PARALLEL IMPORTS REMAIN A GREY AREA FOR IP RIGHTS IN EAST AFRICA
Kenya, Tanzania and Uganda each have different legal approaches to the treatment of parallel imports, making generalisations dangerous for trademark owners and importers alike.
Foreign investors are frequently cautioned against seeing Africa as a singular, homogeneous entity, but rather are encouraged to view the continent as a diverse network of economies, legal systems and ways of doing business. Nowhere is this diversity more evident than in the way that these three neighbouring East African countries deal with the issue of parallel imports. Kenya, Tanzania and Uganda each have different legal approaches and nuances in regard to parallel imports, which make generalisations dangerous for trademark owners and importers alike.
Parallel imports relate to all aspects of intellectual property and are not limited to trademarks and patents. Commonly referred to as ‘grey goods’, parallel imports are often genuine products that have been brought into a market by a rights holder (which may be the trademark owner or licensee) in one territory and then subsequently sold to a third party in a different territory without the consent of the original rights holder. These goods are authentic and do not constitute counterfeit products, as they have been manufactured by or under the licence of the original owner. The issue of contention for brand owners and authorised distributors or licensees is that they are forced to compete with their own products – often at a disadvantage, since parallel imports are almost always obtained from a market that is cheaper than the destination market.
Once imported, the goods are often sold alongside the brand owner’s products, usually at a lower price with few (if any) distinguishing features. There is no system in place within the East African Community to provide for the regional exhaustion of rights. Of the three East African countries discussed in this article, only Kenya expressly deals with parallel imports in its national legislation. In Uganda, the issue remains unaddressed, while Tanzania has the added complexity of two IP rights systems: one for mainland Tanzania and one for Zanzibar.
The legal status of parallel imports also varies across the three countries. The current legislative framework in Kenya favours parallel imports, particularly in respect of patent owners. Although the legislation is not as clearly defined with respect to trademarks, case law suggests that the courts will recognise the exhaustion of trademark rights and have been reluctant to prohibit parallel imports of genuine goods.
In Uganda, a substantial body of case law supports the view that parallel imports constitute trademark infringement; provided that the relevant mark is registered in Uganda and that the trademark owner or licensee has established a likelihood of confusion.
In mainland Tanzania and Zanzibar, most IP litigation focuses on the import and distribution of counterfeit goods and so far there is no case law on the legality of parallel imports specifically. However, given that goods are registered for the exclusive use of the trademark owner and any authorised licensees, there is a growing body of case law which suggests that parallel imports would be largely prohibited.
In the interests of pursuing a meaningful discussion about the similarities and differences in the legal status of parallel imports in Kenya, Tanzania and Uganda, we must first examine the legal position in each country more closely.
Parallel imports get the green light in Kenya
Kenya’s legal stance on parallel imports has undergone significant changes in the past 30 years.
Initially, under the Industrial Property Act 1989, parallel imports were prohibited in Kenya following recommendations by the National Council for Science and Technology’s Legal and Patents Committee.
This prompted pharmaceutical lobbyists to voice concerns and the prohibition was received poorly among the Kenyan population. There was intense civil society lobbying for better healthcare, and parallel imports – with their price advantage – were considered part of the solution. Accordingly, with a view to increasing Kenyan citizens’ access to medicines, the legality and recognition of parallel imports were introduced through the Industrial Property Act 2001.
The Industrial Property Act is clear and unambiguous with regard to the parallel import of patented products. The act provides that: “The rights under the patent [which confer exclusivity to a patentee] shall not extend to acts in respect of articles which have been put on the market in Kenya or in any other country or imported into Kenya by the owner of the patent or with his express consent.” Therefore, if a rights holder has marketed its products in, for example, Rwanda, there is little to stop an importer from buying those products in Rwanda and freely reselling them at any price in Kenya, provided that it has paid the relevant customs duties and any other tax obligations that may arise.
Possible recourse through trademark and consumer protection laws
While there is no recourse in the Industrial Property Act, brand owners may seek relief through the Trademarks Act, which in contrast contains no such express provisions. Instead, it simply provides that the rights of a trademark owner are not infringed in circumstances where the owner has, at any time, expressly or implicitly consented to use of the mark on the relevant goods and the mark has not subsequently been removed from those goods. Unless the trademark owner or an authorised licensee can persuasively argue that the parallel importer has infringed its mark under the Trademarks Act, current case law has established a precedent that favours parallel importers.
It is widely recognised that the party likely to be affected by the actions of a parallel importer will be the authorised distributor for the market into which the goods are imported and resold. The reseller will often be able to sell the imported goods cheaper and at a more profitable margin than the authorised distributor. Where the subsequent actions of a parallel importer threaten to damage the reputation of the brand, the trademark owner may assert its rights by relying on the aesthetic appeal and reputation of the brand, arguing that the parallel importer’s actions constitute trademark infringement.
