The Great White Shark recently took two bites of discount activewear retailer Paul’s Warehouse. Legal experts Lisa Egan and Tim Francis provide a lesson in preventing infringing imports.
You develop a strong brand. You license it for distribution in other countries, but you want to make sure that the overseas product doesn’t make its way back to compete with your Australian product. Maybe you have outsourced manufacturing to another country. Or maybe you have paid a significant sum to be an “exclusive” Australian distributor of a well known international brand and now find others selling the same stock at discounted prices. What should you do in these situations? How do you best protect your brand from being diluted by counterfeits or so-called “grey” imports?
There are protections within the Trade Marks Act which allow parallel imports, ie. the importation of goods into Australia other than by the authorised distributor. To avail themselves of this defence, the importers must be dealing with “genuine” goods, that is, goods which have had the trade mark affixed with the consent of the trade mark owner.
For example, if an international brand manufactures goods in China and has the trade mark affixed there, and then sells the goods in China and Australia those goods could be purchased by another party in China and imported into Australia for sale without sanction.
That isn’t the end of the matter, though. There are strategies you can implement to put yourself in the best position to prevent parallel imports, as demonstrated in the case of Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd.
The Great White Shark Case
Greg Norman has for some time lent his name to a range of golfing apparel. His company (Great White Shark Enterprises) owns some registered Australian trade marks covering clothes, including the marks GREG NORMAN and the great white shark logo (depicted).
Great White’s head licensing company (Greg Norman Collections) licensed an Indian manufacturer to use the GREG NORMAN and great white logo trade marks on clothing. Importantly, the licence only allowed for the clothing to be made and sold to retail outlets in India.
Paul’s Retail Pty Ltd and its related companies operate a chain of stores under the “Paul’s Warehouse” name, which sell sporting apparel at a discount. Paul’s got hold of some clothing bearing the GREG NORMAN trade marks through a chain of suppliers that began with the Indian licensed manufacturer. Paul’s sold that clothing in Australia without the trade mark owner’s permission, and Great White Enterprises (and some other related companies) sued Paul’s for trade mark infringement.
The Great White Shark companies were successful both in the Federal Court and, when that result was appealed by Paul’s, in the Full Federal Court. The Courts held that even though the Indian company was licensed to use the trade marks in limited circumstances by Greg Norman Collections, Great White Shark Enterprises was able to prevent that Indian company’s goods bearing the trade marks from being sold in Australia.
The reason for this was the wording of the licence contract with the Indian manufacturer, and the circumstances of the original sale in the chain that eventually led to Paul’s Warehouse. The contract expressly limited the licence granted to the territory of India. It also went further and included an agreement by the Indian company that it would not sell licensed products to anyone other than its usual retailers in India, and would not sell products destined directly or indirectly to be sold outside India.
When it ordered the goods, the original buyer told the Indian company that the goods were for supply outside India.
The Full Federal Court said that because of the express terms in the licence agreement which prohibited sales outside India, and the fact that the Indian company specifically manufactured the goods to be sold to a company for sale outside India, Great White Shark Enterprises could not be held to have consented to the application of its marks to the goods made to fulfil that order.
As a result, there was no defence to trade mark infringement available for Paul’s Warehouse.
The case highlights the importance of strong contractual terms specifying limitations on an authorised manufacturer or distributor to market or sell goods, including the territories in which such goods can be made or sold. By having such contractual terms in place, trade mark owners (and the distributors) are better armed to control how and where their products are marketed and sold. It is therefore critical that, as a brand owner who licenses the manufacture and sale of products, that you are very clear in your contracts as to the extent of the consent given for such manufacture and sale. For authorised distributors, you need to be asking questions of the brand owner as to what contractual protections they have in place to limit the extent of consent given to manufacturers and other distributors.
Other measures
There are other ways you can strengthen your ability to prevent counterfeit and “grey” imports. To ensure the maximum protection for your brand, make sure you have your rights (especially trade marks) registered in Australia.
If your trade mark rights are registered, you can then implement a Customs program to increase the chance of infringing goods being stopped “at the border”. In just under 12 months, some amendments to the Customs seizure rules come into force, which will strengthen the impact of a Customs program.
Those rules will assist trade mark and copyright owners by forcing infringing importers to identify themselves to Customs, and therefore to the owners of the infringed intellectual property rights (or “IP”) if they want to collect suspect imported goods seized by Customs.
This will in turn result either in more forfeiture of infringing goods, or a greater ability for IP owners to identify and prosecute infringers to protect their IP.
The key message to protect your brand is to ensure you register your trade marks, regularly monitor the market for counterfeit or grey imports, and conduct a regular review of your contracts to make sure they offer maximum protection against grey imports.
Lisa Egan is a partner and Tim Francis is a senior associate at Middletons law firm.