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The Facets of Parallel Import in the UAE

03-12-2017

Althea Edwina Rozario
Author:Althea Edwina Rozario
Email:arozario@tlg-ip.com

The Facets of Parallel Import in the UAE

Parallel import also known as grey import, refers to the importation and resale of genuine products from a distributor who has legally obtained the goods at a local price rather than purchasing it from the authorized distributor in the country[1]. This was established in the Trade Related Intellectual Property Rights Agreement, 1994, further reaffirmed by the Doha Declaration on the TRIPS Agreement and Public Health[2].

In this world of free trade and globalization, parallel import cannot be considered illegal. The English Patent Court has pointed out in the Deltamethrin decision that grey and mysterious are the channels through which these products get into the country. In addition, it is to be noted that the product itself does not infringe the Intellectual Property Rights of the owners. The considerable difference in price of the same goods in different countries is the main cause of parallel import. The producers or manufacturers, in general, are insisting on maintaining the price difference of these products, while the consumers get perplexed about the price variance in this era of increasing international trade and removal of trade barriers. The gains acquired by the importer from the cheap price are in effect, losses in the benefits of innovation to the brand owner[i][3].  

Parallel import is justified on the grounds that the brand owner, once compensated by the first sale or circulation of the products, is not entitled to further control of any use or resale of commodities introduced into the market. Consequently, the inventors exhaust their rights to stop further resale[4].

Such importation is based on the principle of exhaustion of Intellectual Property Rights, one of the three main principles of exhaustion of Intellectual Property Rights. According to the universal or international exhaustion principle, the IPR holder’s rights are exhausted by the first sale of the goods anywhere in the world. This principle permits resale, exportation and importation of protected products into countries where the intellectual property rights owner has a protected interest. The domestic or territorial exhaustion principle provides that the holder's rights remain valid until the first sale of the goods in the country in which he holds a right. Under this principle, the Intellectual Property Rights holder can prohibit the exportation or importation of protected products introduced in a market by an unauthorized dealer. The regional exhaustion of rights principle is the third principle and it provides that the owner’s rights are not exhausted until the first sale of the product within a defined region or economic zone. Consequently, parallel importation of goods cannot be opposed upon the first sale of the goods within that region[5].

Parallel Import in the UAE

The UAE is not an exception to the phenomenon of Parallel Import. Goods from other places are brought into the Country and sold at a rate lower than that offered by the authorized distributor. As per the Intellectual Property Law of the Land, the brand owner does not have the right to take legal action for such matters, as the IP rights of the brand owner who has registered his trademarks in the UAE are not breached because the goods are genuine. There is no provision in the Trademark Law to deal with parallel import and it has not been mentioned in any part of the Law.

Thus the only way to cease the flow of parallel import is by relying on the provisions of the Agency Law which provides that the Agent has an exclusive right to sell the products in the UAE. The main condition required to avail this right is to execute an Agency Agreement with the local Agent.  The UAE Agency Law allows an Agent to exclusively sell within the country, the products covered under the Agreement.

The UAE Federal No. 18 of 1981 on Commercial Agency Law (as amended by the Federal Laws No. 14 of 1988 and No.2 of 2010) (the “CAL”), the main legislation on commercial agencies in the United Arab Emirates stipulates the following requirements:

  1. In accordance with Article 2 of the CAL, a commercial agent must be a UAE national or a company incorporated in the UAE and owned 100% by UAE nationals. 
  2. Only commercial agents registered in the Commercial Agency Register of the Ministry of Economy & Commerce, are authorized to engage in the business of commercial agents as per Article 3 of the CAL.
  3. In accordance with Article 4 of the CAL, the registration of an agency is effective only if the principal and the agent are bound by a written and notarized agreement.   

According to the provisions of the CAL, the Agent has the right to stop anyone from selling the goods that are covered under the registered Agency Agreement. In case he finds any other person bringing in the goods, he may file a complaint with the Police to seize them and also at the Customs to deny entry of such goods into the Country.

The exclusive distributor of a brand owner who has been registered at the Ministry of Economy and who imports and distributes their products in the UAE can prohibit any other party from importing the goods covered under the registered Distribution Agreement. He may file a complaint with the Police to take into custody the goods brought into the Country as well as with the Customs to stop the import of such goods by another Party.

The following conditions apply when availing this legal remedy:

  1. The Distribution/ Agency Agreement must be registered at the Ministry of Economy. The absence of such registration would render the Agreement void-ab-intio.
  2. To enter into such an Agreement the Agent or the Exclusive distributor should be a citizen of the United Arab Emirates and if it is a Company, it has to be wholly owned by UAE nationals. Else the contract would become null and void and the contracting parties would be subject to penalties and punishments prescribed by the UAE Agency Law.

Termination of Agreement:  The termination of such an Agreement is not easy and as per article 8 of the CAL, the Agreement may be terminated only for valid reasons that would be acceptable to the Commercial Agencies Committee. The Principal has very limited scope to allow for the termination or non- renewal of the Agreement. The Committee or the Court of competent jurisdiction, if applicable, should be convinced that the reason for termination or non- renewal is justifiable. The amendment introduced under Law No.2 of 2010 does not allow any Party (even if it is a fixed term Agreement) to directly approach the Court before filling their grievance before the Committee.

Hence, in order to protect the rights of both Parties, it must be ensured that the Agreement is drafted in a proper manner, without any scope for dispute.

To conclude, it may be summarized that though parallel import cannot be considered illegal in the UAE, it may be prevented under the provisions of the Commercial Agency Law provided certain conditions are met.

 

[1] Dr. Nguyen NhuQuynh, ‘Parallel Trade of Patented Pharmaceuticals: A Discussion from Developing Country Perspective’ (2014) Ministry of Science and Technology, p.3 http://iprenforcement.most.gov.vn/cac-bai-nghien-cuu-shtt/parallel-trade-of-patented-pharmaceuticals-a-discussion-from-developing-country-perspective

[2]  World Trade Organization Ministerial Declaration adopted on 14 November 2001 at the Ministerial Conference Fourth Session Doha, 9-14 November 2001 WT/MIN (0)/Dec/1.

[3] 3 Matsushita et al, The World Trade Organization: Law, Practice and Policy (2nd edition Oxford International Law Library, 2006), p.702

[4] 7 Carlos M Correa, ‘The TRIPS Agreement and Developing Countries’, p. 446

[5] Parallel Importation and the Exhaustion of Rights Principle under the “TRIPS Agreement” and the “Doha Declaration” -Yetunde Okojie