Adv. Gill Nadel, Adv. Omer Wagner, Accountant (Legal Intern) Avihai Knaz
Overview
The phenomenon of parallel importing is growing and expanding in Israel. Many brands are imported not only by the official/exclusive importer, but by other importers as well.
From the point of view of the consumer, as long as the products are authentic and not counterfeit, the phenomenon of parallel importing is a welcome one, since it encourages competition and brings prices down.
In the case of the parallel importation of an authentic product, clearly the importer is permitted to use the trademark of the product (if it has one) in order to sell the product.
Situations like this can spur a reaction on the part of the official (exclusive) importer, since this phenomenon "breaks" their exclusivity and creates competition in the field, which, for him, is undesirable.
Accordingly, and as part of the exclusive importer's attempt to shut down parallel importing, disputes between official importers or rights holders and parallel importers often reach the court.
Usually, in the case of authentic, non-counterfeit goods, the parallel importer will have the upper hand in court. The courts have repeatedly stated, in rulings on disputes of this sort, that the phenomenon of parallel importing is a positive one, which encourages free competition and benefits the consumers, and that there is no legal basis for preventing it, as long as the products are authentic and not counterfeits that could mislead the public.
But beyond the sale of the authentic product itself, what is permitted and what is forbidden for the parallel importer to do in the area of advertising and marketing? Is the importer permitted to expand the use of a protected trademark, and use it in advertisements, on his website, or in the name of his business?
A Summary of a Recent Ruling by the Supreme Court
Not long ago, the Supreme Court outlined the rules of the game in this area in the case of Tommy Hilfiger vs. Machsan Hayevuan [Civil Appeal 7629/12 Elad Menachem Suissa vs. Tommy Hilfiger Licensing LLC, given on 16.11.2014], and its main decisions were:
1. The importer was obligated to make it clear to the public that he does not work under the sponsorship of the manufacturer.
2. With regard to clothing items, in which the product is more important than the service provided, the importer was required to do less in order to meet the obligation of making it clear that he does not work under the sponsorship of the manufacturer.
3. If the products sold by the parallel importer are of inferior quality compared to those sold by the official importer, a clarification is required.
4. There is no limitation on using the colors of the trademark on the premises of the business.
5. It is forbidden to use an internet domain name that is too similar to the trademark. If part of the trademark is used in the domain name alongside additional words, it is not considered misleading.
6. In advertising, it is not obligatory to use the phrase parallel importer.
The Story Behind the Ruling
This is a case where "Machsan Hayevuan" operated a business in Bnei Brak under the name "Machsan Hayevuan - Tommy Hilfiger" (following the lawsuit, the name of the business was changed to "Machsan Hayevuan"), painted the business in the colors of the Tommy Hilfiger logo and operated an internet sales site named www.tommy4less.co.il. The District Court ruled that the use of the Tommy Hilfiger trademark by "Machsan Hayevuan" went significantly beyond what is fair or reasonably necessary, and that these actions misled the consumers by giving them the impression that they were purchasing clothing items that were bought directly from the manufacturer, and required "Machsan Hayevuan" to pay compensation fees totaling 457,000 NIS as well as court expenses totaling 80,000 NIS. Tommy Hilfiger's suit for compensation fees totaling millions of NIS was denied, and both sides appealed to the Supreme Court.
The Supreme Court acknowledged the benefits of parallel importing, which encourages competition in the local market, but stated that there is the concern that the parallel importer could become a free rider, riding on the investment and market penetration activities of the registered trademark holder. It decided that parallel exporting is not, in itself, a breach of trademark, but when the trademark is used for marketing purposes, the importer must prove that he is not creating the impression that his activities are under the sponsorship of the trademark holder. It decided that "Machsan Hayevuan" is not obligated to mention in every advertisement that they are engaging in parallel importing, as long as the impression that "Machsan Hayevuan" works under the sponsorship of Tommy Hilfiger is not created.
The Court decided that "Machsan Hayevuan", in the majority of its activities, did not breach the Tommy Hilfiger trademark, since the use of the trademark (on the internet, on signs, the business premises' paint job, the internal and external design of the business premises and as part of the name of the business) is under the protection of "real use".It decided that the offense was in choosing the name "Machsan Hayevuan Tommy Hilfiger" for the business, which was misleading to the public, partly because the use of the definite article in the name "Machsan Hayevuan" (which means "The Importer's Warehouse") suggests that this is "the" only importer of Tommy Hilfiger. The court stated that since the prices in "Machsan Hayevuan" are low, while the trademark owner markets the products as luxurious, the concern about misleading is diminished.
