1.  Consumers' Association very much welcomes the opportunity to present the Committee with its views and evidence on the matter of trading, trademarks and competition. We think that the issues that are raised in this inquiry are of increasing importance for the British consumer and are worthy of close investigation.

  2.  The issue of international price differentials between the UK and other advanced countries has exercised Consumers' Association for many years now. We have spent more than a decade campaigning against unfair price discrimination in sectors as diverse as motor cars, perfumes and compact discs. While the public has become increasingly aware, and concerned, about the practice of international price discrimination, those that create laws and Directives at the European level appear to have been more interested in protecting the private interests of trademark holders than advancing those of the European consumer. The Trademark Directive (1989) clearly comes down on the side of the trademark owner and makes it very difficult for parallel trading to occur. This restriction is clearly against the interests of the consumer. Article 7 of the Directive makes it very clear that a trademark becomes "exhausted" within the European Economic Area (EEA), once it has been placed on any market within the EEA. This effectively makes the EEA a single market in intellectual property terms. Thus batteries placed on the market in Greece cannot be prevented from being transported and sold in the UK. However, because the exhaustion is a regional EEA one, the same batteries sold in Bulgaria can indeed be prevented from being transported and sold in the UK.

  3.  Consumers' Association thinks that trademarks serve a very useful purpose in signalling to consumers that the goods they are purchasing are those that they think they are purchasing. Such avoidance of confusion and signalling of source is an important benefit of trademarks. However, we do not think it legitimate that the desire to signal the source of a product should be turned into a barrier to trade that effectively halts all international trade that is not done at the behest of a private company acting in their private interests. We continually hear of the emergence of a global economy and of welfare enhancing advances in multilateral trade liberalisation. Both of these developments rest on the ever-freer movement of goods, capital, services and eventually people. This freer movement of goods should not be predicated on it being in the interest of a small number of private companies. Freer trade should do away with the distinction between "official" and "unofficial" trade. The mere fact that we can talk about "official" and "unofficial" trade channels indicates the degree to which trademark owners have been able to undermine the local trading system and capture its benefits for their private profit.

  4.  The UK consumer has, for a number of years, born the brunt of the anti-consumer, price discriminating and fixing, activities of companies who have sought to use trademark protection as a means of dividing markets and exploiting consumers. This committee in its inquiry into car pricing highlighted the high profile position of the new car market in this respect. However, the car market is not alone in its treatment of the consumer, and the UK consumer has suffered from similar, if less high profile, problems in branded goods sectors, compact discs and motorbikes.

  5.  The motor bike is a key market in the debate about parallel trading. The growth in parallel trade in motorbikes has squarely knocked on the head the claims of trademark owners that their restrictive practices are in the interests of the consumer. The UK motorbike market has seen enormous sales growth on the back of the increase in parallel traded bikes. The activities of parallel motorbike traders (who are very often supplied directly by the manufacturers in countries such as Japan) have forced official dealers to reduce their prices by 25-30 per cent. The growth in sales and unofficial outlets has helped to create a market for associated servicing, like mechanical servicing, parts replacement and insurance. There has even been the successful launch of a magazine specifically aimed at the motorbike consumer who either owns, or wants to buy, a parallel imported bike. The magazine GreyBike provides all the evidence that is needed to show that parallel trade works for complex products like motorbikes and cars, with its pages packed with reviews, product information, adverts for associated services and insurance.

  6.  The motorbike market has shown the positive effect that parallel trading can have on the consumer. We think that this example explodes many of the myths advanced by brand owners that consumers are either too gullible, too stupid or too reliant on official distribution channels, for parallel trading to operate in their interests. The desire of brand owners to divide markets for their private gain and to exploit consumers wherever they can get away with it, is even undermined by their own activities. They undermine their own position by supplying parallel traders themselves, running their own "outlet" stores and supplying non-discounters who hardly meet the standards the brand owners purport to rely upon.

  7.  Consumers' Association thinks that the current Trademark Directive needs to be amended to create a presumption in favour of international trademark exhaustion. The Directive should, however, allow for exemptions from international exhaustion for specific industries that can provide the need for protection. This should be done on the proviso that the industries justify their demands in an open and public arena. At the global level, the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights should be amended along the same lines as the trademark Directive. There should be a global presumption for international exhaustion with the possibility for a "negative list" of industries exempted from the measure.

