PARALLEL IMPORTS AND INTELLECTUAL PROPERTY RIGHTS IN SINGAPORE

• Citation: (1990) 2 SAcLJ 286
• Date: 01 December 1990
• Published date: 01 December 1990

I. INTRODUCTION: THE NATURE OF PARALLEL IMPORTS

Parallel imports is a term used to describe a situation where articles made and sold in one country (the country of manufacture), are imported into another country (the country of importation), without the consent of the owner or licensee of the intellectual property rights in the country of importation. These articles are then sold or otherwise commercially exploited in the country of importation, in competition with articles originating from the owner or licensee of the relevant rights therein. The issue which has arisen concerns the extent to which intellectual property rights in the country of importation can be used to seal off the domestic market and repel such imports.

The phenomenon of parallel imports is fundamentally distinct from the general notion of piracy. The parallel importer is not, as such, a pirate of intellectual property. Piracy takes place where the articles are manufactured in direct infringement of the intellectual property rights in the country of manufacture. In the case of parallel imports, the imported articles, will in general be non-infringing in the country of manufacture. They will be genuine articles in the sense that they are made and released into the marketplace, in the country of manufacture, by the owner or licensee of the intellectual property rights therein.

The intellectual property system in Singapore comprises principally of the law of patents1, confidence2, copyright3, registered designs4, trade marks5 and passing off6. The system creates qualified monopoly rights over the protected material. Whilst these rights may vary from one branch of the system to another, they do in general create rights over commercial exploitation. The problem of parallel imports arises in the context of the

fact that the intellectual property system has to a large extent been “internationalised,” in the sense that a product may enjoy intellectual property protection not just in the country of conception, development and manufacture, but also in a wide range of other “overseas countries.”7 For example, a literary work which is written and first published in the United Kingdom or the United States will enjoy copyright under the domestic laws of numerous countries including Singapore8. Likewise, a new invention is likely to be patented in several countries9. Similarly, “successful” trade marks are likely to enjoy goodwill and to be subject to trade mark registrations in all countries where the product is marketed under that trade mark10. These rights in the several countries where they are enjoyed are separate and distinct, and they can be separately assigned or licensed to different individuals. The owner or the licensee of the rights in Singapore may be different from the owner or licensee in other territories. The value of the rights in any given country will depend, in part, on the degree of exclusivity in the market place conferred by the rights. Parallel imports tend to erode the exclusivity and hence to “ devalue” the rights. Hence the battle on parallel imports is enjoined across the entire field of the law of intellectual property rights. This article will examine the extent to which parallel imports are allowed in Singapore in the context of the law of patents, copyright, passing off, trade marks and registered designs. It will also address briefly the policy considerations that are raised in the debate.

II. THE POLICY BACKGROUND

The intellectual property system is today rationalised largely on the basis that it provides a legal framework for the protection of the economic fruits of intellectual effort, labour and entrepreneurial investment.11 In this sense it acts as an incentive system to encourage such activities for the benefit of society as a whole. In the case of pirated goods, little sympathy for the pirate usually arises, for the act of piracy directly undermines the incentive system.12 In the case of parallel imports, the position of intellectual property right owners are far more problematic. Parallel imports relate to products that are legitimate in the country of manufacture and first sale in that they will usually originate from the owner or licensee of the rights in issue. In many cases, the owner of the rights in the country of manufacture and in the country of importation will be the same person. Indeed, on occasions, the licensees may also be the same. In such cases of common ownership, the following points could be made against the creation of rights to repel parallel imports. First, the owner of the rights in the country of importation, will already have secured an economic return in the country of manufacture, in respect of the articles forming the parallel imports. This return will be reflected either in the sale price in the country of manufacture or in the royalty payments under the licence arrangements. Second, there is the more general point of consent or acquiescence. By releasing the goods into the market place, it may be plausible, in some instances, to argue that the owner of the rights has impliedly consented to the possibility of the goods forming the basis of parallel imports.13 These

points could be used to support an exhaustion of rights doctrine based on a consensual release of the goods into the market place by the owner of the intellectual property rights. Within the framework of the European Economic Community, such a notion of exhaustion of rights has been developed in the larger context of the free movement of goods and services policy between member states of the Community. This policy is set out primarily in Articles 30 to 36 of the Treaty of Rome.14 One of the objectives behind the formation of the common market is to promote competition within the community by removing legal barriers to the movement of goods and services between Community members.15 Intellectual property rights carry with them the potential power to divide up and segregate the individual market places in which the rights are enjoyed, thereby interfering with the broader Community objective of free movement of goods and services. Accordingly, the consensual first marketing of goods in a member state will in general constitute an exhaustion of any relevant intellectual property right in other member states, at least in so far as such rights might otherwise be set up to prevent importation. This is so notwithstanding differences in market conditions or in the content of the intellectual property rights in the community country of first marketing and in the community country of importation.16 This European concept of exhaustion is however confined to trade between member states inter se. It has not spawned the development of any broader, coherent, concept of exhaustion of rights in respect of goods first marketed outside of the Community. In such cases, it is still a matter for the domestic laws of the country of importation to determine the extent, if any, of exhaustion generated by the first consensual marketing.17

Owners of intellectual property rights, wearing different spectacles, take a somewhat different view of the matter. First, the point is often made that the short term public gains from competitively priced parallel imports are outweighed by the long term disadvantages. Parallel importers will tend to concentrate on the more popular works and products that are easily marketed. They will ignore the less popular works and products with low profit margins. A glance through the reported cases on parallel imports shows that products such as toothpaste,18 motor oil,19 hair shampoo,20 television sets,21 champagne,22 records,23 antibiotics,24 analgesics,25 decaffeinated coffee26 and cookery books27 have all been subject to the perils of parallel imports at one time or another. On the other hand, one seldom comes across parallel imports of specialist textbooks and other products which attract only a small market.28 Parallel imports, by competing with the more profitable products in the portfolio of the Singapore intellectual property rights owner or licensee, will in the long run be detrimental to the public interest. For example, it must be desirable, in the general public interest, for publishers of books and record producers to carry a broad range of material. Not all of the works or recordings will be commercially successful. Parallel importers by competing with and reducing the profit margins on the more successful items, reduces the ability of the publishers and recording companies to carry less popular items and to take on board new untested authors and artists. Even where the indigenous publishing and recording industry is small, similar problems can still arise. Licensed importers and distributors may find their ability to

stock items of uncertain profitability affected by the general reduction of profit margins caused by parallel imports. In the case of Singapore, if there is any substance to these arguments, it is more likely to be found in the reduced ability of licensees to stock and hold less profitable items.29 Singapore’s domestic publishing and recording industry is still relatively small. It is unlikely that copies of Singapore “authored” copyright works made for sale in foreign territories will be parallel imported back into Singapore in sufficient quantum to threaten the development of an indigenous publishing and recording industry. More problematic, are the arguments that parallel imports of copyright material, made for sale and use in overseas countries, will affect the liability of local licensees and distributors to hold and stock less popular items at reasonable prices. Whether this is really so, is, in the absence of empirical research, a matter of speculation and doubt. What is reasonably clear, is that the popularity of parallel imports with the public in general, stems from the competitive pricing of the parallel imports. In terms of the economic benefit argument, the...