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Is It Legal To Sell Parallel Imports In Hong Kong?

1 Like the majority of the common law countries, the sale of parallel imports in Hong Kong is predominantly legal. In other words, a businessman should be able to sell parallel imports in Hong Kong freely without restriction by the law. This is the case, though parallel importers should still pay attention to intellectual property rights and avoid violating the following laws during the sale of parallel imports: –

Copyright Ordinance – Chapter 528
Trade Marks Ordinance – Chapter 559
Passing off
2 Before discussing how intellectual property rights affect the sale of parallel imports, it is worth mentioning that whether it is a licensed product from a Hong Kong agent (“Licensee”) or a parallel import from a parallel importer, the products all sourced from the same licensor. Essentially, the consumer/user will not be affected by whether it is a parallel import or an official retail product.
The competition between parallel traders and licensed traders

3 Disputes often arise when there is a conflict of monetary interest. Conflicts will occur if the sales price of parallel importers is 10 to 20% cheaper than the price of official retail products. If the price gap is even more significant, the Licensee may take administrative measures or Court action to prevent parallel importers from selling parallel imports to survive and sustain themselves. Therefore, most disputes are initiated by the Licensee. According to the author’s experience, Licensees will take legal action first; if they encounter legal obstacles, they will continue with other administrative measures to prevent parallel importers from selling. Therefore, parallel importers must be mentally prepared to face the challenge of the Licensee.
How copyright law affects parallel importing activities

4 If the parallel-imported products focus on appearance (i.e. design) or are text products (such as books), the parallel-importers must be cautious about whether they will violate the Copyright Ordinance, (Cap. 528). They should ascertain and assess whether the products fall under the scope of the definition of “infringing products” defined within the Copyright Ordinance, (Cap. 528). According to the Ordinance, parallel imports are considered “infringing products” if the following three conditions are met:

Parallel import product designs were created within 12 months;
Licensing agreement between the licensor and the licensee; and
The above authorisation agreement is made in writing.
5 The above copyright laws came into effect in 2008. The legislation was enacted then to target the copyright issues derived from the “video” and “comics” industries. General functional products, such as food or cosmetics and beauty products, will not be significantly affected by the 12-month period.

6 As a result, if the above three conditions are met, the parallel imports would be classified as “infringing goods” by copyright laws, which may infringe the copyright rights of the copyright owner (i.e. the licensor).

7 In reality, only a few Licensors will sue parallel importers who sell their products. This is because whether selling licensed goods or parallel imports, there is no significant difference in the interests of licensors.
How does registered trademark law affect parallel importing activities?

8 As stated above, since the same licensor provides both parallel imports and official retail products (licensed products), parallel importers using the licensor’s registered trademark will not violate the Trade Marks Ordinance, (Cap. 559, section 18). If a licensor or licensed trader unreasonably accuses a parallel importer of trademark infringement, the parallel importer has the right to use “honest use” as a defence .

9 But “honest use” is not the panacea. In reality, “honest use” does not apply when parallel importers unreasonably amplify the licensor’s registered trademark for marketing or promotion purposes. For example, a registered trademark or licensor’s name is deliberately enlarged when promoting parallel imports online and does not constitute “honest use”. This approach will cause customers to mistakenly think that the parallel importer is the licensor‘s partner (i.e. associate), and at the same time, there is also the possibility of infringement of registered trademarks.
Licensed traders “squatting” on licensors’ trademarks

10 Sometimes, the licensor’s trademark may be registered in the licensee’s name. Does this mean that the licensor would authorise the Licensee to register the licensor’s trademark directly in Hong Kong? The author believes the vast majority would not. Since this will pose a danger to licensors, there may be a crisis when the licensee gains an advantage against the licensor. This happens mostly because the Licensee has “adversely by registered” the licensor’s trademark in advance without the licensor’s knowledge. Legally speaking, parallel importers can apply to revoke a registered trademark obtained through adverse registration. But in doing so, we need to measure the value of selling parallel imports.
Licensed traders use their trademarks

11 Some more sophisticated Licensees use different but similar licensors’ trademarks to promote licensed products or even register their own trademarks. Licensed traders use their registered trademarks for marketing and promotion when selling goods. Doing so will bring the market, and customers recognise the licensee’s mark instead of the licensor’s trademark. On the contrary, if a parallel importer uses the registered trademark of the Licensee to sell parallel imports, this constitutes an infringement of the registered trademark. Not only parallel importers may be in civil liability for breaching the Trade Marks Ordinance, (Cap. 559), but also criminal liability for breaching the Trade Descriptions Ordinance, Cap 362 section 9. Parallel importers need to be very careful when doing parallel import business.
Passing off law

12 Passing off law is a type of common law. Suppose there is a certain degree of “quality” difference between licensed and parallel imported products, such as the thickness of the packaging bag (such as the Indomie case) or the addition of a certain degree of essential elements to the product (such as the addition of diamonds to the Rolex watch). In that case, the sales of parallel imports may constitute infringement by passing off.

13 Although there are not many cases related to this in Hong Kong, it is advisable for parallel import traders to pay extra attention on passing off. Suppose parallel importers want to avoid violating the passing off law. In that case, they may consider making a clear disclaimer when selling parallel imports that the relevant products have nothing to do with a specific licensor or brand, to more objectively show consumers that the parallel importers are not affiliated with the licensor and no direct business relationship.

14 The above is the author’s sharing of litigation experience over the past many years. We hope the content can provide some legal boundaries between parallel importers and licensors to avoid disputes. The above statement is merely just a brief introduction. It is possible to analyse each of the above legal points in more detail.

Benny Kong & Tsai © 2023

Benny Kong & Tsai, Solicitors

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