1.  Rishworth Chase is an independent trade consultancy. We are not a law firm. One of the services offered to our clients involved in the parallel trade is to trace individual consignments of branded goods back through the chain of supply to find out whether or not they come from licensed sources (distributors, shops, factories with the right to sell goods, for example). We work for traders who wish to exercise due diligence in a market where information is hard to obtain. Rishworth Chase is a wholly confidential service, which undertakes to ensure anonymity to each link in a supply chain. The histories built up on each consignment are held by us and can be released only with permission from suppliers or if the goods are involved in litigation. NB we do not authenticate branded goods: only the brandholder can authenticate merchandise.

  2.  The 1994 Trademark Act, as defined by the Silhouette Ruling, applies to all branded (trademarked) goods, from razor blades to Range Rovers, and subsists only in trademark—ie does not relate to distributorships or trading practises, only to the trademark holder. The extreme means that no trader may bring goods into the European Union without the "express permission of the trademark holder". We have been told, in this office, that goods brought in from outside the European Union without permission are "counterfeit", even if they have been distributed in a non-EEA country by the licensee. In practise, this means one of two things: either all trade from outside the EEA, if not placed within the brandholder's own vertical distribution chain, is completely outlawed and therefore should automatically be stopped; or all traders should retain a lawyer at all times to ensure that they have the necessary permission for each consignment. Neither the Silhouette Ruling, nor the original Act, makes at all clear whether or not "permission" must be made implicit or explicit. Most purchases of parallel goods are made in countries which follow the rules of International Exhaustion of Rights: prohibition in these circumstances is unenforceable: does this mean that a prohibition can be placed on goods after the first sale from the brand holder? Traders would like this point to be clarified, but none would like to fight, or have the resources to finance the case that might answer the question.

  3.  One of the main arguments posited for the Silhouette Ruling was that local exhaustion would help in the fight against counterfeiters. Counterfeiters are criminals who use the law to their advantage. We have seen a marked increase in counterfeit goods since the Silhouette Ruling: inevitably, the majority of these goods are European brands; most have notarised paperwork filtered through several law firms which claim sourcing from a European distributorship. If the Silhouette Ruling was intended to protect European brands from the evil outside world, it has clearly failed.

  4.  The Silhouette Ruling has exacerbated counterfeiting for two reasons. There is not enough legitimate intra-European product to satisfy the demand from large retailers (and the general public); effectively, since all non-European product is now seen as a legal risk, retailers are increasingly buying on price and counterfeit goods are cheaper than legitimate product.

  5.  Counterfeiting will remain a problem for as long as there is a demand for product. Retailers should be made aware of the seriousness of the crime of selling counterfeit goods and also be made aware of how to trace goods to ensure that they are likely to be genuine. The brands, because they do not wish to be seen to condone in any way the paralleling of their product do not release any information to retailers who, in fact, could be some of their greatest allies. If there is no market for counterfeit goods, there is no point in manufacturing them.

  6.  Many problems of counterfeiting (rife in the clothing industry) are caused (in Rishworth Chase's opinion) by complacency on the part of the brands. An example: trademark registration—or lack or it—can cause severe problems in the long term. Ralph Lauren did not register its trademark in Mauritius, Indonesia, Sri Lanka or Malaysia, but gave its designs and specifications to large factories in each of these countries. The label now has a serious problem with goods made under its brand name and livery in countries where its trademark has been registered by a completely different company (Captain Tasman owns the rights—or did until recently—in Mauritius). The goods only become counterfeit when imported into countries where the "rightful" trademark is registered. Although this can be policed to an extent, the trade puts a massive burden onto customs officials all over Europe. Quite how the brand believes it is going to police mail order Internet trade remains to be seen.

  7.  Do the brands suffer from parallel trade? Many brands have been built in Europe through the "parallel" market: Tommy Hilfiger is one example; FUBU is presently another label which is strategically releasing goods into the parallel market while holding off investment in an effective European distribution network. Some brands never set up European networks, but bring their product into Europe entirely under the wing of parallel traders (Chaps Ralph Lauren is one example).

  8.  Parallel trade is also a great sponge for over production of branded merchandise and is therefore of benefit to the brands. Brandholders in one country will often off-load surplus production into another part of the world to retain value in its home market. This is presently happening with a number of European branded goods, which are being sold very cheaply into America or the old Eastern block. Because of the Silhouette Ruling, European brands and license holders can be reassured that the goods are unlikely to come back into Europe ("triangulation"—a practise prevalent pre-Silhouette).

  9.  There is no real problem with defining authentic goods in the garment industry. Our definition is simply that if the license has been paid and the goods have emanated from the brand holder's own distribution chain, they should be genuine—unless the trader is a victim of an internal counterfeiting problem (a distributor fencing counterfeit product, for example). Linking paper trails with goods in hand is a concern: we try to link shipping documentation with invoices as far as possible and to retain samples of goods to link with the delivered consignment.

  10.  An argument against the parallel market is that it affects the European job market. Most branded clothing is made in the Far East and USA. Very little is actually made in Europe and so the parallel trade in this sector is extremely unlikely to have any effect on European manufacturing jobs. The parallel trade, on the other hand, employs many people in every European country. Traders with whom Rishworth Chase works employ between two and 30 staff. Some organisations are larger.

  11.  What is the effect on the consumer? Every consumer has the right, if she or he can afford so to do, to buy goods in high quality retail outlets and wear the current style in whatever range she or he wants. The parallel market, in clothing, is usually confined to last season's goods or to particular high volume products (t-shirts, jeans, sweatshirts) where the actual design is fairly limited. Even higher value products (cars, perfume, jewellery) are usually only available in the lower cost/lower value ranges. The consumer, however, should not be excluded from buying branded merchandise, obtained legally and where the full license to the brandholder has been paid, simply because of protectionist legislation: ie local exhaustion. The crucial point is to ensure that the consumer is being offered authentic merchandise of the quality implied by the brand name.

  12.  The argument appears clear. Provided that goods are genuine, brandholders should not have the right to prevent consumers in one area of the world from having access to their product at the price offered in another geographic area. There is no harm that can be done to a trademark if the license (royalty) has been paid. A European bottom advertising Levi jeans manufactured and distributed in the US is no less desirable as an advertising medium than an American butt.

26 May 1999