Legalising Parallel Imports Under Intellectual Property Law

• Jurisdiction: South Africa
• Pages: 550-573
• Date: 27 May 2019
• Published date: 27 May 2019
• Author: Kerstin Maria Rippel

LEGALISING PARALLEL IMPORTS UNDER

INTELLECTUAL PROPERTY LAW

Kerstin Maria Rippel

LLM (Stellenbosch)

Lawyer, Berlin

Roux de Villiers

B Eng M Eng LLB (Stellenbosch) LLM (London)

Senior Lecturer, University of Stellenbosch

1 Introduction

Parallel importation of goods, commonly referred to as grey imports, is

often misunderstood as some form of illegal, unlawful or immoral

business method. It is regularly confused with the importation of

counterfeit or pirated goods. This is a complete misconception. Parallel

importation can be explained as the importation of a legitimately

produced product (that is subject to intellectual property rights), where

such importation is without the authorisation of the intellectual property

right holder, but the product was disposed of in the country of export

with the implied or express authorisation of the intellectual property right

holder.

Sometimes the importer can purchase the product in the country of

export at a price significantly below the market price in South Africa (as

controlled by the intellectual property holder), allowing resale of the

product in South Africa at a profit, while undercutting the intellectual

property holder’s monopoly price. This form of trade can increase

competition in the South African market, driving prices down with

resultant benefits for local consumers.

1

There are also potential adverse side effects arising from parallel

importation. For certain types of products the technical expertise of the

parallel importer in matters such as installation and aftersales service may

be inadequate. The parallel importer may also be unable to offer the same

product warranties as the authorised dealer. Free riding by parallel

importers on the promotional efforts of authorised distributors may also

discourage the continuation of such promotional activities by authorised

distributors. However, these concerns appear minor when compared to

1

Barrett ‘‘A Fond Farewell to Parallel Imports of Patented Goods: The United States and the Rule of

International Exhaustion’’ 2002 EIPR 571-578.

550

(2004) 15 Stell LR 550

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the issue of geographic price discrimination and the introduction of more

competition in a developing country such as South Africa.

2

The appellate division’s decision in Taylor v Horne

3

clearly rejects the

idea that parallel importation is in principle unlawful by stating

categorically that it is neither dishonest nor unfair or unjust in a legal

sense. In fact, in Japan any in terference with parallel im ports is

automatically seen as anti-competitive and illegal.

4

In principle, parallel

importation should therefore simply be regarded as a form of free market

competition.

In 2001, South Africa was the stage for a definitive dispute relating to

anti-retroviral medicine between the United States government, global

manufacturers of pharmaceutical products and the government of the

Republic of South Africa. South Africa was and still is in the grips of an

HIV/AIDS epidemic. A South African court

5

had to decide whether

amendments to the South African Medicines and Related Substances

Control Act,

6

allowing inter alia the parallel importation of anti-

retroviral medicine for use in the fight against HIV/AIDS, would be in

accordance with the South African Constitution. It was also argued that

the South African government was in breach of its obligations under

international agreements, and in particular the Agreement on Trade-

Related Aspects of Intellectual Property Rights (TRIPS) administered by

the World Trade Organisation.

In 1995, the GATT

7

-Uruguay Round of negotiations of the World

Trade Organisation was concluded. The World Trade Organisation was

established

8

and the TRIPS Agreement was entered into between the

member states

9

as part of the General Agreement on Tariffs and Trade.

10

TRIPS obliged developing countries to adopt a prescribed minimum

2

Abbott ‘‘First Report (final) to the Committee on International Trade Law of the International Law

Association on the subject of parallel importation’’ 2004 Journal of International Economic Law 607-

636; Skoko ‘‘Theory and Practice of Parallel Imports’’ working paper [online] available at http://

athene.mit.csu.edu.au/~hskoko/parallel%20imports/pimptheory.pdf [2004-05-06]; Comments of the

Consumer Project on Technology to the Portfolio Committee on Health, Parliament Cape Town on the

Medicines and Related Substances Amendment Bill and South African Reform of Pharmaceutical

Policies [1997-10-06].

3

Taylor and Horne (Pty) Ltd v Dentall 1991 1 SA 412 (AD).

4

Flath & Nariu ‘‘Parallel Imports and the Japan Fair Trade Commission’’ (2002) Working paper no 202

produced for Center on Japanese Economy of Columbia University [online] Available at http://www-

1.gsb.columbia.edu/japan/pdf/WP202.pdf [2004-04-29].

5

Pharmaceutical Manufacturers Association v President of the Republic of South Africa Pretoria High

Court Case no 4183/98.

6

101 of 1965. The Medicines and Related Substances Control Amendment Act 90 of 1997 was

promulgated in 1998.

7

GATT 1947, entry into force on 1 January 1848.

8

The Uruguay Round had ended on 15 April 1994 and the WTO Agreements (like TRIPS, GATS and

GATT 1994) came into force on 1 January 1995.

9

At present there are 142 member states of the WTO. Approximately 100 are considered as developing

countries.

10

GATT 1994, entry into force 1 January 1995.

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