Literature Review

Dr. K.R. Chandratre explains in his book ‘Law and Practice Relating to Trade Marks in
India’ the laws, their application as well as the method of registering one’s Trade Mark in
India. Lucose L , in his paper titled ‘Non-Conventional Trade Marks : A Critique’ discusses
how the Courts in India as well as the European and American Courts have dealt with
applications for Non-Conventional Trademarks by major companies. Dev Ganjee, in his
paper ‘Non-Conventional Trade Marks in India’ has explained the importance of identifying
the non-conventional trade marks as well as the inconsistencies in the law.

Furthermore, several cases have been studied by the researcher to further understand the legal
principles that have developed through judicial pronouncements.

The researcher upon an in-depth study of journals, books and cases has elucidated through
this paper the laws and principles related to Parallel Imports in India, with a comparative
analysis with the laws of the civil law countries such as China and Japan.

Research Methodology

The research for this paper is primarily doctrinal research along with empirical data which
has been collected from the legal websites, e-libraries, case judgements that are available
online, international journals and articles. The resources collected and the literature reviewed
gives a much better idea about the topic and scope of research. The sources’ details have been
mentioned at the end of the paper

INTRODUCTION:

Considered as the most puzzling and confounding phenomena in the area of intellectual
property rights is the exhaustion of rights. It is also a topic that comes as a crossing point
between the rights of the holders of intellectual property as well as that particular nation's
unrestricted trade. It also allows the owner of the Intellectual Property (IP) to choose whether
or not to put the work on the market, and in what form or structure. 1 The underlying reason
for the principle of 'exhaustion' and hence the concept of the first sale is that by restricting its
use, resale or delivery, the patentee has already earned benefit from the initial selling and
would not be able to profit again on the same products. During this process, whether it is
imported by the consumer for the additional sale of the goods, such a selling process is called
Parallel Imports.2 The definition of parallel imports simply means that the products in an
exchange are sold without the consent of the IP owner. Accordingly, the concept of
exhaustion restricts the right of delivery, even though it does not require the control of the
holder of the IP after the use of those copies, to the degree that they are distributed after the
first sale.3 It is also very important to remember that, in the lack of such a theory of
exhaustion, if there is any probability, the original IPR holder will immediately have the
power to regulate the selling, transfer and distribution of IPR-representing goods.4

In essence, a parallel importer engages in price arbitration and exploits the disparity in prices
between the exporter and the importer. Therefore, many countries promote such imports to
ensure that their customers receive lower-priced proprietary products. In the relevant portion,
Section 107A(b) emphasises that any importation of a patented product from an individual
properly allowed under the law to manufacture and sell or distribute the product shall not be
regarded as an infringement of patent rights.5 "Nevertheless, it becomes obvious that Section
107A does not simply constitute a" defence; "what this means is that while Section 107A can
be used by a defendant to" defend "himself against an accusation of infringement, it is
obvious from the existence of non-infringing actions defined in the provision, besides the title
of the provision which is" Those Actions Not to be Considered as Infringement.6

The exhaustion of intellectual property rights is discussed in Article 6 of the TRIPS. In

deciding how intellectual property laws influence the flow of goods and services in foreign
trade, the principle of exhaustion plays an incredibly important role. TRIPS provide the
member states with great flexibility to assess the scope and scale of 'exhaustion.' Although
governed by the territorial laws of the country, it remains a very contentious and debatable
concept in various international forums.7

A parallel importer that generally deals with these types of products is mainly involved in
price negotiation and makes use of the price gap between the exporting country and the
importing country. Therefore, to promote and ensure that the costs of patented products are
comparatively lower for their buyers, many nations typically support this type of exchange.
Section 107A(b) of the Patents Act 1970 focuses specifically on any import of a patented
product 'from an individual properly allowed to manufacture and sell or distribute the product
under the statute' and is not treated as an infringement of patent rights.8
"Additionally, Section 107A does not simply constitute a" defence "and becomes apparent;
thus, this specific section specifies that while a defendant is called upon by Section 107A to"
defend "himself against an accusation of infringement, this is evident from the existence of
non-infringing acts, besides the title of the clause, which is" Those Acts not to be regarded as
Infringement,

Article 69 of the TRIPS Agreement deals with IPR exhaustion. On its own, this notion of
exhaustion or parallel imports plays an extremely important role in determining that rules on
intellectual property influence the versatility and movement of products and services in the
international market. TRIPS provide the Member States with great flexibility to assess the
scope and scale of 'exhaustion.' Although the theory of exhaustion is strictly regulated by the
country's territorial rules, in numerous international forums it is still a very argumentative and
contentious term.