Detailed comments

Why does "grey" and parallel trading occur? What are the costs and benefits to producers and consumers? Where does the public interest lie in respect of such trading?

Why does "grey" and parallel trading occur?

  8.  The reasons for the existence of parallel trade are both many and varied. In many ways the reason that parallel trade occurs is the self-same reason why trade occurs in the first place

  9.  One study, by Hilke[11], identified six possible reasons why parallel trade occurs:

—  "To take advantage of differences in handling and promotion costs between authorised resellers and parallel imports (the so-called "free rider" effect);

—  To take advantage of manufacturers' discriminatory pricing among geographic markets;

—  To take advantage of differences in the quality of products between markets (having the theoretical consequence of leading to consumer deception by parallel importers that offer lower quality goods);

—  To disciplining of authorised distributors by manufacturers (i.e. manufacturers may encourage open parallel importation to price-constrain their own distribution channels);

—  To take advantage of exchange rate adjustment lags (i.e. product arbitrage analogous to currency arbitrage); and

—  Transference by manufacturers of distributional functions to low-regulatory-cost distributors (i.e. manufacturers may prefer to forego high regulatory-compliance cost distributors in favour of low cost "unauthorised" distributors)."

  10.  In the context of the current debate in the UK and Europe about parallel trading and trademark protection, it might be useful to address each motivation in turn.

To take advantage of differences in handling and promotion costs between authorised resellers and parallel imports (the so-called "free rider" effect);

  11.  Such a motivation is a complex issue for both brand owner and importer. In an increasingly globalising economy many international brands are now running advertising and marketing campaigns on a global basis. For example, the launch advert for the new Jaguar S-Class car is the same in every country in the world. It cannot therefore be assumed that the promotion costs for a product in a market necessarily fall entirely, or in a majority manner, on the authorised reseller. The issue of handling costs is more complex. If an authorised reseller has significantly higher handling costs than a parallel trader does, then one could argue that the official reseller was less efficient than their unauthorised counterpart. In such circumstances one would hope that the existence of parallel traders would provide significant price competition for the authorised reseller to help them to become more efficient.

  12.  The issue of official versus unofficial distribution channels is increasingly important in markets with large degrees of vertical integration by brand owners. In an effort to protect their brands, there is an incentive to create a number of "parallel" distribution systems for products that are essentially the same, but are owned by different brands. If each perfume has its own "official" distributor, the potential for scale economies in distribution is limited. This encases inefficiency into the distribution system, makes the unit cost of distribution higher and leads to higher consumer prices. In contrast, and by way of example, the supermarket sector in the UK has developed remarkably efficient and effective distribution channels. One would expect that in a free and open market, the greater efficiency afforded through this distribution channels would expose the inefficiency of multiple "parallel" networks of distribution. This would lead to greater price competition and more choice for consumers. This does appear to have happened increasingly in the perfume and cosmetics sector.

"To Take Advantage of Manufacturers' Discriminatory Pricing Among Geographic Markets"

  13.  Consumers' Association sees this motivation as the major advantage of parallel trading both within Europe and between Europe and the rest of the world. At the current time, the UK is facing a position where a significant amount of parallel trade in a number of product areas, from cosmetics and perfume to motorbikes and motor cars, is occurring almost solely because of this reason. Despite the theoretical existence of a single market in the EU, consumers in different parts of Europe still pay significantly different prices for many goods. The price differences within the EU become even broader when one compares the EU to many other countries in the world. While we would never wish to advocate a single EU or world price for all goods, we would expect consumer prices to closely reflect the relative costs of doing business in different countries, rather than the contrasting abilities of brand owners and official retailers to fleece consumers under the guise of selectivity and exclusivity.

"To Take Advantage of Differences in the Quality of Products Between Markets (Having the Theoretical Consequence of Leading to Consumer Deception by Parallel Importers That Offer Lower Quality Goods)"

  14.  We take issue with the assumption that product quality differences automatically lead to consumer deception. The NERA study carried out for the European Commission DGXV makes similar assumptions about the connection between pre and after sales service, brand ownership and consumer welfare that are neither supported by evidence, nor robust under scrutiny. For example, a large share of the parallel trade that occurs between Japan and Europe in automobiles occurs precisely because the specification of vehicles available in Japan is higher than for comparable models sold for the EU market. Additions such as automatic air conditioning, video cameras to ease parking problems are available as standard on a number of Japanese specification models, but are unavailable on EU models, despite the fact that they are very often built in the same factory.

