent must be a UAE citizen, or the companies established in the UAE are owned entirely by UAE citizens.
  2. The commercial agents must be registered with the UAE Ministry of Economy and Commerce to be eligible to engage in commercial agency activities. However, if the agency is not registered, no action can be taken against parallel importation.
  3. The agency agreement must be registered for the Agent to protect himself under the law and have the agency relationship recognized under the law.

Pursuant to Article 5(1) of the law, commercial agents are entitled to an exclusive territory encompassing at least one Emirate for a specified product. However, having the exclusive Agreement does not change the source of the product. Moreover, Article 7 states that commercial agents are entitled to receive commissions on the sale of the product in their designated territory, regardless of whether the sales are made by or through the Agent.  The law further provides that commercial agents are entitled to receive compensation from the principal if the agency is terminated without any substantial justification or if a foreign principal does not renew the agency. The conditions mentioned give the sale agent exclusive rights to import the products and receive compensation for any parallel import of the product by others. It even allows them to receive compensation for any parallel import of the product into the sale agent’s territories. In other words, the local sales agent has a monopoly over the parallel imports and serves as the main instrument for protecting trademarks.

Termination of agency agreements

The Agency Law provides a provision concerning terminating a commercial agency contract under Article 8. The law states that it is quite difficult unless it is done for a valid reason that is accepted by the Commercial Agency Committee. It states that foreign principals will be prevented from terminating their contract unless they can show plausible reasons to justify the Committee’s termination and the applicable courts. The pre-requisite for a ‘justifiable cause’ has been reintroduced under Federal Law Number 2 of 2010 and does not prescribe either party to go directly to the court, regardless of there being a fixed agreement present or not before they file a dispute with the Committee. Therefore, because of this, it is vital to have clear, concise, detailed, and binding termination provisions in Commercial Agency Agreement. An example of this may be when there is a failure to meet specific targets that deal with competitors and competitive commodities. Any other material provision that an agent is not in compliance with would constitute a ‘material breach.’ The Committee or the court can then agree whether a material breach constitutes a justifiable reason for terminating or not renewing the Agreement.

The Exhaustion of Rights Under UAE Law

The theory of trademark exhaustion is used to justify the importation of gray market products. This theory states that the trademark’s rights will be exhausted once the first sale of a marked product happens after the product has entered the stream of commerce in the trademark owner’s territory. This means that the owner of the trademark no longer has control over the sales of a product once it crosses the sale threshold. There is currently no international agreement that deals with national, regional, or international exhaustion. The Paris Convention does not regulate the issue, and the TRIPS Agreement takes a neutral stance on the concept. Due to the fact that TRIPS negotiators failed to agree with the regulation of gray market goods, the whole issue of exhaustion and parallel importation is left to the national legislation and Court decisions. The UAE Trademark Law has failed to clearly address the issue of parallel imports infringing trademark rights or adopting national or international exhaustion of rights. Under Article 17 of the Trademark Law, the owner of the trademark who has registered his mark in the UAE has the exclusive right to use the trademark however he sees fit. It is also not permissible under the legislation to cause prejudice to another person’s exclusive right to use a registered trademark. This provision can protect against parallel imports because such imports cause prejudice to the exclusive right of the trademark. Furthermore, the law states that a trademark owner may use a written notarized contract to be able to grant any person a license to use the trademark with an agreed guideline, as stated in Article 34.