Patent Rights and Exhaustion

All types of intellectual property rights are territorial in nature, such as patents, copyrights,
trademarks and industrial designs, which means that they are vested in national laws and
exercised and enforced by them. This is despite the fact that national laws regulating the
allocation of such IP rights have been subject to global harmonisation under the World Trade
Organization's (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS). The
principle of territoriality applies more vigorously to patent law, because under the TRIPS,
notwithstanding the promulgation of certain minimum standards and obligations, "cultural
flexibilities" have been allowed for each Member State to lay down its patentability standards
and to establish certain exceptional cases/limitations to the rights of patentees.10

Furthermore, the traditional jurisprudence of patents foresees circumstances where two

entirely unrelated entities in two separate jurisdictions can hold patents relating to the same
invention. It is also probable, under patent law, that a patent is issued in one jurisdiction for
the same invention and rejected in another, on the basis of the requirements followed in each
jurisdiction. -- of these circumstances is deeply rooted and grounded in patent jurisprudence's
territorial existence. "The theory of" exhaustion "also has an impact on this territorial aspect.

While all the different types of intellectual property rights are of a territorial nature in
general, this means that they are regulated by national laws. The truth, however, is that IP
rights are regulated by national legislation, but are subject to the World Trade Organization's
Trade-Related Aspects of Intellectual Property Rights (TRIPS). Each TRIPS Member State
extended the principle of territoriality to patent law despite declarations of certain restricted
standards and obligations which were permitted to lay down its own rules and regulations and
which were also permitted to lay down its own exceptions to patent rights. It is also discussed
in patent law where, in different jurisdictions, there can be two entirely different unrelated
individuals, and at the same time, it is also possible that the same invention may be approved
in one jurisdiction and denied in the other. In addition, the federal authority also falls under
the principle of exhaustion.11

Depending on the territorial extent to which the concept of exhaustion applies, it is further
classified into 3 categories

1)     National Exhaustion

2)     Regional Exhaustion and

3)     International Exhaustion

National Exhaustion- The term national exhaustion refers to the situation in which a nation's
law states that, on the basis of the first sale of a product which is in fact covered by
intellectual property (IP) rights, an individual who holds the right to that specific IP would
forfeit the right to regulate its movement within that country's territory. At the same time, the
right of the holder of an IP is always secured when it is appropriate to prohibit the third party
from importing its own genuine goods from a foreign country without its consent. This
special mechanism is intended to ensure that the commodity in circulation, with the
permission of the latter, does not interfere with the trade or transportation of products in other
international territories.

For example, an Indian Company shall own its patents over the same invention in India and
Japan. Here, the doctrine of National Exhaustion does not let the Indian Company to control
the movements of the goods once the act of the first sale in India. But as earlier discussed the
Indian Company might still retain its right for the future movement of the goods, if it is
conducted to avoid unconsented import by the third parties into the country of its goods
protected by its Japanese patent. This method is to make sure that there shall be no cross-
transfer of markets since both the Indian and Japanese Companies should be permitted to
enjoy the benefits of its own respective markets. But it is also equally important that absence
of any such legislation which is governing the doctrine of National Exhaustion would be
invalid and would be held illegal. The reason for such legislation is because of the rule of
territoriality because there are certain goods which are brought in and sold outside the
territory for which detailed and express legislation is required in a statute.

Regional Exhaustion- The term Regional Exhaustion defines a is clearly a wider connotation
under the law wherein a particular region recognizes regional exhaustion. It also recognizes a
treat which defines Regional Exhaustion. So, this indicates that when the goods are put in for
sale for the first time, the IP holder loses his right over the product in that particular region,
which includes the States which basically forms members of the regional arrangement. The
Regional Exhaustion to be in effect, there must be a clear and expressed provision to be
mentioned in the Statute because due to which there can be barriers on the rights of IP
holders by establishing various acts committed in the particular region, but outside the
territory of the member country.