  15.  One also has to take a balanced approach to consumer attitudes to quality differences between products. Parallel trading, even in products with quality differences, is perfectly consistent with consumer protection provided that a number of pre-conditions are met. Firstly, the consumer has to have sufficient information made available to him/her to enable them to decide whether to purchase the product in question. The decision on the balance between cost and quality should be one for the consumer to make in an informed way, not for the brand owner to make. Secondly, the safety performance of the product should not be compromised in a significant way. Provided the consumer knows what they are buying, and the differences it may have with comparable "official" products are made plain, and provided that the product is not significantly less safe to the consumer and to the wider public, quality differences should not be seen as a barrier to parallel trade. Let the informed consumer decide not the brand owner.

"The Disciplining of Authorised Distributors by Manufacturers (ie Manufacturers May Encourage Open Parallel Importation to Price-constrain their Own Distribution Channels)"

  16.  The disciplining of authorised resellers as a means of protecting the integrity of the overall brand by manufacturers should not be underestimated as a source of parallel traded goods. Parallel markets very often occur because the brand owner chooses to release goods in one market knowing that they will enter a market through unofficial channels. While this is to be welcome, if it leads to greater choice and lower prices, it is a second best option for consumers. If a brand owner feels the need to discipline official suppliers then it is clear that the monopoly position granted to that distributor is leading to a consumer detriment. It would be best to allow the market, through the consumer, to "punish" that distributor for exploiting their monopoly marketing position. Leaving it to individual brand owners to replicate the effect of a properly functioning market is a second best option. The point remains, though, that a share of parallel trade occurs at the behest, and for the benefit of the brand owner. This needs to be taken into account when hearing the protestations of brand owners and official importers about parallel trading.

"To take advantage of exchange rate adjustment lags (ie product arbitrage analogous to currency arbitrage)"

  17.  Taking advantage of currency movements is very often seen as the key reason for the existence of parallel trade. We view such arbitrage as a natural and welcome part of a functioning global trading system. If a trader identifies stock in a market that has recently undergone significant currency depreciation, such as has occurred in East Asia recently, then it is only natural that s/he would wish to take advantage of an opportunity to buy products cheaply to sell on in another country. Such behaviour is to the advantage of the trader and to the seller, who now has a market and a sale that s/he would not have had otherwise. It is most clearly to the advantage of the consumer who now has access to more choice and lower prices, provided, of course, that the intermediary passes on any savings made.

"Transference by manufacturers of distributional functions to low-regulatory-cost distributors (ie manufacturers may prefer to forego high regulatory-compliance cost distributors in favour of low cost `unauthorised' distributors)."

  18.  Having recognised that manufacturers do themselves often facilitate parallel trading, it also has to be recognised that for some products, particularly end of range products, or those that have not sold very well in a particular market, a manufacturer may wish to use more efficient distribution channels to dispose of his/her goods. The existence of product discounters, like TK Maxx in the USA and UK, attest to the fact that manufacturers often wish to off-load stock, at a discount, that has not sold very well through official distributors. Discount stores serve an important function for both brand owners and consumers. Brand owners can dispose of older stock, over-runs, or poor performing stock, to efficient retailers who then sell at a discount to the public. The manufacturer gains by being able to realise some revenue from the product while insulating official channels from possible "contamination" in the eyes of the consumer (although this is often overplayed). The consumer gains by being able to gain access to branded goods at lower prices than s/he would do otherwise. The market functions well because the decisions on the quality/price balance are left to the consumer.

  19.  The existence of the outlet stores indicates that brand owners very often play the parallel trading game themselves. This would appear to undermine the protestations of brand owners about the purity and relative merits of their own distribution channels.

CONCLUSION

  20.  Parallel trade occurs for a variety of reasons that can change over time and between products. The main reason why the issue has become one of such interest in the UK is that the main motivation at the current time for parallel trading appears to be the wide differential in prices between the UK and the rest of the world due to the practised and premeditated price discrimination carried out by global manufacturers.

 WHAT ARE THE COSTS AND BENEFITS TO PRODUCERS AND CONSUMERS?

