Tackling parallel imports – not such a grey area after all

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Authored by: Charmaine Koo and Theresa Luk

The Hong Kong High Court recently found a parallel importer of electrical appliances guilty of copyright infringement, passing off and trade mark infringement. In Miele & Cie KG and Miele (Hong Kong) Limited v Instant Services (Hong Kong) Limited and Anor [2024], Deacons successfully acted for Miele to obtain summary judgment from court against the parallel importer, as well as finding its sole director liable as a joint tortfeasor.

What are parallel imports?

Parallel imports are genuine products that are being sold or offered for sale, outside of a brand owner’s authorised distribution channels, without the permission of the intellectual property owner. Combating parallel imports is an on-going challenge for many brand owners.

Disadvantages of parallel imports for brand owners and authorised distributors

In today’s interconnected world of globalised trade, parallel importing is easier than ever. Although their legality varies from jurisdiction to jurisdiction, the implications of parallel imports for brand owners, authorised distributors and consumers, are significant. Not only can they affect brand owners’ control over their brand image, quality control, and pricing strategies, they can also result in unwarranted customer dissatisfaction or complaints, such as if the importation or sale is conducted in a deficient manner, or in a way that breaches consumer safety laws and regulations.

In addition, sales of genuine product through unauthorised channels, coupled with the circulation of high-quality counterfeit goods in the market may make it very difficult for consumers to differentiate between genuine and counterfeit products.

A further risk for consumers purchasing products that are protected by warranties, or come with customer support services (such as watches and electronics) is that the parallel imports may not be protected by the manufacturer’s warranty if they have been purchased from an unauthorised retailer.

The legal position and exhaustion of rights

It is common for parallel importers to ride on the marketing efforts of the brand owners or their authorised distributors, by using the brand’s official promotional or product specification materials. These unauthorised sellers also use the brand owners’ trade marks and logos in their promotion, and attempt to justify such use as referencing genuine products. Hong Kong’s trade mark law generally provides parallel importers with a defence to an infringement claim where the goods have been put on the market, anywhere in the world, under that trade mark, by the trade mark owner (the “Exhaustion Defence”). Thus, although taking enforcement action against parallel imports is not simple, this case shows that there are exceptions to the Exhaustion Defence and circumstances where action may be taken against parallel imports.

The Court’s findings

Notably, the Court in the Miele case found that:

1. The reproduction of Miele’s promotional photographs, promotional artwork and product descriptions and specifications, by the parallel importer, and the use of the copied materials on its website and social media accounts, amounted to copyright infringement.
   
   
2. The parallel importer was guilty of passing off in making misrepresentations that the products were covered by Miele’s original warranty, and giving the false impression that it was an authorised dealer, or was approved or connected with Miele. In particular, the Court recognised that consumers of expensive home appliances products prefer warranty and maintenance services from the original manufacturer. In this case, the parallel importer gave Miele’s address and email as the contact details for its own service centre and provided hyperlinks to Miele’s original warranty terms and conditions. The use of disclaimers, such as stating that the products were “genuine parallel import item[s]” did not eliminate the likelihood of confusion, nor absolve the parallel importer of liability in passing off.
   
   
3. The unauthorised use of Miele’s trade marks on the parallel importer’s websites and social media accounts to promote the parallel importer’s business overall, amounted to trade mark infringement. The extensive and unauthorised use of Miele’s trade marks, alongside the substantial misrepresentations, were held to constitute part of the parallel importer’s scheme to mislead the public that it was authorised by, or commercially connected, with Miele, and plainly took unfair advantage of the reputation of the Miele marks. Moreover, the parallel importer was convicted of certain product safety-related criminal offences governing the sale of electrical products in its sale of parallel imported Miele’s products, which the Court determined would be detrimental to the distinctive character and repute of Miele’s trade marks. As the parallel importer’s use of Miele’s trade marks was not in accordance with honest practices, this amounted to trade mark infringement.
   
   
4. The Court awarded additional damages under the Copyright Ordinance having taken into account the flagrancy of the infringement, the benefit accruing to the parallel importer and the length of time taken by the parallel importer to cease infringing acts.

What can businesses do?

As we can see from this case, intellectual property laws can be used effectively against parallel imports in certain situations, notwithstanding the Exhaustion Defence. However, if brand owners wish to enhance their ability to combat parallel imports, there are strategic actions that brand owners need to take, in terms of structuring their business practices and processes, including management of warranties, which was an important factor in this decision.

This case serves as a reminder that there are strict legal boundaries and limits on the sale of parallel imports in Hong Kong, and often things can be done by brand owners to help curtail the sale of parallel imports.

Key Contacts

Theresa Luk

Partner | Intellectual Property

Email or call +852 2825 9482

Charmaine Koo

Consultant | Intellectual Property

Email or call +852 2825 9300