International Exhaustion- International Exhaustion takes a very simple , transparent and

indisputable role in which international exhaustion is specifically supported by the law of the
country in which the products are sold irrespective of whether the goods sold are not illegal
and have been lawfully distributed or bought from a seller or any of the agents of the holder
of the IP, the right holder may not prevent their movement. 12 In India, this provision has been
clearly established in Section 30 of the Trademark Act, but in respect of patented goods under
the Patents Act, 1970, this procedure is not followed under Indian law.

TRIPS Compatibility?

Where Article 6 does not apply, Section 107A(b) is likely to be considered to be in breach of
the exclusive right of importation provided for in Article 28. Furthermore, such a clause
effectively dismisses the patentee's exclusive right to import. Consequently, it may be very
difficult to claim that it constitutes a 'limited exception' to a patent right falling beyond the
scope of Article 30 of the TRIPS Agreement, which provides that Member States have a
'limited exception' to that right. Members can make narrow exceptions to the said right
granted by the patent in so far as such exemptions do not excessively interfere with the
ordinary use of the patent and do not unreasonably prejudice the legitimate interests of the
patent proprietor in the light of the moral obligations of third parties.13

Where Article 6 does not apply, Section 107A(b) is probably deemed to violate the exclusive
right of importation laid down in Article 28. Also, such a provision essentially dismisses the
exclusive right of the patentee to import. Consequently, it can be very difficult to argue that it
constitutes a 'special exception' to a patent right which goes beyond the scope of Article 30 of
the TRIPS Agreement, which specifies that a 'reasonable exception' to that right is applicable
to the Member States. In so far as such exemptions do not overly interfere with the ordinary
use of the patent and do not unreasonably prejudice the legitimate interests of the patent
proprietor in the light of the moral obligations of third parties, Members may make limited
exceptions to the said right granted by the patent.

Regardless of the fact that perhaps the 2005 Act is possibly the final move for India to
comply with the TRIPS, the compliance of some of its provisions with the TRIPS may be in
dispute. Thus, while the amended section fills the ambiguity of the previous provision and, in
its true sense, incorporates the concept of international exhaustion, it also has another bearing
on an exclusive right of the patentee to import pursuant to Section 48 of the Patents Act and
Article 28 of the TRIPs Agreement. In other terms, as it currently exists, section 107A(b) is
possibly in violation of India's obligations under the TRIPs Agreement.

INTERPRETING SECTION 107A(B)

Section 48 of the Patent Act, 1970 clearly stated the right of a patentee wherein it gave a
limited right to prohibit a patented invention from being made, sold, used, offered for sale,
sold or imported into India for such purposes by third parties for which there was no consent
from the IP owner14. It should be remembered that, in effect, the right conferred is a negative
right, i.e. an exclusive right to prohibit third parties from doing so.

 The provision was subsequently amended as follows by the Patents (Amendment) Act, 2005:

107A. Certain acts not to be considered as infringement: For the purposes of this Act, -

(a) any act of making, constructing, using, selling or importing a patented invention solely
for uses reasonably related to the development and submission of information required under
any law for the time being in force, in India, or in a country other than India, that regulates
the manufacture, construction, use, sale or import of any product;

(b) importation of patented products by any person from a person who is duly authorized
under the law to produce and sell or distribute the product, shall not be considered as an
infringement of patent rights.

The section does not exclude any and every imported good; it imposes some limitations. If in
the early process, the very first part of the clause categorically states that "any individual" can
import a patented product15. There are, in other words, no virtues on who is permitted to
import the approved product into India. The catch lies in the final part of the clause in which
it holds the key to understand a true meaning and definition of importation of the law16.

The broad interpretation offers an unlimited right to infringe patent rights by merely creating
a production unit in a country in which patent protection is not sought and therefore does not
exist, and the radical understanding restricts the reach of parallel imports to such an extent
that it is insignificant. For the purposes of patent law, the middle course that takes into
account the interests of the patent holder and the interests of the public to carry out activities
relating to the patented product after the first sale will be better suited. 17 The aforementioned
balance will be achieved by interpreting the definition of 'approved under the law' to mean
permission under the patent law of the country from which the product is imported.
According to this understanding, if a person imports a patented product after buying the same
from a person approved under the patent law of another country, he would not be liable for
patent infringement. The patent holder or the patent office or government may be the source
of such authorization.18 If a patent or patent rights do not exist, authorisation cannot be given
and simultaneous exhaustion of imports would not apply.

