Parallel Imports and the "Legitimate Reasons" Exceptions: Reconciling International Exhaustion and Trademark Protection Under Indian Law

Indian trademark laws permit sale of genuine goods that have been originally marketed abroad with the consent of the owner. Distribution of goods bearing a registered trade mark which has been put on the market in any form by the owner or with his approval shall not be deemed to be infringement.Section 30(3) of the Trade Marks Act, 1999 states that The Indian judiciary has generally interpreted this clause as favouring international exhaustion, which is a choice that the TRIPS Agreement allows each member nation to take. An exception to this rule is provided by sec. 30(4) that allows the owner to challenge further transactions if “legitimate reasons” for such a challenge exist, in particular where the condition of the goods has been changed or impaired after their release on the market. We look at the boundaries of that exception before it is superseded by the exception it alters. The law only mentions impairment as an example and does not cover any inconsistencies in packaging, formulation, warranty provisions, post-sale support or brand image. These are relied upon by brand proprietors to keep up with their standing and customer desires. Importers and consumer advocates say these same factors often help to drive market segmentation and keep prices apart. The Indian judiciary, especially the Delhi High Court, has addressed the matter on a case to case basis but without laying down any definitive standard. The article examines Sections 29 and 30 of the Act; Indian case law on grey-market imports; and two international regimes, by way of doctrinal and comparative analysis. The European Union is the first to adopt a trademark directive with a similar “legitimate reasons” provision. The second is the United States, where courts assess whether the imported goods are substantially different from domestically produced goods. The article argues that section 30(4) should be read restrictively and applied only to cases of identifiable damage to the goods or the function of the mark as an indicator of origin and quality. It suggests a four part test for courts to decide the importance of a discrepancy, the possibility of consumer deception, the adequacy of a lesser remedy such as relabelling or disclosure, and the party that carries the burden of proof. It also considers the role of competition law in controlling the use of trademark rights to restrict parallel trade.