  21.  The many and varied rationales for parallel trading referred to above indicates that the balance of cost and benefit to both producers and consumers is not a simple matter. However, it is clear that manufacturers engage in parallel trading, either to offload stock, discipline official distributors or seek to realise underperforming assets. The balance of cost and benefit for the consumer is slightly simpler to identify. Provided that the consumer has sufficient information about the product they are buying, to make an informed choice, and provided that the safety of the product is not significantly compromised, then parallel trading is unequivocally to the benefit of the consumer. Such trade exerts pricing discipline where otherwise it would not exist and it provides for the possibility of greater choice.

  22.  The issue of consumer detriment is very often referred to by brand owners and their representatives, but very rarely quantified in a meaningful manner. Just as the NERA report took for granted arguments about pre and after sales service for branded goods, so brand owners often fall back on vague and inconsistent claims of consumer welfare loss. The case made by brand owners relating to consumer welfare loss is weakened by a number of factors:

Reward for innovation and investment

  23.  Parallel traded goods are perfectly legitimate, legally acquired goods, that have been manufactured by the brand owner or their licensee. If the good is legitimately sold, then the brand owner has received a payment for their innovation and investment. For example, if a Honda motorcycle is sold in Japan for sale in the UK, it makes no difference whether it is sold to an official or unofficial agent. In both cases the manufacturer has received a payment for their efforts. They have thus received their reward for innovation and investment.

Reward for information/advertising/marketing and free riding

  24.  Much is made of branded goods owners of their efforts at marketing and advertising as if this were a consumer benefit. Advertising is not the same as information and is not designed for the benefit of the consumer. Advertising is an activity carried out by a brand owner to persuade people to buy their products. It is stretching credulity to argue that consumers in the UK, or elsewhere, should endure higher prices than their counterparts elsewhere as a means of maintaining the advertising budgets of brand owners. Advertising is not designed to be a consumer benefit. Consumers may gain from advertising some knowledge of the existence of a product and may, at a stretch, gain some insight into the performance of the product. Such activities should not be confused with consumer information. If parallel trading reduces advertising budgets, then the likely consumer welfare loss will be very small, if any at all.

Selectivity and exclusivity of supply and distribution

  25.  The weak arguments that are used against parallel trading by brand owners are the same that are used to justify selective and exclusive distribution. The arguments used to support exclusive and selective distribution and used against parallel trade tend to focus on:

—  ambience of sale and brand image; and

—  pre and after sales service and advice.

Ambience of sale and brand image

  26.  Ambience and image protection are very often arguments put forward by manufacturers of perfumes and cosmetics, although it is also often relied on by makers of jeans and cars. The argument is essentially that consumers gain by being sold products in the "correct" sort of atmosphere and environment. Thus staff in uniforms at dedicated counters must sell perfumes. The argument is undermined by the manufacturers themselves who supply catalogue retailers, cross channel ferries and duty free shops. Manufacturers are also increasingly using the Internet to distribute their products. The "climate" in any of these outlets is hardly exclusive. The claim to "correctness" in environment is very often a smoke screen for price fixing allowing brand owners to refuse supply to supermarkets and discounters. For example, it is alleged that the refusal to supply supermarkets by some clothing brands has been justified on the basis that consumers should not have to walk past fruit and vegetables to reach their products. If this condition were applied across the board, then Selfridges and Harrods should be refused supply because they have food halls.

  27.  Consumers' Association thinks that the consumer should be allowed to choose what level of "ambience" they want from a product. If the consumer wants to have lots of sales advice and specialist counters, and pay a premium for it, then we are all in favour of them having the choice. If, however, they just want to pick the product off the shelf at a discount, then they should be allowed to do so too. If image and "ambience" are consumer benefits, then let the consumer, through the market, put a value on it for themselves. The brand owner should not be allowed to decide for the consumer how they would purchase a product.

Pre and after sales service

  28.  Brand owners often argue that "official" retailers provide pre and after sales services that unofficial retailers do not. It is rare that the brand owner specifies exactly what this pre and after sales service is and what benefit the consumer receives for it. For example, for a branded pair of jeans or a T-shirt pre sales advice is likely to be extremely limited. Most of us know what size jeans we want (or have the intelligence to try on different sizes) and generally know how to put them on and ensure they do not fall down. Most people know how to put on perfume and cosmetics. If they do not know how to carry out these activities, then they will seek out retailers who can provide them with the advice they need. The idea that after sales service is intrinsically tied to the initial sale does not stand up to much scrutiny. Retailers of most branded clothing and perfume products will refund purchase prices if the product does not perform. This is very often the only after sales service that is required, as clothing and cosmetics do not need regular servicing.

