In Hong Kong, the importation of parallel goods or unauthorized products across territory that compete with authorized distribution channels does not constitute trademark infringement.

However, an exception to the international exhaustion rule exists if the condition of parallel-imported goods has changed or been impaired after being put on the global market. In such cases, the reputation or distinctiveness of the trademark may be adversely affected (refer to Section 20(1) of the Hong Kong Trade Marks Ordinance (Cap. 559)). This exception can pose challenges, especially in exclusive distribution relationships.

Exclusive distributors often face difficulties in enforcing their rights against parallel importers unless the products are defective or deteriorated. Moreover, legal mechanisms such as the tort of passing off may not offer adequate protection to authorized distributors, particularly when misrepresentation is hard to prove for goods originating from the original owner or overseas authorized dealer.

To address these challenges, it is crucial to include specific provisions in distribution agreements:

• Addressing Parallel Imports:
  Distribution agreements, especially those with exclusive distributors, should empower the distributor to enforce their rights within agreed territories.

• Intellectual Property Rights:
  Clearly define rights related to intellectual property, including designs and artwork created by the distributor, to ensure that the distributor benefits exclusively from such creations.

• Enforcement of IP Rights:
  Define and clarify the distributor’s right to enforce intellectual property rights in case of infringement and outline associated cost and compensation.

To further protect the distributor’s interests beyond contractual agreements, the following measures may be considered:

• Differentiation:
  Label parallel import goods distinctly from authorized products, potentially by adding the distributor’s mark to enable customers to recognize the distributor’s trademark.

• Quality Differentiation:
  Enhance the quality of authorized goods compared to parallel imports, such as tailoring products for local or Asian markets.

• Trademark Infringement:
  Highlight that the use of a distributor’s registered trademark by a parallel importer constitutes trademark infringement.

Depending on the nature of the goods, particularly health supplements, customers may prioritize warranties and services offered with authorized versions.

Apart from the above, there are non-legal strategies to protect and promote distributed goods, such as:

• Digital Marketing:
  Incorporate the distributor’s link on the owner’s website to direct customers to authorized channels.

• Customer Communication:
  Warn customers on the distributor’s website about risks associated with unauthorized purchases.

• Customer Engagement:
  Enhance relationships through loyalty programs and personalized marketing.

• Marketing Initiatives:
  Conduct awareness campaigns to educate customers on the benefits of purchasing from authorized distributors.

While it may be challenging to entirely eliminate parallel imports, distributors can take action by sending cease-and-desist letters to parallel importers and emphasizing their exclusive distribution rights.

Ultimately, controlling parallel imports within the agreed territories is a contractual matter that requires collaboration between distributors and owners for effective resolution.

OLN can assist distributors and trademark owners in protecting their interests against parallel imports in Hong Kong. Please contact us for more information.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.