The empire will strike back: the overlooked dimension to the parallel import debate.

• Jurisdiction: Australia
• Date: 01 April 2014
• Author: Duke, Arlen
• Published date: 01 April 2014
• Author: Duke, Arlen

Parallel importing, the act of importing non-counterfeit products from other countries in which the product is sold more cheaply, has the potential to significantly benefit Australian consumers. First, the availability of the parallel imported product is likely to intensify price competition in the local market. Secondly, it may result in greater product choice as many parallel imported products would not otherwise find their way to the local marketplace. Given these benefits, it is not surprising that there have been many calls to abolish parallel import restriction provisions in Australia's various intellectual property statutes. This article does not revisit the debates on the merits or otherwise of parallel import restrictions. Instead it takes the repeal of the parallel import restrictions as a given and considers strategies manufacturers are likely to adopt in response. A conclusion is reached that many of the manufacturer responses which have the potential to undermine the benefits that the relaxation of parallel import laws would otherwise bring about would not amount to a breach of competition law. Given this finding, the article concludes by considering alternate methods of supporting parallel import activity.

CONTENTS I Introduction II Current Restrictions on Parallel Imports III The Protracted Reform Process IV Responding to Parallel Importation A The Parallel Import Problem B Immediate Reactive Responses C Legal Strategies 1 Tort of Passing Off 2 Statutory Prohibition against Misleading Conduct 3 Tort of Inducing Breach of Contract 4 Intellectual Property Statutes D Proactive Strategies: Tightening Control over the Supply Chain 1 Uniform Pricing Policy 2 Volume Discounts 3 Product Differentiation 4 Product Packaging 5 Technology 6 Refusal to Deal 7 Contractual Devices: Assignment of Intellectual Property Rights 8 Contractual Devices: Clause Restricting the Right to Resupply V Can Competition Laws Be Relied upon to Challenge Anti-Competitive Responses to the Relaxation of Parallel Import Restrictions? A Can Anti-Competitive Responses Be Challenged Using Competition Laws? 1 Section 46: Misuse of Market Power 2 Section 47: Vertical Restraints of Trade B Territorial Nexus Requirements C Extraterritorial Operation of the CCA 1 Section 5 2 Conduct that Occurs in Australia 3 Conduct that Occurs outside Australia D Conclusion VI Other Ways to Support the Greys A Public Enforcement: Challenging Efforts to Tarnish B Channelling the Disgruntled Consumer VII Conclusion I INTRODUCTION

In late July 2013, it was once again recommended that the Commonwealth government remove all restrictions on parallel imports. (1) This time the recommendation was made by the House of Representatives Standing Committee on Infrastructure and Communications ('IT Pricing Committee') that was charged with investigating why Australians pay higher prices for IT products. The recommendation is largely based on benefits brought about by a reduction in trade barriers such as lower prices and greater choice. It will be interesting to see whether the Coalition government, elected in September 2013, accepts this recommendation, given the decision by the former Labor government to ignore the Productivity Commission's less far-reaching recommendation, namely to remove parallel import restrictions that prevent the importation of genuine books. (2)

This article does not seek to predict how the government will respond to the IT Pricing Committee's recommendation, nor does it revisit the debates on the merits or otherwise of parallel import restrictions. Rather, it considers an important issue that, to date, has not received much (if any) attention from policymakers: the likely response of manufacturers to any relaxation of parallel import restrictions. Such responses have the potential to undermine many of the benefits that the relaxation of parallel import laws would otherwise bring. Part II sets out the nature of the parallel import restrictions that currently apply to intellectual goods. Part III then considers the many recent inquiries into the appropriateness of parallel import restrictions, focussing on the recommendations made by such inquiries and the basis of those recommendations. Part IV then identifies the various ways in which parallel imports can harm manufacturers before examining the strategies that manufacturers may adopt to curb 'grey market'(the market in which parallel imports are said to be sold) activity. The extent to which such strategies would breach competition laws is considered in Part V. Finally, as most manufacturer responses will not be caught by competition laws, Part VI considers alternate methods of promoting grey market activity and the competition it brings so as to increase the likelihood that the policy goals that underpin any relaxation of parallel import laws will be achieved.