  29.  The importance of pre and after sales servicing is, of course, greater in complex products such as motor vehicles and motorbikes. However, one only need look at the growth in the parallel and "grey" market in motorbikes to realise how effectively the market can look after the need for after sales service and pre sales advice. The motorbike market is a classic success story for parallel trading. Sales of parallel bikes, which have been estimated at 25 per cent of total, have triggered a huge growth in the provision of advice and spare parts, of specialist insurance services and repair centres. This has all happened alongside the reduction in prices in the sector of 25-30 per cent. The consumer has had more choice, lower prices and more information. There is absolutely no reason to think that the same will not occur in other sectors, most notably motor cars. Indeed the existence of a trade group for independent motor traders (BIMTA) indicated the established nature of the sector. The growth of independent supply and servicing companies in the UK car market has been one of the success stories of the car sector. The growth of firms like Halfords and Kwik Fit indicates that consumers are choosing to have their cars serviced not by official dealers, but by unofficial ones. Our own evidence to this committee on car pricing pointing to our own investigations that showed independent garages to be just as effective (and ineffective) at servicing cars as official dealers.

  30.  The often vague and unsubstantiated claims made by brand owners of consumer injury and welfare loss caused by parallel imports makes countering them often difficult for parallel traders. It is interesting to note that the US Federal Trade Commission has carried out a series of studies on the issue and has concluded that:

"Systematic nondisclosure of material facts has not been found by the FTC (Federal Trade Commission) staff in any of its investigations of gray market goods initiated in the 1980s. Although authorised importers have provided anecdotal evidence of consumer injury, allegedly associated with the sale of gray (sic) market goods, there was insufficient evidence of a systematic problem to warrant bringing a complaint. In addition, investigations of importers of gray (sic) market products conducted by the FTC's Division of Marketing Practices in 1983 and 1984 failed to substantiate claims of consumer injury resulting from the warranting practices of gray (sic) market importers.[12]

  31.  A similar study carried out in Australia by the Price Surveillance Authority[13] found that:

"the power to block parallel imports played a key role in buttressing the observed price differentials and the ability of rights owners to charge what the market would bear. The important provisions;

—  permitted rights owners to isolate the Australian market from the rest of the world and so to practise international price discrimination by charging what the market would bear; and,

—  shielded the rights owners and their distributors from competition, and accordingly, potentially retarded the adoption of the most efficient distribution methods."

CONCLUSION

  32.  Parallel trade benefits the consumer by offering greater choice of products and lower prices. Provided that they know what they are buying and are aware of differences and provided safety is not significantly compromised, then the consumer should decide where they shop and how they wish to shop. Manufacturers essentially want to "have their cake and eat it": they want to benefit from parallel trade when they need to shift excess or badly selling stock, but want to clamp down on it when they wish to maintain their price fixing and constrain consumer choice. The consumer, through the market, should be allowed to place values on different distribution channels and outlets and should be allowed to decide for themselves how much advice and information they need.

WHERE DOES THE PUBLIC INTEREST LIE IN RESPECT OF SUCH TRADING?

  33.  The public interest clearly lies in allowing the greatest degree of parallel trade to occur as possible. It has already been accepted that such trade is in the public, economic and consumer interest when it occurs within the borders of the European Economic Area. There is no logical reason why such trade is acceptable when it occurs within the EEA, but is not acceptable when it occurs between the USA or Morocco and Europe.

  34.  Consumers' Association agrees with the conclusion on the matter by the distinguished Committee on International Trade Law of the International Law Association on the Subject Matter of Parallel Importation concluded[14]:

"In the case of trademarks, no persuasive argument or data has been presented for treating the EC market and the WTO market differently...International Price discrimination distorts comparative advantage, and there is no persuasive evidence that it is necessary (or would be helpful) for promoting the interests of developing countries. In the final analysis, no persuasive economic or social case has been made in favour of a rule restricting international parallel importation in the field of trademarks."

SHOULD MORE OR LESS PROTECTION BE GIVEN TO BRANDS AND ARE TRADEMARKS INSUFFICIENTLY OR EXCESSIVELY PROTECTED?

