Grey Market Investigations – Indian Law and Issues Involved

A Grey market is also spelled as ‘The Gray Market’. Grey market is also known as Parallel Market. The reason behind calling a Grey Market a Parallel market is because the products or goods have been manufactured with the consent of the brand owner but are sold outside through distribution channels that are not authorized by the original manufacturer or trade mark proprietor. Grey market goods are products traded outside the authorized manufacturer’s channel before they are issued in an initial public offering (IPO) or bond issue.

Mainly, there are three types of grey markets.

Firstly, A ‘Parallel Importation’ in which a product is priced lower in the home market than in the foreign market, and if the cost of arbitrage is less than the price difference, that becomes an advantage for a gray marketer and parallel importing can be done from the country of production to the export market.

Secondly, ‘Reimportation’ this can be defined as if a product in the foreign market is cheaper than in the home market, and if the cost of arbitrage is less than the price difference, then for gray marketer reimportation is profitable.

Thirdly, ‘Lateral Importation’ in this form, if the price of a product differs between two countries and the product, is not produced in either one, the product from one country is sold to the other through unauthorized channels. Example 35mm cameras of any Japanese manufacturer imported from Hong Kong to Europe and Kodak film made in the United States, from Taiwan to Germany.

There are many grey market investigation companies in India such as India mart, Greves group, Ascon detectives and Authentic Investigation and Detective Private Limited situated in Delhi, India.

Role of the Investigators

Investigators deliver an extensive range of services and advice on brand protection and tell the companies that vital IP matters which can decrease the level of grey market of your product. Investigators can also obtain concrete evidence, to identify sellers/ resellers, and to undertake the critical issues.

They also locate witnesses and set up undercover operations wherever required to get into the nerves of the supply and manufacturing chain.

Indian Law Involved

In India, parallel importation is complicatedly linked to the principle of exhaustion of rights under the Trademarks act, 1999. The principle of exhaustion of rights is included under Article 6 of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPs), which clearly states that “nothing in this agreement shall be used to address the issue of exhaustion of intellectual property rights”. Hence each state is entitled either to prohibit or to allow parallel imports within its own legal framework.

Basically two major issues are involved in the context of parallel importation and trademarks in India:

  1. Whether parallel importation constitutes infringement under Section 29 of the Trademarks Act.
  2. Whether India recognizes the principle of international exhaustion of rights under Section 30 of the Trademarks Act.

Answer to both the above questions will be given in a combined form below:

Section 30 of the Trademark Act, deals with the limits on the effect of a registered trademark. Subclause 3 prevents the trademark owner from prohibiting the sale of goods in any geographical area on grounds of trademark right. Further Subsection 4 states that subsection 3 shall not apply when the condition of goods is changed or impaired after they have been put on the market.

The new provisions give right to the proprietor of a registered trademark to oppose further dealings in the goods if legitimate or legal laws/reasons exist. The new subclauses 3 & 4 recognize the principle of ‘Exhaustion of rights’ of the trademark owner.

The point to be noted that Sec. 30 sub-cl. (3) & (4) of the Indian Trademarks Act, 1999 deals with the exhaustion of rights after first sale of goods. 

There is a famous case – Kapil Wadhwa v. Samsung Electronics:

The issue, in this case, is whether the Indian Trade Marks Act, 1999, embodies the International or National Exhaustion principal when the Registered Proprietor of Trade Mark places the goods in the market under the Registered Trade Mark.

Here, in this case, the defendant dealer of Samsung printers not sold the goods as per the norms including affixing an MRP, no manufacturer guarantee and the most interesting, “not earmarked to be sold in the Indian market”. Further grievance was that the defendant was operating a website whereby the imported Samsung printers were offered at a price much lower than that of the plaintiffs. The learned single judge passed the order but the defendant is not satisfied as applied for an appeal to higher court.

 The Higher Court hereby, after listening to all the facts of the case and taking into consideration all the evidences directed the defendant to follow International Exhaustion of rights.

  Conclusion

Grey market is a market where goods are sold through distribution channels without the authorization of by the original manufacturer. To overcome the problem of grey market a company or person should appoint investigators or should take proper legal measures to overcome their loss and solve the problem of grey marketing.

(The content of this article is intended to provide a general guide to the subject matter).

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