Parallel importing cosmetics.

Parallel importing is a divisive subject in the cosmetics industry.

On the one hand, Australian cosmetics distributors can benefit from lower cost prices offered by overseas suppliers of genuine cosmetics goods. This in turn may benefit Australian consumers with lower retail prices.

On the other hand, brand owners and authorised distributors may suffer from:

• revenue loss (from sales being diverted to third parties selling parallel imported goods); or
• profit loss (from lowering their retail prices in response to an increasingly competitive market).

1. What is parallel importing and is it legal?

A company engages in parallel importing when it imports goods through distribution channels that are not the brand owner’s official distribution channels in that territory.

Consider the following scenario:

• Company A is a USA cosmetics brand owner .
• Company B is the Australian exclusive distributor of Company A’s cosmetics goods.
• Company C is the UK exclusive distributor of Company A’s cosmetics goods.

What happens if Company D purchases the same cosmetics goods from Company C (UK based) and imports them into Australia for re-sale?

This may decrease Company A’s bargaining power when negotiating with the distributor or other distributors in the future.

This may decrease the value of Company B’s exclusive distribution rights.

This is parallel importing and continues to be a controversial trade mark issue.

2. Old law

Prior to 25 August 2018, genuine cosmetics goods could be imported into Australia if the trade mark applied to those goods was applied with the consent of the registered owner of the trade mark on the Australian trade marks register.

This defence was interpreted narrowly, creating confusion and uncertainty about how and when it could be relied on by an alleged infringer. Strategic corporate structures, trade mark assignments and trade mark licences with territorial limitations could be used by brand owners to prevent parallel importers being able to rely on this defence.

This effectively made parallel importing too risky for many Australian cosmetics distributors.

3. New law

Under the new s122A of Trade Marks Act 1995 (Cth), a person using a registered trade mark (by importing goods with that trade mark applied to them) will not infringe the trade mark if, after making reasonable inquiries, it would be reasonable to conclude the trade mark had been applied to those goods with the ‘relevant person’s’ consent.

‘Relevant person’ means:

• the registered owner of the trade mark;
• the authorised user of the trade mark;
• a person permitted to use the trade mark by the registered owner or an authorised user with power to grant such permission;
• a person with significant influence over the use of the trade mark by the registered owner or authorised user; or
• an associated entity of any of these entities.

4. The future of parallel imports

The days of strong, exclusive distribution networks are not over but a brand owner’s control over where its goods are sold has been weakened.

This is good news for parallel importers, with the evidentiary burden significantly lowered when relying on the parallel importation defence to trade mark infringement.

5. What should cosmetics brand owners do?

• Apply to register their trade marks in Australia and overseas to prevent other traders using the same or similar trade marks for cosmetics goods, similar goods and related services.
• Lodge ‘Notices of Objection’ with Australian Customs for their registered trade marks to prevent importation of counterfeit cosmetics goods into Australia.
• Ensure distribution agreements are tightly worded and provide as much protection as possible for the brand owner.

6. What should Australian cosmetics distributors do?

• Check if the brand owner has registered its trade marks in Australia. If it has not, distributing the cosmetics goods in Australia may infringe a third party’s registered trade mark.
• Ensure they are authorised users of the brand owner’s registered trade mark and have the right to:
  • bring infringement proceedings against alleged infringers; and
  • lodge Notices of Objection with Australian Customs.

Ensure distribution agreements are tightly worded and provide wide protection for the distributor.