In addition, the Supreme Court ruled that the restrictions imposed by the District Court on "Machsan Hayevuan" for extensive use of the trademark be eased, including the prohibition to use the domain name tommy4less for its internet site, the use of this domain name being permissible since the addition of "4less" differentiates it from the official importer and the luxurious branding of Tommy Hilfiger.
Therefore, the Supreme Court lowered the amount of the compensation fees to a total of 100,000 NIS, ordered Tommy Hilfiger to pay court expenses totaling 25,000 NIS and cancelled the expenses ruled by the District Court.
According to the Supreme Court ruling, "Machsan Hayevuan" was obligated to make it clear to its customers that it does not work under the sponsorship of Tommy Hilfiger, and to note that fact in their advertising materials actively and on a regular basis, reasonably frequently. It also decided that the owners of "Machsan Hayevuan" must note the lack of sponsorship by the trademark holder on a prominent sign at the entrance to the business, and must also note this fact reasonably prominently on the opening page of the business's internet site.
Other Cases Discussed in Court Rulings
In other cases that reached the court, usually, the parallel importer had the upper hand:
For instance, in late 2011, the court denied the attempt of an official importer of drawers and drawer fixtures for assembly manufactured in Germany to prevent the parallel importing of these products, claiming that the parallel importer was removing the product code from the products, was not packaging them properly and did not provide assistance after purchases were made [Civil Suit (Central District Court) 22009-10-11 Birman Wood & Hardware Ltd. vs. Nissim Farjun Trading (2000) Ltd. et al, Justice Avraham Yaakov, given on 7.11.11).
In addition, in late 2010, the television manufacturer Philips attempted to prevent the parallel importing of LCD television sets from East Asia to Israel, claiming that the parallel importer was erasing the serial number and the model number from the packaging and from the products themselves, and in doing so was violating Phillips' rights, making it impossible for them to recall their products should a manufacturing defect be discovered, and illegally interfering with their chain of distribution. The court determined that as long as the products are authentic, there is no cause to restrict the parallel importer, and denied the claim. In 2012, the two sides reached a compromise agreement that ended the dispute in this case [Civil Suit (Central District Court) 25756-06-10 Electronifs Koninklijke Philips et al. vs. Electronika Raivy (2002) Ltd., given on 19.12.10].
In 2007, Dyson, a manufacturer of vacuum cleaners, attempted to prevent the parallel importing of vacuum cleaners to Israel, claiming that the model numbers were removed from them, thereby rendering it impossible for Dyson to trace who sold the product to the parallel importer, and furthermore stating that these models were not intended for sale in Israel, which caused the consumers to be misled. The court ruled that the products are authentic, and that there was no proof of deception, and rejected the lawsuit. [Civil Suit (Haifa District Court) 1089/05 Dyson Limited et al. vs. Y. Shalom Ltd. et al., given 14.11.07].
By contrast, in 2006, a lawsuit served by the perfume manufacturer JOOP! against the parallel importing of authentic perfumes was accepted. In this case, it was determined that when the production series marking is removed, while it does not constitute a breach of trademark - since these are in fact authentic perfumes - in some cases such an action may be construed as cause for prosecution as unjust enrichment, and as the offence of causing a breach of contract. This is since the parallel importer, according to the claim, knowingly caused a breach of the contract between the manufacturer and the official distributor in each country. In this case, it was ruled that since the perfumes were purchased by the parallel importer in Europe, in free trade territory, in an area where JOOP! had a well-organized and supervised distribution network, this action harmed JOOP!'s legitimate expectation to supervise the distribution network. The lawsuit was accepted and the parallel importing was prevented [Civil Suit (Tel Aviv District Court) 1171/97 GmbH JOOP! et al. vs. Kol Perfume Ltd. et al., given 18.6.06].
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The content in this communication is provided for informational purposes only and is not intended to be comprehensive. It does not serve to replace professional legal advice required on a case by case basis. The firm does not undertake to update the information in this communication or its recipients about any normative, legal or other changes that may impact the subject matter of this communication. If you are interested in obtaining further information or wish to follow the legal developments in this matter, please contact Adv. Gill Nadel - Chair of the firm's Import, Export and International Trade Law Practice, Tax Department. Email: Gill.Nadel@goldfarb.com, phone: +972-3-6089979.
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