In the case of Strix Limited v. Maharaja Appliances 19, the very same substantive structure
was found before the Delhi High Court. In that case, Section 107A(b) was invoked by the
defendant on the grounds that its goods were covered by a Chinese patent owned by a party
founded in China. In other words, in that case, according to the defendant, because the
manufacture of the imported goods was 'duly approved under the statute' by way of a Chinese
patent, there was no violation of the rights of the Indian patent proprietor by the importation
of the goods into India. In that case, the High Court was not persuaded by the defendant's
application because the defendant was unable to supply the Chinese supplier's name and
therefore did not inspire trust. It is disappointing that the Court did not take the opportunity to
understand and discuss whether the existence of a Chinese patent if it existed at all, would
still have authorized the importation of a patented product under Section 107A(b). The
opinion is that the creation of a foreign patent on behalf of a third party cannot be considered
as falling within the scope of 'duly approved in compliance with the statute,' because the
issuance of a patent by the Indian State will be prejudiced. In other words, the claim that the
rights of an Indian patentee are inferior to the rights of the holder of a foreign patent is not
justified.

National Exhaustion: The Indian Legal Regime

In view of this legislative support of exhaustion, in the Trademarks Act, both national and
international, could one claim that the lack of a similar provision in the Patents Act
foreseeing "national exhaustion" indicated that Parliament did not wish to provide for such a
doctrine?

It is doubtful that an Indian court would decline to accept a specific "National exhaustion"
exemption in India, because the Patents Act specifically provides for "International
Exhaustion" in section 107A(b), which is a comparatively more liberal defence to
infringement. Particularly when the absence of a clear federal definition of exhaustion tends
to be a control instead of a serious attempt by Legislature to limit the scope of Section 107(A)
(b).

A consumer will still have an implicit right to use it and re-sell a patented product acquired
on the market under the Sale of Goods Act, 1930, even though a court insists on a strictly
technical interpretation of the Patents Act to deny scope for national exhaustion. In the
absence of that implied right, a patentee may sue the purchaser of a patented product for
violation of the exclusive right to "use" or resell the patented product. The Parliament
definitely did not plan such a ludicrous outcome.

Therefore, in lieu of a much more purpose-driven interpretation to allow future sales or

distribution of patented goods within India, a court is likely to embrace a strict literal reading.

 Regional Exhaustion: The Indian Legal Regime

The concept of exhaustion is the case where the owner loses control of the re-sale of that
particular product in the region in which the initial approved sale took place within the region
in question. It should be distinguished that only within the region is the right exhausted and
the owner of IP rights can exercise all rights in respect of even that particular product outside
that region.20 For example, if countries A, B and C form a region that has recognised regional
exhaustion, then if the IP right holder or its licensee sells an IP related product in country A,
the IP right holder cannot object to its resale in countries B or C. However, if the person who
purchased the particular product wants to sell the product outside the region, for example in
country Z, the right holder of the IP may object to the right to do the same by reverting to the
right holder of the IP because the right of the IP holder outside the region remains intact and
has not been exhausted. Regional exhaustion works in the same way as national exhaustion
for all purposes-it is caused by the first sale within the same common market and has
repercussions in the territories of the many countries that make up the trade area in question.

"In the case of John Wiley & Sons Inc. v. Prabhat Chandra Kumar Jain 21 the Delhi High
Court claimed that" as there is no express provision for International Exhaustion in our Indian
Law, it would be fitting to confine the same applicability to regional exhaustion. In this case,
after buying them in the territory specified by the publisher, LPEs intended for sale in India
were sold online by the defendants. Under Section 51 of the Copyright Act, the selling and
offer for sale of such LPEs intended for exclusive use in India by a defendant targeting
foreign investors to whom such goods cannot be sold at Indian prices constitute an act of
violation of the rights of the IP owner.

Though India is a member of a variety of alliances and trade agreements (such as SAARC
and the Commonwealth), none of these coalitions require the integration of "regional
exhaustion" into the domestic patent regimes concerned. Consequently, India does not have
in its legislation any such clause.

 International Exhaustion: The Indian Legal Regime

The Indian Patent Act of 1970 was the first legislation created in the field of patents by the
Indian legislature. It had, however, two major predecessors, implemented by the British
Patent Act of 1856 and the Indian Patent and Designs Act of 1911. There were no express
provisions for exhaustion in both rules. They were, indeed, based on the 1852 Patent Act of
England. However, they did not include any clauses relating to the patentee's importation
rights. This points to the fact that the Patent Act of 1856 and the Indian Patent and Designs
Act of 1911 did not attempt to ban imports from outside India.

