Parallel imports

Parallel imports (병행수입상품/竝行輸入商品) mean non-counterfeit products imported from another country without the permission of the intellectual property owner. Parallel imports are often referred to as 'grey' products in terms of international trade and intellectual property rights.

According to an article on parallel import, nowadays, the practice of parallel importing is flourishing in the case of software, printed texts, electronic products and even luzuries because of:
 * Different versions of a product produced for sale in different markets.
 * Different prices for similar model products in different markets for market segregation or arbitrage of sale.
 * Competitively priced items to avoid local sales taxes and other expenses via efficient distribution channel or online shopping.
 * Parallel importing for the enhancement of free flow of information or merchandise.

Previously the authorized distributors obtaining intellectual property rights could demand customs office to block importation of parallel import products. After a series of disputes between the distributor and other retailers, however, most of countries have positively allowed retailers to bring in parallel imports for the purpose of import price control and consumers' enlarged choice.

Key words
parallel import, grey market, trademark, intellectual property

Parallel markets
Korea's parallel markets for clothes, cosmetics and other general goods are on the increase amounting to one trillion won a year. Nowadays, consumers are buying directly from online shopping malls overseas up to 500 billion won. It is noted that those parallel market retailers are too small to secure stable supplies as well as reliable after-services and to verify the genuine products.

However, the parallel markets are changing with big distributors joining the parallel markets. Big retailers are ready to solve the problems including counterfeit products and after-services. They willingly make arrangements for the parallel products with some defects to be exchanged or fixed in a proper manner.

On the other hand, the Korea Customs Service (KCS) issues the customs clearance certificates to authenticate the genuine goods from imitations. Big retailers are busy to attract consumers by showing the said KCS certificates of parallel imports through QR codes.

Government policy on parallel imports
Recently, in an effort to give consumers better choices in terms of parallel imports, the government will designate items such as medicines and shoes as parallel import items, reduce the customs inspection period that is currently 15 days or less, and push to introduce a customs clearance certification system for parallel imports.

Supreme Court Decision 2000Du3184 decided on May 2, 2002
Article 5 (2) of the 'Types of Unfair Trade Conducts Regarding Parallel Import' (Notification of the Fair Trade Commission No. 1997-27) enforced based on Article 23 (2) of the previous 'Monopoly Regulation and Fair Trade Act'(before being amended by Law No. 5813, February 5, 1999) and Article 36 (2) of the Enforcement Decree of the above Act (before being amended by Presidential Decree No. 16221, March 31, 1999), states that 'acts that prevent a person with the foreign trademark right from supplying products to his foreign customer who deals with the same products by finding out the channels of purchase from the product number of parallel imports' conducted unjustly by someone with an exclusive importing right, are considered to be a type of unfair trade conducts stated in Article 23 (1) v of the Act.

In order to constitute this type of unfair trade conducts, there must exist a reasonable causation between:
 * the act of a person with an exclusive importing right, having found out the channel of purchase from the product number of parallel imports, etc. and;
 * the result preventing a person with the foreign trademark right from supplying products to his foreign customer who deals with the same products.

In addition, when parallel import was interrupted as a result of the conduct of a person with an exclusive importing right, such as exercising their rights based on their exclusive import and sales contract, it is difficult to conclude immediately from the appearance of the act whether it will impede fair trade, and thus only when it was conducted unjustly can it be said to be in danger of impeding fair trade.

In such a case, the existence of unjustness must be determined after collectively examining various circumstances which had surfaced in an individual case, such as the intention and purpose of the concerned exercise of rights, the impeding effect on price competitiveness, the characteristic of the concerned product and the situation of the market, the status of the person conducting the act in the market, the effect on the parallel importer, etc., in order to determine whether there is a danger of impeding fair trade. The burden of proof for this lies on the defendant.

The case, ruling that there is no 'reasonable causation' between:
 * the action of the domestically exclusive importer/distributer of Mercedes-Benz automobiles, tracing and investigating the number of a chassis to receive a commission under their agreement regarding the infringed right to exclusively import from Mercedes-Benz Corporation, and;
 * the result of the parallel importer not being able to import the Benz automobiles.

Supreme Court Decision 99Da42322 decided on September 24, 2002
Since parallel importing itself is a fair and legal act that does not constitute an infringement upon any trademark right of a holder thereof, a parallel importer's sales of products bearing the holder's trademark shall be permitted. According to Article 1 of the Trademark Act (상표법/商標法), the purpose of the Trademark Act is to contribute to industry development and to protect consumer interests by maintaining, through the protection of trademarks, the business credit of those persons using the trademarks. Also, as outlined in the Trademark Act, two basic functions of trademark are to indicate the source of the products bearing the trademark and to help customers trust the quality of the products.

In light of the foregoing, even though the parallel importer's use of such trademark extends beyond the above scope of passive use, if he conducts promotion and advertisement activities by actively using the trademark, and if such active use does not threaten to affect the above functions and does not cause domestic customers to mistake the source or the quality of the products bearing the trademark, such active use may not be deemed to constitute an infringement upon the Trademark Act. In this regard, it is reasonable to conclude that the holder of trademark rights is not entitled to require the parallel importer to stop infringing upon the trademark right or destroy the products allegedly infringing upon the trademark right.

Even though the parallel importer's active use of the trademark for the purpose of promotion and advertisement is deemed to be legal and fair and thus does not constitute an infringement upon the holder's trademark right, if the trademark used by the parallel importer serves as the operation mark in light of the circumstances of the usage, it may cause customers to mistake the parallel importer as an authorized sales agent of the foreign company. In such a case, the parallel importer's use falls within a category of acts causing public confusion concerning the owner of the trademark as set forth in Subparagraph (b) of Item 1 of Article 2 of the Unfair Competition Prevention and Trade Secret Protection Act and thus shall not be permitted.