Parallel importers acting within the confines of the law should therefore ensure that no alterations or other adaptations are made to the product or its packaging, as any changes could give rise to grounds for infringement under the Trademarks Act. Further, importers should ensure that no suggestion is made of any association with or any approval of the trademark owner which it does not have in the first instance. These protections are set out under the Consumer Protection Act, which states that it is an “unfair practice for a person to make a false, misleading or deceptive representation”. The act therefore provides trademark owners and licensees another means of preventing parallel imports.
Where there is cogent evidence of damage to a brand’s reputation, a strategy pointing out such damage is particularly effective in dealing with parallel imports in the electronics sector, which often relies on brand and aesthetic appeal.
However, preventing parallel imports in the pharmaceutical sector may prove more difficult. After all, access to medicine was a key driver in allowing parallel imports under the Industrial Property Act, and parallel imports in the sector are not only allowed, but also encouraged. It is worth noting that a draft framework for the regulation of parallel imports of medicinal substances was published by the Pharmacy and Poisons Board in 2015. The framework calls for the better regulation of parallel imports and parallel importers, as well as calling on trademark owners to be more proactive and vigilant in reporting unsafe and suspicious parallel-imported medicines. Ultimately, the well-being of the patient should be at the forefront of any proposed changes to the current legal framework, both from an economic perspective and for the benefit of the patient.
Carefully drafting distribution agreements
Another way to police parallel imports across product types in Kenya is through approved distribution channels, which are controlled by contractual obligations. While active monitoring obligations may be imposed on the parties to an agreement, it is almost impossible from an operational perspective to prevent all bona fide purchasers of goods from reselling those authentic goods in another jurisdiction, unless subsequent reseller agreements are entered into – which, in the course of most purchasing transactions, will not be commercially and practically viable.
However, brand owners considering this avenue should bear in mind that the Competition Authority of Kenya has generally favoured parallel imports and in early 2018 issued a statement affirming this. Brand owners should be familiar with competition and consumer protection laws, and should seek proper legal advice to ensure that their distribution agreements are drafted in a manner that would appease their distributors, as well as being legally compliant.
Of potential relevance to practitioners in the United Kingdom (and, in certain circumstances, the Commonwealth) is the application of jurisprudential developments in England and Wales. Such developments remain key to the Kenyan legislative regime, as English case law is often invoked in Kenyan courts and brand owners, licensees and parallel importers may rely on the vast library of English case law to assert and support their respective claims. UK case law and legislation provide a substantive body of jurisprudence that seeks to draw a balance with the general EU rules concerning free movement of goods.
Tanzania: a tale of two systems
For the most part, parallel imports are prohibited in both mainland Tanzania and Zanzibar; however, rights holders should take care to avoid conflating the two, since each has its own IP rights system, with its own IP legislation.
On the mainland, the primary IP legislation is:
- the Trade and Service Marks Act 1986;
- the Patents Registration Act 1987;
- the Copyright and Neighbouring Relations Act 1999; and
- the Plant Breeder’s Rights Act 2012.
All four laws grant the right of exclusivity to the rights holder. Further, they all recognise imports as among the protected aspects of the right to exclusivity.
Thus, although parallel imports are not expressly mentioned, they are arguably prohibited. For example, Section 31 of the Trade and Service Marks Act states that: “The registration of a trade or service mark shall, if valid, give or be deemed to have given to the registered proprietor the exclusive right to the use of a trade or service mark in relation to any goods, including sale, importation and offer for sale or importation.”
This could be interpreted to mean that the import of goods bearing a particular trademark into mainland Tanzania constitutes use of that mark – which is the exclusive right of the owner. What is more, the prohibition is on the import per se, regardless of whether the goods are genuine. This means that the right to import genuine goods into the market belongs exclusively to the rights holder.
Further, Section 32 of the Trade and Service Marks Act provides detailed examples of when exclusivity may be infringed. Imports are not expressly mentioned here and, if read in isolation, the omission could mean that an import would not constitute infringement. However, when the two sections are read together, the interpretation that parallel imports are prohibited is eminently defendable.
In order to benefit from the exclusivity provided for in the Trade and Service Marks Act, the mark must be registered in mainland Tanzania. Under the act, no party may institute infringement proceedings in respect of an unregistered mark, and the exclusive right to the use of a mark is acquired through registration only. The courts in mainland Tanzania have consistently affirmed this position.
The position of patented inventions
Parallel imports relating to patented inventions are also omitted from the legislation. However, they appear to be prohibited under Section 36 of the Patents Registration Act, which states that a patent owner will have the right to preclude any party from exploiting the patented invention by importing, offering for sale, selling or using the product.
That said there are certain exceptions to these rights. For example, under Section 38 of the Patent Registration Act, rights in a patent do not extend to actions conducted for scientific research purposes or when the goods have been put on the market in Tanzania by the rights holder or with the rights holder’s express consent.
Further, the rights are limited by the provisions on so-called ‘compulsory licences’ for reasons of public interest and by provisions on government exploitation of patented inventions. For example, the minister responsible for matters relating to patents may declare that a patented product is vital for defence, the economy or public health.