  35.  Consumers' Association thinks that the balance of protection between consumers and trademark owners has moved too far in favour of the trademark owner. The object of a trademark is to indicate the source of a product and prevent consumers from being misled about the product and its manufacture. As Warwick Rothnie states in the book Parallel Imports[15]: "In orthodox theory, a trademark identifies who is ultimately responsible for putting the trade-marketed product on the market: a trademark indicates source." Consumers' Association thinks it is a major step to then assume that parallel trade acts to confuse consumers and undermine the object of the grant of a trademark.

  36.  An interesting parallel example of alleged consumer confusion comes from the issue of so-called "lookalike" products. Such products, brand owners have alleged, are designed to mislead and confuse consumers. In our own research, appended to this evidence, we found very little such confusion and thus very little concern about consumers being misled or confused[16] 1. The interesting parallel in this issue is that brand owners wanted to have placed into competition law provisions that would force competition authorities to act against infringing "lookalike" products. This was a clear attempt to transfer the cost of trademark actions from the private owners of trademark, the brand owners, to the state and thus the taxpayer. In so-called "passing-off" cases there is already ample protection for brand owners in the civil court system, where an established body of law has developed.

  37.  The desire by brand owners for the state to enforce private trademark rights in the case of lookalike products has a worrying parallel in the case of unofficial or parallel trade. Here the brand owners have the protection of the 1989 Trademark Directive, which, as interpreted in the Silhouette case, has effectively created a "fortress Europe" within whose walls brand owners can price discriminate to their hearts content. The idea of creating a "Community Trademark" may have been a noble one that reduced notification costs. However, the reality of the Directive has been to cement price discrimination into the global trading system and to limit the ability of unofficial traders to counter this profoundly anti-consumer trend.

WHAT ARE THE MAIN PROBLEMS WITH EXISTING MEASURES TO DETECT AND PREVENT COUNTERFEITING AND PIRACY? HOW CAN SUCH MEASURES BE MADE MORE EFFECTIVE? ARE THERE PROBLEMS WITH DEFINITIONS?

  38.  We are a little concerned to see the issues of parallel trading and counterfeiting being dealt with in the same inquiry as it appears to assume some degree of correlation between the two activities. We agree with Tan, Lim and Lee[17], who in an article in the Journal of Global Marketing argued that:

"Parallel importing should never be confused with the marketing of counterfeit goods, fraud, or any other similarly illegal marketing activities . . . It is this association with such unethical marketing activities, and the fact that some of these parallel imports are one-shot deals conducted through middlemen that have only post boxes as addresses, that gives parallel importing its somewhat sinister name-gray (sic) (with veiled references to black) marketing."

  39.  The almost accepted bracketing of discussions of parallel marketing with those on counterfeiting distracts attention away from the anti consumer activities of brand owners and "official" traders who seek to divide global markets for their private gain and thwart attempts to make markets function in an efficient and pro-consumer way. We also think that any attempted correlation between parallel trading and counterfeiting may in fact be the reverse of the case made by brand owners. The logic of their argument, rarely presented with real and consistent evidence, is that allowing international exhaustion and greater parallel trade would make it easier to trade in counterfeit goods. However, one must examine both the motivation for counterfeiting and the opportunity to realise revenue from it. In the former case, the motivation for counterfeiting is clearly to illegally copy branded or copyrighted goods to free ride on investments made. The opportunity for counterfeiting largely exists because counterfeiters can undercut official suppliers by an enormous amount and offer consumers copies at a fraction of the cost of the official product. Counterfeiters thus exist in a gap between the official price and the cost of production. Brand owners tend to argue that greater volumes of parallel traded goods will increase counterfeiting. However, if increased volumes of parallel traded goods act to lower prices, then the gap between official prices and counterfeits will narrow. This may act to widen the legitimate market and undermine the counterfeit market. If consumers perceive that the legitimate market is acting entirely for their benefit, then the desire to purchase goods on illegitimate channels will lessen. This is particularly the case for products where the counterfeit nature of the goods is very clear and the price gap between legitimate and illegitimate products is large.

HOW CAN INTELLECTUAL PROPERTY RIGHTS BE MORE EFFECTIVELY AGREED AND ENFORCED INTERNATIONALLY?