After independence, it was considered that, in order to fit national interests and economic
policies, a major amendment was required in the field of patent law (Ayyangar 1959). Thus,
with Justice N. Rajagopala Ayyangar chairing it, a committee was formed. The committee
report explicitly poses several questions about the current patent system and the abuse of the
patent right to import was one of the key concerns expressed. Suggested by the committee 22
that:

'... the presence of a patent precludes the importation from a country of a commodity made by
the same or similar method that may sell the product at a lower price. In this regard, it should
be pointed out that when the same patentee produces the same item in different countries, the
price of the product in each country cannot be the same ...

This indicates that the committee was aware of the concept of differential pricing
mechanisms and the abuse due to import privileges that could occur. The committee also
justified differential pricing, calling it a market process, but refused to envision how to use it
for the good of Indian customers. Also, the report notes that a process patent is what should
be issued under Indian law since a process patent confers only an exclusive right to use the
patented process and not an exclusive right to sell the product created by the process. The
importation and selling of a product made abroad by the patented method do not constitute an
infringement of the patent procedure. The consequence will be that everybody is free to
import and sell any item made abroad in India. This will lead to an increase in competition
between goods, which would lead to price reductions.

Market competition between low-priced imported goods and products manufactured in India
will lead to a price reduction. Such a situation will occur, in general, in cases where the
product is created in countries where there is no patent protection for the invention patented
in India. It is also important to note that the right to import was not included as a right of the
patent holder in the recommendations of the committee. This should have been given to curb
the abuse of the right to import. This shows that the Committee was pointing in the direction
of international exhaustion, even though the study does not explicitly mention it. Since no
right to import was recognised, any person could import from any part of the world a
patented product that had once been sold. The explanation for the same would be that, as
there was no right to import given to the patent holder, there was no need to express mention
of international exhaustion.

We will then first analyse how the idea of exhaustion has been dealt with in India under the
copyright regime. The copyright regime in India is dealt with under the Copyright Act, 1957,
and it is important to investigate whether there is a right to import under the fabric of the Act
to see where parallel import is permitted. The Copyright Act explicitly states that no
copyrighted right is vested on any individual other than the rights clearly granted in
accordance with Section 16 of the Act and Section 14, which grants the rights; there is no
privilege other than the privilege of importation.23 But the question is whether, by reading
other sections of the Act, such a right can be inferred. The Delhi High Court did exactly this
in Penguin Books Limited v India Book Distributors. 24 The Court held here that if any person
without the copyright owner's licence imports any literary work into India for trade, the
copyright is infringed. Therefore, any importation of infringing copies is an infringement,
unless it is for the benefit of the importer. Based on a joint reading of Sections 2(m) at the
time, the Court reached this conclusion. Besides, the Court held that 'the exclusive right to
import into India will apply to the exclusive right to import copies into India to sell or to
reveal the selling of the books in question by way of trade offer or exposure.'  The
'publication' of the works, by releasing copies for public dissemination, is also the exclusive
right of the claimant. Based on that argument, the Court ruled that the defendants were in
violation of the applicant's copyright and issued an injunction in their favour.

The import of infringing copies is dealt with in section 53 of the Copyright Act, 1957.
According to this Section, at the request of the owner of the copyright, the Registrar allowed
the importation of copies made in India of works which, if made in India, would infringe the
copyright, and the nominal note to this Section refers to the importation of 'infringing
copies'.25 In addition, it is worth remembering that without permission from the copyright
owner, no one can sell or import books or films etc. If anyone does this, it would amount to
copyright infringement. It is also valid that India has yet to recognise the same in a fully-
fledged manner with respect to parallel imports under copyright.26

We are also looking into the trademark regime framework in India and a similar picture is
visible. Under the Trade Marks Act,1999, the trademark regime is addressed. The principle of
exhaustion is recognised by Sec. 30(3) of the Trade Marks Act, 1999. The position of Kapil
Wadhwa & Ors v. Samsung Electronics Co. on this can be clearly understood from the
judgement. Ltd, ltd. In the same case, Single Bench had previously ruled that the exhaustion
of trademarks under the Act was national and not international. While deciding the case, the
Division Bench held that the Single Judge erroneously concluded that the word 'lawfully
obtained' in Section 30(3) meant 'acquisition by import consent' and that the Single Judge's
presumption that no additional consumer rights were granted by Section 30(3) contributed to
this erroneous view.

