Member Article

The contemporary business world has become fundamentally tied in with the progress of globalisation, and for anyone involved in it, that is no secret. Anybody would be hard pressed to find an industry that can exist and sustain itself in a purely national context, without – at least in some regard – relying on either a piece of legislation or a practice trend that is related to whatever kind of international functioning. A fine illustrative example of such an issue nowadays can be found in the international trade of fast moving consumer goods (and to a lesser extent pharmaceutical products), as well as the ways in which such products find their path to consumers' hands. More precisely, in the ways that products are moved on a cross-border basis, and how such movement corresponds with the respective national intellectual property (IP) protections in place, bringing us to a division between an international exhaustion of IP rights and the national exhaustion of these same rights. It is the presence of the parallel import issue that has sparked a rather controversial debate over which of the two is preferable.

Parallel import - in some circles considered as the premier example of a 'grey' practice – encompasses products that are "genuine" goods (contrary to counterfeit goods), since they have been manufactured by, or for, or under license, from the brand owner. However, they may have been formulated or packaged for a particular jurisdiction, and then are imported into a different jurisdiction from that intended by the brand owner. Deemed as 'grey' for their ambiguity in terms of being either beneficial or detrimental depending on one's legal point of view – be it competition or intellectual property – it goes to show the inherent difficulty in establishing a related universal set of rules.

If we were to look at it from a particular perspective – the one currently employed in Serbia – it should be noted that the relevant regulatory framework was conceived in 2013 when the creed of national exhaustion of rights was initiated. What this doctrine was then meant to entail was that a trademark could entitle its holder to prohibit its use on the goods which were not placed on the Serbian market by the holder of the trademark or any other person directly authorised by the holder. Exclusive distributors were the ones front running this initiative as it was their own efforts that were mainly impeded by the presence of parallel imported products in a variety of contexts, including the "free ride" that parallel importers were getting from the exclusive distributors' advertising activity, which was designed for the sake of boosting their own sales figures. All of this influenced the commercial court in Belgrade to make a decision that would serve as a defining point of legislation in this regard, finally reaching it in April 2015. From this point on, exclusive distributors have had the right to sue those engaged in parallel import activities on the basis of national exhaustion of intellectual property.

On the other hand, the local distributors – feeling wrongly affected by the decision in question – decided to ask the Serbian Commission for the Protection of Competition for an official opinion, claiming that this ruling has in turn put exclusive distributors in an unfairly gained dominant position. The Commission, in presenting its point of view, made it clear that their explanation will be based on what would be the most beneficial situation for the end consumer. Having that in mind, the Commission opined that competition in this case should be split into two kinds a) static competition – the one related to the pricing of products in which parallel imports bring immediate benefits to consumers by making them cheaper; and b) dynamic competition – the one related to how parallel imports hurt the innovation tendencies (i.e. the diversification of their portfolio) on behalf of the trademark holder, in turn causing a long term detrimental effect on the end consumer. Whilst juxtaposing the two effects, the Commission's final opinion – perhaps unsurprisingly so – was that emphasis should be put on balancing them out. Moreover, the Commission emphasised the importance of having every participant in the market – and especially the one with a potentially dominant position – act within the responsibility of not hurting the market's competitiveness.

Finally, the entire situation does not bring us much closer to reaching a universal stance on the matter, apart from perhaps educating us somewhat further. With Serbia's ascension to the EU looming, and considering all of the regulatory updates made en route to it, it will be very interesting to see how this issue will play out in the coming period, as the above mentioned act of balancing out the two factors threatens to turn more difficult to commit.

This article was initially featured in CEE Legal Matters, June 2016 edition.