  40.  The international protection of intellectual property rights is now one of the most comprehensive and well-policed system of private rights in the world. Prior to the passing of the Uruguay Round the World Intellectual Property Organisation developed a whole raft of international treaties that sought to advance the protection of intellectual property rights. This international system for promoting private rights was strengthened considerably by the passing of the Trade Related Aspects of Intellectual Property Rights Agreements (TRIPS) of the Uruguay Round. This most controversial agreement of the Uruguay Round mandated all WTO members to implement quite advanced levels of intellectual property protection in all countries, with only minor concessions to the administrative shortcomings of developing countries.

  41.  The TRIPS agreement expressly avoided looking at the issue of exhaustion of trademark and essentially allowed member countries to institute their own method of trademark exhaustion. Consumers' Association thinks that any restriction of trade on the basis of anti-competitive enforcement of trademark exhaustion is inconsistent with the basic principles of the WTO. Such barriers to trade are clearly in breach of Article XI (1) which states that:

"No prohibitions or restrictions other than duties, taxes, or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party . . ."

  Limits on parallel imports are also not possible under the general safeguard clause of Article XX (b) which allows for trade restrictions which are necessary to the protection of intellectual property rights and the prevention of deceptive practices. Restrictions on parallel imports are neither necessary to protect national intellectual property rights, nor are they designed to limit deceptive practices.

  42.  This lack of consistency of parallel trade limits, and thus the interpretation of the Trademark Directive in the Silhouette case points to the need for change at the multilateral level as much as at the EU level. Consumers' Association would like to see the TRIPS agreement amended to create a presumption of international exhaustion for intellectual property rights with the proviso that individual industries could be exempted. Such exemption could occur after a period of wide public consultation in which industries seeking protection had to prove that they were so unique as to warrant protection from the need for international exhaustion. This would reverse the presumption apparent in current EU law which presumes that the granting of a trademark gives the holder of that right the right to restrict consumer choice and restrict competition without, apparently, having to provide any justification other than proof of trademark registration.

  43.  Again we find ourselves in agreement with the Committee on International Trade Law of the International Law Association on the Subject Matter of Parallel Importation when it proposed a possible wording for the WTO on international exhaustion and parallel imports. "A Member shall not restrict the importation of a good or service in the basis of an intellectual property right if such good or service was first sold, or ownership of it was otherwise transferred, on the market of any Member with the consent of the intellectual property rights holder[18]."

CONCLUSIONS AND RECOMMENDATIONS

General

  1.  Parallel trade is good for the consumer. It increases availability of and sources of products. It helps to lower prices and price expectations;

  2.  Brand owners very often want to "have their cake and eat it" by using parallel markets and outlet stores when it suits them to offload stock and overruns, but to deny the opportunity to other when it does not suit them;

  3.  Brand owner's arguments about consumer benefits from restricting parallel trade are as specious as their arguments in favour of selective distribution. Again, they undermine their own cases by supplying distribution channels that clearly undermine their own arguments.

  4.  Pressure should be placed on Honda UK for them to withdraw their legal action against "unofficial" motorbike traders.

Legislation

  5.  The UK government should champion the interest of the European consumer and campaign to change the wording of the 1989 Trademark Directive.

  6.  The UK government should seek to amend the agreement on Trade Related Aspects of Intellectual Property Rights at the WTO to create a presumption of international trademark exhaustion among WTO members. Countries should be allowed to exempt specific industries after a public debate about the reasons for doing so. The opportunity exists for the government to advance this argument in the WTO Ministerial Meeting at the end of this year in Seattle.

  7.  The UK government should immediately remove the numerical limits on imports of cars from outside of the UK.

31 March 1999

12   Hilke, quoted in Frederick M Abbott. First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject Matter of Parallel Importation. Journal of International Economic Law-1998 pp607-636. Page 629. Back

13   Referred to in Warwick J Rothnie. "Parallel Imports-Smokescreen or Bushfire Smoke?" Paper prepared for the Second Fordham Conference on International Intellectual Property Law & Policy 1994 7-8 April. Page 328. Back

14   Frederick M Abbott. First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject Matter of Parallel Importation. Journal of International Economic Law)-1998 pp607-636. Page 631.  Back

15   Warwick Rothnie. 1993. Parallel Imports. Sweet and Maxwell. Page 17. Back

16   Not printed. Back

17   Soo J Tan, Guan H Lim, Khai S Lee. Strategic Responses to Parallel Importing. Journal of Global Marketing Vol 10(4) 1997. Page 46. Back

18   Frederick M Abbott. First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject Matter of Parallel Importation. Journal of International Economic Law-1998 pp607-636. Page 635. Back