'Gray' import in Ukraine: be or not to be?

Today the gray import is widely spreading: a great amount of stores, including online ones, are offering perfumes, cosmetics, mobile and household appliances imported to Ukraine without trademark proprietors permissions. The number of appeals from rights holders and their distributors to online stores, concerning sale of such products, is growing at a quick rate. 'Gray' or parallel import - is the import with purpose of selling original products, which were put into the civil circulation on the territory of another country. For example, the sale of the car produced in UAE on Ukrainian market. In this case, 'gray' car dealers insist that the cars are original, so they can be sold in Ukraine. However, the position of manufacturer differs, and usually is determined by seek to control foreign markets, set prices and vary the products characteristics depending on particular markets. In addition, the manufactures are often supported by official importers, which are interested in monopoly establishment, and sometimes even dictate their conditions. Speaking about the position of consumer, he can choose the imported product with different characteristics consciously, because of the low price, or to buy such 'gray' product without having an idea about its origin. Legal regulation of this issue is controversial. So-called 'gray' dealers refer to exhaustion principles, according to which trademark proprietor has no right to prohibit sale of product, put into civil circulation with his approval. For example, trademark proprietor cannot disallow you to sell your own car. At first sight, the exhaustion principle seems to be simple and easy-to-understand, but some questions appear: - In what country the product must be put into civil circulation for exhaustion? - What is meant under 'putting into civil circulation'? For example, whether distribution of make-up and perfume testers falls under this definition? - How this issue is regulated in the case of selling the same products on different markets under different trademarks? (For example, the same automobile model enters European market under one trademark, and American market – under another one.) With regard to the first question, it should be mentioned that there are several approaches to the exhaustion:
  • national, according to which rights on trademarks have territorial effect. That is why the rights are considered as exhausted for every country separately, and then, parallel import is prohibited;
  • international, when the rights become exhausted after selling products in any country;
  • regional, which is settled in EU. Accordingly to it, the rights are exhausted after selling products on the territory of one of EU members.
  • According to art.16 (6) of the Law of Ukraine 'Concerning protection of rights on trademarks for goods and services', a distinctive right of the certificate owner to prohibit other persons using trademark registered without his approval do not spread on trademark use for product, which was put into the civil circulation by the certificate owner or with his approval upon condition, that certificate owner does not have reasonable grounds to prohibit such use, regarding subsequent sales of products, particularly in the case of alteration or deformation of its condition after putting into civil circulation. For comparison, in accordance with art.1487 of Civil Code of Russian Federation, trademark use by third parties with regard to the products, put into civil circulation on the territory of Russia directly by the owner or with his approval, is not considered as infringement of distinctive rights on a trademark. So we see that in Russia the national principle of exhaustion is in force. That is why rightholders and official distributors receive an opportunity to fight the parallel import. In Ukraine the issue of approaching to exhaustion is debatable. On the one hand, in art.16(6) of the Law of Ukraine other countries are pointed, so we can speak about international approach. However, some experts refer to the territorial effect of rights on a trademark, considering that putting into civil circulation concerns Ukrainian territory, that is why the national principle of exhaustion is functioning. Despite of the controversial interpretation of exhaustion approach in Ukraine, the statement of law, containing in art.16(6), according to which the owner is entitled to prohibit sale of products also after its putting into civil circulation, if there are reasonable grounds for the prohibition, such as abolition or deformation of the condition of a product. For example, car manufacturer can refer to this statement in case of prohibition to sell the cars which were produced for another markets and are not adapted for cold climate conditions. Above-mentioned stipulation concerning deformation can be used approximately for any product. For example, as for mobile phone, - the absence of interface or user instruction in Ukrainian can be used. Applying the exhaustion principle, there is an interesting issue concerning 'putting into civil circulation' concept. As in Ukraine it is not regulated, we should refer to EU practice. 'L'Oreal accused eBay in illegal advertising for the subsequent selling of testers marked with title 'not for sale'. Ebay company, trying to avoid responsibility, refereed to the exhaustion principle, but the court made a decision that testers cannot be considered as put into civil circulation, so the exhaustion principle cannot be applied. Analyzing EU practice, we also can refer to the case on American Home Products v Centrafarm BV. American Home Products Company marked the same product as Serenit in Great Britain and Seresta in Netherlands. Centrafarm BV had been bying the products in GB, where it was being sold at the lower price, and remarked it to Seresta for selling in Netherlands. The court granted a claim of American Home Products, stating that trademark owner can protect his rights if the same product was marked on different markets, under condition that both trademarks belong to the same owner, except of artificial market sharing. On my mind, in Ukraine, rightholder, which has the same products entering Ukrainian markets and markets of other countries under different trademarks, has to register every mark in Ukraine. Thus, he will have distinctive rights for prohibition of their use. Moreover, the information about trademark registered can be entered into the Custom Register of Intellectual Property objects, which will help to control import of such products. Summing up, it should be pointed, that despite of uncertainty of regulation of the issue of exhaustion, the trademark holder in Ukraine can be protected. Firstly, he can refer to the international approach of exhaustion, and secondly, in most cases, the imported product manufactured for other markets, has abolished or deformed characteristics, what, accordingly to current law, gives the right to prohibit the realization of such product. Mariya Ortynska Attorney-at-Law, Trademark and Patent Attorney of Ukraine Read also Trade wars for ‘gray’ import