II CURRENT RESTRICTIONS ON PARALLEL IMPORTS

Before discussing the protracted reform process and ways in which intellectual property owners may respond to any relaxation of parallel import restrictions, it is first necessary to provide a brief account of those restrictions. With respect to goods in which copyright subsists, no parallel import restrictions apply when it comes to genuine copies of sound recordings, computer programs, periodicals and sheet music. There are also no restrictions on the parallel importation of electronic literary works. Books and DVDs, on the other hand, can only be imported for commercial purposes with the consent of the copyright owner.

Although s 13 of the Patents Act 1990 (Cth) prohibits the unauthorised importation of patented goods, in most instances patented goods can in fact be freely imported into Australia. This is because the courts have accepted that contracts involving the sale of patented goods contain an implied licence that gives the purchaser the absolute right to deal with the goods as she thinks fit, including the right to sell the good in any country. (3) Thus, unless the contract in which the patented goods are sold includes a clause that restricts the purchasers right to resupply the goods, the purchaser is free to do so.

The situation is much more complicated when it comes to trade marked goods as there is uncertainty about whether the act of parallel importation amounts to infringement. The parallel importation of trade marked goods will only amount to infringement if, inter alia, the parallel importer or the retailers of parallel imported goods can be said to be using the registered mark as a trade mark. Prior to the introduction of the parallel import defence in 1995, (4) the parallel importation of trade marked goods was often found not to involve use of the trade mark and, therefore, not to amount to infringement. (5) For example, in Atari Inc v Fairstar Electronics Pty Ltd, Smithers J stated that:

once a manufacturer puts a trade mark on his goods and sends them into the course of trade on the billowing ocean of trade, wherever people bona fide deal with those goods under that name and by reference to that trade mark ... they are simply not infringing the trade mark. They are not 'using' the mark in the relevant sense. (6) However, when the parallel import defence was introduced, the focus shifted from whether the parallel importer could be said to be using the trade mark to whether the parallel import defence applied. The defence provides that

a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied ... by, or with the consent of, the registered owner. (7) Thus, attention is now focussed on whether the trade mark owner can be said to have consented to the application of the mark rather than whether they could be said to be using the mark as a trade mark. (8)

III THE PROTRACTED REFORM PROCESS

Australia's parallel import restrictions have been reviewed many times in the last two and a half decades, with most reviews recommending that such restrictions be abolished. In 1988, the Copyright Law Review Committee ('CLRC') reviewed the parallel import restrictions contained in the Copyright Act 1968 (Cth) ('Copyright Act'). (9) The reform agenda began quietly. The CLRC did not recommend the removal of parallel import restrictions, although it did recommend that parallel importation be allowed where the goods in which copyright subsists will not, within a reasonable time, be available in Australia from the copyright owner or its authorised distributors. (10) It also recommended that the Copyright Act be amended so that there will be no copyright infringement if an article is imported and copyright subsists only in a work comprised in a label, packaging or accessory (such as instructions) that comes with the goods. (11) The first of these recommendations saw the introduction of what is known as the '30/90 day rule' some three years later. (12) Under the rule, which is designed to ensure that Australian consumers can access books in a timely fashion, the commercial importation of books will not amount to an infringement if the book is not released through authorised channels within 30 days of it being published elsewhere in the world, or if the authorised channels are unable to meet demand for the book within 90 days.

From this point on, all government commissioned review bodies have recommended the repeal of parallel import restrictions. In 1989, only one year after the CLRC released its report, the Prices Surveillance Authority ('PSA') surveyed book prices in Australia, the United Kingdom and the United States and found that prices in Australia were considerably higher. (13) In its report, the PSA recommended that almost all parallel import restrictions contained in the Copyright Act be abolished. (14) The following year, the PSA undertook a similar inquiry, this time into the prices charged for sound recordings in...