In the Single Judge's view that the scope of the expression 'market' in Section 30(3) is
restricted to territorial markets, the Division Bench established a 'patent fallacy' and thus the
import of goods requires the permission of the registered proprietor. The Division Bench
discerned the statutory intent to accept, based on textual understanding and use of external
aids, the applicability of international exhaustion. It can also be argued that the court has
unambiguously argued that, under the Trade Marks Act 1999, the statutory nature also
strongly favors the international exhaustion of rights.

It must be noted that in the case of Western Digital Technology Inc. vs. Mr. Ashish Kumar &
Anr., the same concept was also followed. In its judgement of 20 October 2016, concerning
parallel imports in which the Defendants carried out parallel imports of the Plaintiff's genuine
products through unauthorised channels. To avoid the importation of infringing products
bearing those trademarks, the Plaintiff held licenses for its trademarks in India, which it had
already registered with the Customs Authorities under the Intellectual Property Rights
(Imported Products) Compliance Regulations, 2007.

In the Patent Act, 1970, the impression that emerges when we look at the legislative structure
of the patent regime in India is no different. As vague as the copyright regime, the regulatory
structure is as vague as there is no clear clause defining international exhaustion or
authorising imports. In the other side, we will see an explicit right to importation as we look
at the rights of the patent holder. Nevertheless, a full reading of the Act gives the impression
that the framework it aims to pursue is that of international exhaustion. This is clear from the
clauses dealing with what under the Act would not constitute infringement.

Some imports are expressly allowed by the law. It states that if anyone allowed by law to
manufacture and sell or distribute the commodity has been imported, then such importation
would not constitute infringement. It should be interpreted that the word 'approved under the
law' does not mean the law in the country where the patent is imported, i.e. India, but it is the
legislation that authorized the creation and sale or distribution of the commodity, i.e. the law
of the land from which it is exported. The word 'produce and sell or distribute' means that a
first approved sale has been produced and that the patent has either itself or its agent
attributable to that commodity. This meets the reason for the award of a patent. We may
therefore confidently assume that an international exhaustion policy is also enforced by this
legislative structure.27

A view of parallel importation in Pharmaceutical sector:

In terms of volume, the Indian pharmaceutical market is estimated to be the third-largest in

the world and one of the largest in terms of value produced. While the legality of parallel
trade was identified in the 1994 Trade-Related Intellectual Property Rights Agreement
(TRIPS Agreement) and reaffirmed in the 2001 Doha Declaration on the TRIPS and Public
Health Agreement (Doha Declaration), parallel trade in patented pharmaceuticals has been
one of the most heatedly discussed issues to date. 28Multinational pharmaceutical companies
argue that they are denied sufficient protection of their patent rights by parallel trade in
patented pharmaceuticals and are prohibited from recovering the costs of pharmaceutical
production, including R&D, regulatory approval and amortisation of the costs of ineffective
drug development. On the other hand, developing (and least developed) nations, suffering
from high disease burdens and a shortage of money to pay for high-priced drugs, are
encouraging the modernization of parallel trade in proprietary pharmaceuticals to meet basic
human needs.29

The system for product patents, implemented in compliance with India's TRIPS
commitments, is loaded with its own merits and demerits. While it offers the required
impetus for the pharmaceutical industry to invent and innovate, its possible influence on the
supply of generic drugs has long been the subject of debate. 30 Furthermore, Article 30 of the
TRIPS Agreement requires the Member States to provide for restricted exceptions to the
patent holder's rights. As an exception to the general product patent system, the
pharmaceutical industry should be considered and compulsory licencing requirements should
be kindly made applicable in circumstances where generic products are needed to deal with
public health issues.31

One of the key goals of the decision was to promote and help countries lacking adequate
pharmaceutical manufacturing ability to allow efficient use of the mandatory licencing
provisions to address and alleviate public health problems. 32  To discuss the effect of the new
product patent regime following the amendment on drug accessibility in India will be
addressed in the light of serious public health concerns. The absence of any strict product
patent regime in Indian patent law has helped pave the way for the pharmaceutical industry's
unprecedented growth.33 This encouraged the availability of cheap drugs in a country where
adequate production capacity was lacking. The supply of generic drugs in the country will be
adversely affected by the emergence of product patents pursuant to the Indian Government's
fulfilment of its TRIPS obligations. The human right to health would be compromised by the
non-availability of inexpensive medicines.

