Parallel importing has been a hot topic since the Government came down on the side of the parallel importers - and consumer welfare, according to the official line - by lifting the statutory ban on the activity.

In previous years, some foreign building product suppliers would have been accused of "dumping" under-priced fixtures, materials, and tools onto the New Zealand market. Today the risk is more likely to be parallel imports of overseas building products, and products such as tools, that are legally imported into New Zealand to compete against "legitimate" versions of the same product. The writers are already aware of several actual or threatened imports of this nature.

So how can local, authorised manufacturers and distributors mitigate the "free ride" that parallel importers might be taking on their investment in marketing and distribution costs?

What is parallel importing?
Parallel importing involves importing a genuine product - be it power tools, sealers, hinges, or screws - legally, but without the authority of the original manufacturer or the local distributor. It is possible due to the common practice of multi-national companies adopting differential pricing between international markets, so that an importer with an eye to the main chance can locate products sold more cheaply in overseas markets (with lower production overheads or lower margins) and bring them into New Zealand, undercutting the local distributor.

Unless the law forbids it, these "grey market goods" are legal, unlike counterfeits or "pirated" goods (copies made illegally in the country of their manufacture). However, if New Zealand parallel importers cross the line and inadvertently import counterfeit goods, they will still be liable to the owner of intellectual property rights.

The ban on (and return of) parallel importing
Before 1998, local manufacturers tended to use the Copyright Act 1994 to prevent parallel importing. This was an especially potent weapon in New Zealand as it could be applied to manufactured goods as well as traditional copyright works like books and sound recordings.
Unlike countries like Australia, in New Zealand the Copyright Act extends protection to three dimensional reproductions of an artistic work or model, even where the artistic work has been mass-produced (or as the Act states, "industrially applied").

This meant that New Zealand distributors of a variety of goods could prevent "genuine" goods sourced overseas from being imported to New Zealand, by arguing that whoever in New Zealand had the copyright of the drawings or models on which the products were based had not given permission for their manufacture.

However, in the late 1990's, a Government review of parallel importing restrictions on copyright goods concluded that substantial welfare gains would be made if the restrictions were repealed. The result was the Copyright (Removal of Prohibition on Parallel Importing) Amendment Act 1998, which largely legitimised parallel importation into New Zealand. We now have an increase in availability of cheap products in New Zealand, often sitting alongside the same goods imported by the official New Zealand agent.

Alternative "cures" to parallel importing
Some local manufacturers and distributors have begun to explore avenues for legally preventing parallel importation. These include:
- The Trade Marks Act 1953, which provides some protection against parallel importation where either the local trade mark owner has not consented to its use on imported goods, or where consent has been limited to certain overseas markets and third party purchasers have been notified of these limitations.

- The Patents Act 1953 - the exclusive right to "vend" patented goods has been applied to prevent parallel importation. However, if the same person controls the patent in the country of importation and the country of manufacture, unauthorised importation does not infringe the Act, as long as the goods were not sold subject to any contractual restraint.
- Fair Trading Act 1986 - importing goods of inferior quality to those normally sold in New Zealand (or goods that for various reasons - such as safety - are unsuitable for the New Zealand market) may breach the Fair Trading Act, which aims to protect consumers from misrepresentations in trade. In addition there may be misrepresentations in regard to the availability of after-sales service or guarantees.

Other countermeasures
Alternative initiatives to limit parallel imports rely on local manufacturers and retailers persuading foreign manufacturers to keep up their end of the struggle. At a minimum, overseas trade mark owners should be encouraged to:
- Set territorial limitations on any license agreement with authorised users of the mark overseas, and likewise limit territorial application of product warranties.
- Ensure notice of these limitations is given to third party purchasers, for example by printing it on the label of the goods.
- Label products more effectively, so consumers can see the market and specifications for which the goods were originally produced.
Building products manufacturers and retailers in New Zealand should also work closely together to emphasize the advantage of purchasing from authorised suppliers - which might result in less stress on buying brands and more of a push on buying from particular chains and outlets.

Another option for manufacturers and retailers - albeit a difficult one - is to refuse after sales service for parallel imported products. However, this will particularly hurt consumers in cases where successful product installation turns on getting the right advice and systems support from a local supplier. Furthermore, this approach needs to be carefully weighed up against the classic adage, "the customer is always right".

This is a general summary only and should not be taken as a substitute for specific legal advice

Russell McVeagh, law firm
Web site: Russell McVeagh

March 2001