The Complexities of Parallel Importing
Parallel importing is a form of international trade that is oftentimes referred to as the “gray market.” Because it is a gray area it needs some specific examples and explaining so that all parties are aware of its meaning and understand its lawfulness.
The Basics of Parallel Importing
Parallel importation is an unauthorized import into a country of non-counterfeit goods imported without the express permission of the intellectual property owner. Individuals refer to this as gray market goods, and most trades entail high-priced branded goods such as jewelry, cameras, tablets, and watches.
The parallel part of the import involves a patented, copyrighted, or trademarked product brought into a country at a reduced price by a distributor, wholesaler, or retailer in cases where the product is already marketed. This provided the initial incentive for the import because the lower prices create a more competitive landscape, forcing authorized firms to provide greater customer service satisfaction.
Example of Parallel Importing
Let's say an Entrepreneur XYZ wanted to export Nabisco’s Oreo cookies to Japan. Instead of reaching out directly to Nabisco to buy Oreos and exporting to Japan, they went to a major food distributor in Chicago and asked if they could buy volume quantities of Oreos each month from them for export to Japan.
Even if they said yes, Nabisco has strict rules in place on who handles their products on an exclusive basis worldwide. In this instance, some of Nabisco’s products are either made in Japan or a neighboring country for transport to Japan. While Entrepreneur XYZ might want to scratch the idea because it was too complicated or might constitute infringement, in reality, the effort actually constitutes parallel import to Japan.
The Lawfulness of Parallel Imports
At first blush, there's nothing illegal about producing goods and exporting them. But what comes into question is how your goods arrived in the particular country. For example, if you originally exported your goods to the U.K. and then discovered that those goods were then moved from the U.K. to Spain for consumption without your permission, that form of parallel importing is illegal.
How Illegal Parallel Importing Occurs
Let’s say you have an exclusive distributor in the U.K. called Company XYZ and a different exclusive distributor in Spain called Company ABC. You recall receiving an inquiry from a different company, ABC in Spain, asking to sell your products in that market on an exclusive basis. You recall responding that you already have representation in that market. Company ABC responds, “but we sell through e-commerce channels and your representative only sells through mom and pop stores.”
However, if you do your due diligence and double check your contract, you discover that your Spain contract with Company ABC, is responsible for selling throughout Spain in all customer categories including e-commerce, so you hit the brakes.
Fast forward and you receive an angry email from Company ABC that sales of your products are being made on one of the largest online platforms in Spain (and it's not your doing). Company ABC is clueless how these sales are taking place and question why you would authorize sales to another company when your contract specifically states they have “exclusivity” in Spain.
This is a wake-up call to a potential parallel import. Spain Company ABC did its homework. It found out who was importing your product in the U.K., contacted a third party intermediary in the U.K. to solicit Company XYZ. Next, they made it appear that the intermediary was buying the product for U.K. consumption and then the intermediary re-exported the product to the Spain Company ABC so it could sell (unauthorized) goods through its e-commerce channels.
The difficult aspect about gray market activity is that when big money can be made, one can easily turn a blind eye for fear of losing out on sales and profits. Besides, there is little one can do about controlling further acts of commercial exploitation, such as resale or selling to unauthorized distribution channels or customers, short of patrolling the market in person.