A&L Goodbody LLP
  February 17, 2005 - Ireland

How to Protect Your Business Against Parallel Imports - Legally!

This article is intended to provide some solutions on how to reduce the amount of parallel imports of your products into Ireland without breaching European law. Parallel trade of products occurs within the European Union (EU) as EU legislation provides for the free movement of goods within the EU. This rule frequently results in products being imported from cheaper countries within the EU (for example Greece) to more expensive countries within the EU (for example Ireland). The volume of parallel traded products in Ireland is likely to increase over the coming years due to the recent enlargement of the EU which now includes many countries which much lower standards of living than Ireland. While parallel imports of products into Ireland from other EU countries cannot be stopped completely, there are some ways in which a business can prevent its local market being flooded with such products without breaching EU law: Firstly, a company or group of companies may adopt a similar pricing strategy across the EU. Parallel trade is generally only engaged in by importers in relation to products where the margin to be gained is considerable. Therefore, if pricing strategies across the EU are assimilated to the largest possible extent, the occurrence of parallel trade is likely to be minimised. However, as a general rule, any discussions relating to price can only be engaged in with wholly owned members of the same group and not, for example, with independent licensees, wholesalers, retailers or other third parties. Secondly, where products bought directly from the Irish manufacturer or the Irish subsidiary or licensee of an EU manufacturer attract volume discounts and/or rebates, the incentive to buy parallel traded products, which will not count towards such discounts, will be reduced. This is especially so if the potential volume discounts on offer negate the margin available to parallel traders to a large or considerable extent. It can also be worthwhile to offer customers promotional incentives, for example free sample products, special offers etc, in order to incentivise them to buy their products directly from the manufacturer or its subsidiary/licensee. Thirdly, by carefully drafting its contracts, a company can also lawfully prevent parallel trade in certain circumstances. For example, where products are sold to wholesalers outside the EU, a clause which prohibits the re-import of such products into the EU may be considered. Equally, where products are sold to agents within the EU for export, the contract could include appropriate drafting to prevent these products being sold in the EU. Fourthly, introducing shorter best before dates for perishable products may reduce the scope of parallel trade to some extent as parallel imported products generally take longer to reach the market. However, any such strategy would have to be considered carefully as it may also damage the reputation of the brand if products reach shelves shortly before expiry of the best before date as a result or constitute a breach of competition law. art of Ireland. This may lead to consumers switching to products with a longer best before date. Fifthly, consideration should be given to the adoption of a quota allocation system. Many pharmaceutical suppliers in Europe have adopted such a system. Essentially, it means that each wholesaler is allocated a certain amount of products, based on historical demand and the requirements of the local market within which the wholesaler is located. This is likely to limit parallel trade to a certain extent as wholesalers tend to supply their own market before exporting products to other countries. The downside of such a system is that it may lead to wholesalers “starving” their local market and exporting most, or all, of their allocated quota of products, particularly where pricing policies differ greatly from country to country. This behaviour could lead to shortages of products in the lower priced countries and may adversely affect the reputation of the brand. The implementation of such a system must be carefully monitored and can only be implemented in certain circumstances. Finally, the owner of a trademark has certain rights on which he can rely when a parallel importer repackages or relabels its products. Most importantly, a parallel trader can only repackage a product when such repackaging is “objectively necessary” for the sale of the product in the importing country. The owner of the trade mark may object to the repackaging if it affects the original condition of the product or if the presentation of the repackaged product damages the reputation of the trade mark. In addition, the parallel importer should send a notice to the trademark owner, informing him of the marketing of the repackaged product. The trademark owner may also request to see a sample of the repackaged product. Before adopting any of the actions suggested above, it is important that specialist competition law advice is sought.


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