Due to the various intellectual property rights that may be attached to them, the government
regulations that may regulate their acquisition and resale, and the high research and
development costs of pharmaceutical manufacturing that must be offset by the possession of
intellectual property rights, pharmaceutical products are a complicated topic for parallel
importation.34 A deliberate decision to make the sector more internationally competitive by
switching to a sector-focused less on regulation and more on government supervision has
been the key to the spiralling growth of the sector. However, with the amendment allowing
parallel imports, the potential for government interference is now wide-ranging in a
reasonably free market. Furthermore, the financial profits of pharmaceutical companies will
be adversely affected as the impact of the amendment is to allow generic drugs to be
marketed without the patent holder's consent.35 The obvious effect would be felt in the sector
of incremental inventions, that will now enjoy a thin sense of patent rights, with revenues
affected. Thus, as Indian pharmaceutical companies are adversely affected, there is a
significant challenge to the interest of long-term market research in India. This is because
smaller pharmaceutical companies would aim to capture the instantly lucrative arbitration
opportunities presented by simpler parallel imports rather than investing in long-term
research and development of new medicines for which economic benefits are not only legally
secured but also less definite and more remote.36

Comparative Analysis with other countries:

Indian law has developed and heavily relied upon the laws on Britain and other common law
countries. Thus, there has been an ease of conducting business between two common law
countries due to a similar set of laws being present, especially when dealing with
international trade. Thus, the authors have tried to understand how the law on parallel imports
have developed in other civil law countries such as China and Japan, and have provided for a
comparative analysis of the same.

China

Since on an international level the method of dealing with Parallel imports has not been
categorically provided for in the Paris Convention 37 or the Berne Convention38, the onus
currently lies upon different sovereign states in determining the laws relating to such Parallel
imports within their respective territories. China, like most countries of the world follows the
principle of ‘international exhaustions.’39 Thus, according to the Chinese legislation if a
trademark owner sells any product in any part of the world, then he shall exhaust his rights
over that particular product in all parts of the world. Therefore, the reselling of the products
by entities that are not the trademark owners is not an act of trademark infringement.
However, the goods have to be genuine goods marketed by trademark owners in a different
region or nation else they would violate Article 57.1 of the Trademark Act. 40  China supports
Parallel Importation, probably because of the large consumer market that they have which in
turn has significantly provided for a cheaper market for imported goods than other countries.
Therefore, if the law is overturned and China begins to follow the principle of ‘National
Exhaustion’41 giving more rights to trademark owners, then consumers would not be satisfied
with the high price range and may not buy the goods at all since there are several local
alternatives to the same.42 The law on parallel imports in China has been criticised by several
western nations stating that it does not offer the most amount of protection to trademark
owners simply because of allowing Parallel imports with the minimum possible safeguards
and checks in place.43 However, in the case of Michelin Tyres44 when the safety of the
consumers buying the tyres was seen to be compromised through the parallel importation, the
Changsha Municipal Intermediate People’s Court held that “products are trademarked to
ensure that the quality and the reputation of it is protected.” The Court also recorded that if a
product claims to have more features than what the product previously had before the good
was imported, in that case the trademark shall also be stated to have been violated and the
defence of parallel importation cannot be taken.45 Therefore, it can be understood that
Chinese courts are actively trying to identify genuine goods that are “infringing goods”
according to Article 52 of the PRC Trademark Law. 

The Chinese law differs from the Indian legislation in the biggest aspect of having
‘International Exhaustion’ being clearly mentioned as the type of ‘exhaustion’ practiced by
the Courts in identifying whether a good has been parallelly imported or not. However, the
Indian legislature had not mentioned clearly whether it talks about National Exhaustion or
International Exhaustion is relation to its Trademark laws. However, after much judicial
review, it can be concluded that the courts have decided to consider ‘International
Exhaustion’ instead of National Exhaustion when dealing with parallel importation of goods.
Secondly, since the Chinese and Indian markets have certain noticeable similarities, the
importance of having trade liberalization and allowing parallel importation in both the
countries can be identified. Therefore, both the countries have legislations that try to protect
the rights of the consumers over the rights of trademarks owners or parallel importers.

