Trade Marks, Brexit and Parallel Importation China 2017 Jasem Tarawneh@manchester.ac.uk

Introduction to Trade Marks What is a Trade Mark ‘any sign capable of being represented graphically which is capable of distinguishing goods and services of one undertaking from those of another undertaking’ . Section 1(1) of the TMA 1994 Why Trade Marks? The evolution of trade marks over time from signals that denote the source and quality of goods and services to products in their own right. As a result of this change, modern business and marketing practices are increasingly driving a change in the role of trade marks from consumer protection tools to investment protection tools. This significant transformation has created a deep tension at the heart of trade mark law and has hindered attempts to formulate a coherent body of law. However, establishing an efficient and coherent trade marks system which avoids problems of over and under protection is essential for Two Reasons:

1- Cost to society In order to have an efficient intellectual property system, the cost of protecting a certain right should not outweigh the benefits gained from such protection. Trade marks cost to society is similar to other forms of intellectual property in that they impose exclusionary rights that narrow the public domain. Still, a major difference on the cost side is that a trade mark is potentially perpetual in duration, at least for as long as it continues to be used as a trade mark. Moreover, any form of overprotection is virtually all costs except to trade mark owners

2- Cost to European Harmonisation Prior to the European harmonisation of Trade Mark Law, national attitudes towards trade mark protection were divided. There were basically two sides to this divide: ‘protectionists’ who argue for generous and extensive protection for trade marks and ‘free traders’ who are in favour of limited and controlled protection. Tensions between the cautious and the liberal are not new in the field of trade marks and they represent, with some simplifications, the varying national attitudes towards trade marks in Europe. After the implementation of the Trade Marks Directive , English courts favoured the information argument as a justification for trade mark protection ( the essential Function Argument as explained by the Hag II case and every subsequent case by the CJEU ). The rest of Europe on the other hand, favoured the Intangible Output Argument ( the Modern Functions Argument as explained by L’Oreal and confirmed by Interflora).

In effect, trade marks harmonisation fuelled a debate, which consequently developed into a conflict that hindered attempts to formulate a coherent body of law by the ECJ. This heated debate has centred on the functions and level of trade mark protection, fed by interpretations of the confusion and association concepts, which form the basis for the scope of trade marks protection. The conflict between the ‘protectionists’ and ‘free traders’ is best demonstrated in a number of areas , one of these is parallel importation Protection against parallel importation. In this context, protectionists argue that the commercial identity associated with the trade mark and its integrity will be harmed if such practices are allowed, whereas free traders favour parallel importation because of its effect in undermining price discrimination policies and promoting competition; and they do not see it as harming the trade mark’s ability to indicate the trade origin of products.

What is Parallel Importation? Define and differentiate from counterfeit products Making a profit is the main reason behind parallel imputation, however, there are a number of economic arguments for and against parallel importation Against: The ability to determine different pricing systems which guarantee quality, availability, after sale support and discourage consumer deception For: Undermines price discrimination, increases competition and enhances consumer welfare. But: This is an empirical question that should not be decided by opinion-based analysis only

The Link between Parallel Importation and Trade Marks The territorial nature of trade marks and price discrimination as a barrier on trade The conflict between the territorial nature of trade marks and the exclusive right of owners on one side and a Common European Market and the Free Movement Doctrine on the other side (Article 34-36 of the TFEU). The solution to the conflict by introducing the Existence Exercise doctrine and specific subject matter (the core rights of trade marks Owners). Theses core right are: 1- the right of first marketing 2- the right to prevent any act that might harm the ability of the trade marks to perform its function.

The Exhaustion of Rights Doctrine and the Legality of Parallel Importation The community exhaustion principle and the international exhaustion principle (internal and external parallel importation) Two Rule according to the CJEU 1- External Parallel Imports are not allowed “Fortress Europe”. 2-Internal parallel imports are allowed as explained by Article 7 of the Trade Marks Directive BUT trade marks owners could stop parallel imports if they have legitimate reasons (the legitimate reasons exception under Article 7 (2) of the TMD) . The main problem with the exception was the vagueness of its scope as illustrated by the re-packaging and relabeling cases, where trade mark owners used the legitimate reasons exception under to stop Parallel Importation. This was supposed to be solved by BMS Conditions

Brexit & the future of Parallel Importation in the UK The Law regulating parallel importation and exhaustion of rights will possibly change after the UK leaves the EEA. The question then is how the UK will shape this part of trade mark law. It is unlikely that the UK will continue to be part of the community exhaustion regime given that it will be outside the EEA and common market.

Brexit & the future of Parallel Importation in the UK The UK has 2 options: 1- National exhaustion regime- which would give trade mark proprietors the power to prevent the resale within the UK of any trademarked products which were not first marketed in the UK. This will greatly increase the potential for price discrimination, which will be popular with trade mark owners but will have a negative effect on British consumers’ welfare. 2- International exhaustion regime- which would allow “external” parallel importation with strict limitations in order to protect the legitimate interest of trade mark owners and safeguard consumer welfare. Determining such limitations is of great importance not only to consumers’ economic welfare but also to their health.

Brexit & the future of Parallel Importation in the UK These Limitations should be are based on two sources: 1- First, an amended version of the BMS conditions to reflect the true primacy of the essential function of trade marks in the context of parallel importation 2- The “material quality differences” rule (MQD), According to this rule, the imported goods must be “qualitatively identical” to the goods produced in the US. Otherwise, the parallel importer will be infringing the trade mark and harming the “legitimate interest” of the trade mark owner. The rationale of the MQD is based on the ‘likelihood of confusion’ concept and argues that physically different goods, or goods that are not “qualitatively identical”, could deceive consumers as to their nature and trade origin even if they are not counterfeit. As result the trade mark owner should have the power to stop the imports of such goods

Conclusion Thank You Questions?