Upon such declaration, any interested party may apply for a compulsory licence in respect of the product. However, the applicant must satisfy the court that it has requested a contractual licence from the patent owner, but that it has been unable to obtain a licence on reasonable terms or within a reasonable period. It should be noted that the granting of a compulsory licence is subject to remuneration to the patent owner, as ordered by the court.
In Zanzibar, the primary IP legislation is:
- the Zanzibar Industrial Property Act 2008;
- the Copyright Act 2003; and
- the Plant Breeder’s Rights Act 2014.
Parallel imports are not expressly mentioned in the Zanzibar Industrial Property Act. However, a close reading suggests a prohibition on the parallel import of products bearing a registered trademark, in much the same way as the Trade and Service Marks Act in mainland Tanzania does. Indeed, the Zanzibar Industrial Property Act goes a step further with the requirement relating to the consent of the registered trademark owner. The act states that goods can only be validly and legally supplied in any market with the trademark owner’s consent – otherwise, infringement will be deemed to have occurred under Section 74.
In the case of patented inventions, the act provides exceptions similar to those of mainland Tanzania, including the provision for a compulsory licence upon application to the minister responsible for patent matters. If a compulsory licence is granted, remuneration is payable to the patent owner, but this must not exceed 4% of the net sales in the domestic market.
Zanzibar law also recognises the 2003 World Trade Organisation General Council decision allowing least developed member countries a special type of compulsory licence for the manufacture of patented medicines.
In summary, although parallel imports are not expressly mentioned in Tanzanian legislation, the law has sufficient provisions to prohibit these imports. Further, since the enforcement of IP rights remains relatively undeveloped in both mainland Tanzania and Zanzibar, developments in case law and judicial interpretations in other countries are likely to influence enforcement and legal interpretations in both jurisdictions.
Parallel imports are outlawed in Uganda by implication
Although the Uganda Trademarks Act 2010 does not expressly deal with the issue of parallel imports, Section 36(1) of the act states that a registered trademark owner has the right to exclusive use of the registered mark; therefore, it implicitly outlaws parallel imports. A growing body of case law has indirectly grappled with this issue regarding trademark infringement and passing off. In particular, the courts have found that parallel imports that display trademarks identical to those of the rights holder constitute infringement.
Some importers have argued that they bought branded goods on the open international market. In one such case in 2016 – Purplemoon (U) Ltd v Numaa Industries Ltd – the defendant claimed that it was authorised to distribute the goods (blankets bearing the plaintiff’s trademark), which it had imported from a company in China. The court found that the claim failed to hold up against the principle of territoriality under the Paris Convention and that the defendant had failed to prove that it was licensed to distribute the goods in Uganda.
In 2015 in Kampala Stocks Supermarket Co Ltd v Seven Days International Ltd, the defendant claimed that it was a bona fide purchaser of the goods bearing the manufacturer’s mark on the open market in China. Notwithstanding the defendant’s lawful purchase, the court upheld the rights of the trademark owner and granted an interim injunction restraining the defendant from selling or dealing in goods bearing the plaintiff’s registered trademark.
Exception to the rule
There has been one exception to the general rule that parallel imports can be challenged if the trademark on the goods is that of the registered trademark owners. The circumstances in this instance – Ghuangzhou Tiger Head Battery Group v In Cargo Freighters and Agents Ltd – were particularly distinct. The plaintiff argued that the goods concerned (batteries) had been imported unlawfully and without consent. However, the court found that the defendant had imported the goods after being licensed to do so by Uganda’s minister for trade. As a result, the defendant could not be said to have imported the batteries wrongfully. Following the ruling in this exceptional case, it appears that in order for an importer to be found liable for infringement by way of importing goods bearing registered trademarks, it must be proved that the defendant was aware of the plaintiff being the exclusive user in Uganda. In this instance, the court went beyond the test of likelihood of confusion.
Interestingly, the court here did not attempt to reconcile the right to exclusive use with the power of a minister to grant an import licence for registered goods. Indeed, the judge opined that the Ugandan attorney-general should have been sued if the minister had erred.
For the most part, though, Ugandan case law supports the view that parallel imports constitute trademark infringement. Rights holders attempting to combat such imports should register their trademarks in Uganda, as this will provide them with the necessary standing to institute infringement actions against parallel importers.
A unique approach
When it comes to the legal status of parallel imports in Kenya, Tanzania and Uganda, a one-size-fits-all approach is simply not possible, given the variations in the law from country to country.
Some of these are marked differences – for example, Kenya’s relatively liberal approach in comparison with Uganda’s and Tanzania’s – while others are subtler, for example, the nuances between mainland Tanzania and Zanzibar. Goods displaying registered trademarks may also be treated differently from patented products.
At the end of the day, the best results are likely to come from considering the position in each country individually, and obtaining sound advice on dealing with parallel imports – whether from the perspective of the rights holder or the importer.