Japan

The law relating to parallel importation in Japan has heavily developed through judicial
pronouncements in different cases. Several case laws as well as legislations have
continuously allowed genuine goods to be legitimately imported as parallel imports.
Although there is no specific mention of the Doctrine of International Exhaustion in the
Japanese legislation, the courts have time and again upheld this doctrine while giving their
rulings.46 Initially the Japanese courts had identified a ‘Three Part Test’ 47 in determining
whether the goods that were imported were indeed genuine or not. The test in identifying
genuine imported goods is as follows:

a. The first test is to determine whether the source of the trademark owners’ goods as
well as that of the goods of parallel import are the same or not.
b. The second test is to determine whether the trademark on the good that is parallel
imported was used legitimately or not.
 c. The third test is to determine whether the parallel imported goods harmed the
reputation of the trademark owner in terms of product quality.

The law that was developed through judicial pronouncements has been further upheld by the
Japanese Supreme Court in the case of Fred Perry 48. The Supreme Court in this case gave a
landmark precedent that if there was a negligible or no substantial difference in quality
between the imported goods and the goods sold by the original trademark holder, then the
defence of parallel importation shall be entertained. This decision not only gave a
certification of validity to the three-part test but also brought into light the ‘reasonable duty of
care’ doctrine on behalf of the person importing such goods. Thus, parallel importers have to
exercise reasonable care in ensuring that their goods are in compliance with the license
agreement. The Supreme Court further held in this matter that for customs clearance the
parallel importers have to show that all the conditions laid down in the license agreement
have been judiciously complied with.

Thus, the Japanese law can be said to try to strike a balance between the rights of the
trademark owners as well as the liberalization of business practices by allowing parallel
importation of goods. When the Japanese law is compared with the Indian scenario, there can
be a large difference in how the judiciary in both the countries have dealt with these matters.
While the Japanese courts have time and again upheld the doctrines formulated through case
laws, the Indian courts continuously have been disputing over their own judgments regarding
whether the law allows ‘National Exhaustion’ or ‘International Exhaustion’. Furthermore,
there is no specific mention of the Doctrine of Reasonable Care in the Indian legislation
regarding parallel imports while it has been clearly identified by the Japanese law.

CONCLUSION:

There is no explicit clause under Indian law recognising the right to import. This will
potentially allow the importation of works in parallel. "Parallel importation" means the
transfer by independent buyers of "legitimate" goods available at a cheaper rate in one
country for sale in another country. This might serve as an important check on the
development of a market monopoly. It is, therefore, an important factor for a developing
country such as India to be taken into account. In the absence of a foreign duty against
parallel importation, nothing stopped the court from taking the view that, unless there is an
explicit clause conferring copyright on the owner of imports or banning parallel importation,
it should not be treated as prohibited in India. It is important to note that India has adopted
the principle of international exhaustion rather than the principle of national exhaustion.

We can thus see that the international exhaustion of IP rights is open to all major types of the
Indian IP regime. A welcome change is the awareness of foreign fatigue. It gives uniformity
to the country's intellectual property system. The effect of the post TRIPS impacts the couple
with the creation of the World Trade Organization (WTO) can be this uniformity and
conformity. This has provided a worldwide perception that there must be a free flow of
commodities and that there must be competition to ensure that there is a greater public good.
Indian legislation also aims to accomplish the same by offering maximum competition by
ensuring that the maximum number of goods enters the Indian market and, therefore, that the
price of those goods would be minimal and that consumers would therefore be in a much
better position to make decisions and send revenue on the products.

In a country like India where the largest number of the population falls below the lower-
middle-class group and below the poverty line, we need to make available IP-related items
such as books and medicines at the cheapest possible cost. It is not possible for the
government to subsidise all of them or to freely supply them to those who are required. The
next best choice is to ensure that the competitive market is healthy so that these goods are
available at the lowest price possible. It is the IP machinery's intrinsic responsibility to ensure
that this competition in IP-related goods subsists. This course is demonstrated by how our
country's IP laws are organised. It is now up to the judiciary and the other regulatory bodies
of the economy, including the government, to ensure that they remain the same and thereby
guarantee that our population's demands and needs are met.
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