Online Sales and the Case of “Parallel Imports” in the EU
12 January 2018
Hong Kong businesses can sell their products online and thereby have a worldwide reach. However, if branded products have not been authorised for sale in the EU or the European Economic Area (EEA – i.e., the EU plus Iceland, Norway and Liechtenstein), then intellectual property rights holders can oppose their goods being sold to EU/EEA customers. Such claims against online sales are usually brought under trademark law. However, depending on the relevant product, other rights such as copyright or patent rights may be relevant as well.
Intra-EU/EEA parallel trade and parallel trade from outside the EU/EEA: The question of parallel trade into the EU or EEA hinges on the concept of exhaustion. The EU has adopted a principle of “regional” or “community-wide” exhaustion for the EEA area. For trademark law, the principle of community-wide exhaustion is enshrined in Article 15 of Directive 2015/2436 relating to trademarks (for national trademarks) and Article 15 of Regulation 2017/1001 on the European Union trademark (for EU trademarks). Community-wide exhaustion means that products which have been put on the market in the EU or EEA by the rights holder (or with his consent) can, in principle, be sold on, in other countries of the EEA. Thus, distributors in one Member State may freely import goods from another Member State where the goods have been put on the internal market by the rights holder, or with his consent. In this situation the rights are exhausted and the rights holder cannot prevent the parallel imports.
Restrictions on sales (including online sales) from one Member State to other Member States are only permitted under strict conditions to ensure compliance with EU competition law. These restrictions on sales between Member States (including online sales) are usually regarded as a restriction by object. This is discussed in the European Commission’s “de minimis notice” and the European commission guidelines on vertical restraints. However, restrictions may be justified in the context of selective distribution or other contracts from the supplier. In such situations, the restriction usually only applies to active sales (i.e., to the promotion of the products in the other territory) and not for passive sales (i.e., if customers visit an online store on their own initiative). The judgment of the Court of Justice of the EU of 6 December 2017 in the Coty case also permits right holders to impose contractual restrictions on sales through third party online platforms (case C-230/16). In addition, the European Commission recently launched an investigation into the online distribution practices of e.g., Sanrio and Universal Studios, to investigate whether these companies may have breached EU competition rules by restricting their licensees' ability to sell licensed merchandise cross-border and online.
By contrast, if the right holder did not consent to the marketing in the EU/EEA, the right holder can oppose the sale in the EU/EEA of such products.
Selling in the EEA: For an online market place, whether a sale takes place in the EU or EEA will be determined by national courts. For instance, for trademark law, the mere fact that a website is accessible from the EU is not a sufficient basis for concluding that the offers for sale displayed are targeted at customers in the EU. However, the national courts can find that trademarks are infringed where, even before the goods arrive in the territory, goods coming from non-EEA countries are the subject of commercial acts directed at customers in the territory such as a sale, offer for sale or advertising. In this regard, the courts can take account of the use by the seller of national domain name extensions (such as .de, .fr, .uk), use of local languages in the offers or advertisements, references to local after-sales services on the territory concerned, promotions on national media, and so on.
In addition to language issues, there are other factors determining whether a sale is taking place in the EU. With the details of a customer’s online registration, or use of payment and delivery options, online shops will know when they’re selling into the EU, and operators of non-EU online marketplaces can easily block such sales. Hence, if any of these elements would indicate that the customer is in the EU, it will be difficult for the seller to deny that he was aware of selling into the EU. As a result, if goods are sold to EU residents, and this was not authorised by the rights holder nor was there an exhaustion of rights, this is likely to be in breach of trademark or other IPR laws.
If a Hong Kong supplier wishes to sell his goods into the EU, he must ensure that the rights holder has consented to these goods being sold in the EEA, or that an exhaustion of the rights has occurred. If the Hong Kong supplier does not obtain the goods directly from the rights holder, he must obtain sufficient guarantees documenting that this consent was obtained at the initial sale of the goods concerned.
Enforcement: EU directives, regulations and case law have harmonised the interpretation of infringing practices under Member States’ civil law. Enforcement of criminal infringements has not been harmonised throughout the EU. Accordingly, the qualification of criminal infringement and the available enforcement measures vary considerably from one EU Member State to another.
In addition, customs rules (Regulation 608/2013 concerning customs enforcement of intellectual property rights) authorise customs authorities to suspend the release of goods entering the EU or EEA market under suspicion of infringement of intellectual property rights, and to inform the right holder thereof. In principle, the Regulation is intended to stop counterfeit goods from entering the EU. If the product which is seized by the customs authorities is confirmed to be counterfeit, it can be destroyed without further national court procedures. However, if goods that have been suspended are not found to be counterfeit, but appear to be parallel imports, the right holder may consider using the information which is obtained in this manner to initiate proceedings against parallel importers importing goods from outside the EU/EEA.