Understanding the concept of Exhaustion of Trade Mark Rights and Parallel Import

SC IP
Dec 24
7 min read

The ever flourishing cross-border trade and the expansion of global markets has led to shedding of more importance on parallel importation and effective implementation of ranging price gaps. If we were to understand the concept of exhaustion of a trade mark in simple terms, we would break it down as one of the limitations under the intellectual property law. Once any good which are protected by an IP right are smarketed- by an enterprise or by anyone else with the prior consent of the registered proprietor, the IP rights of commercial exploitation over such goods discontinue to be exercised by the proprietor or such enterprise, as they are now exhausted.[1] A jargon usually used for this process is the first sale doctrine, as the rights of commercial exploitation end with the first sale of the good. Unless the law specifically upholds, any subsequent acts of rental, resale, leasing, lending etc. by third parties fail to fall under the whims or control of the proprietor or enterprise.

Parallel imports or colloquially speaking, ‘grey market goods’ is a concept recognized under the TRIPS Agreement. It refers to the importation of branded or genuine goods sold in country A and exporting the same to another country B for the purpose of resale at a price lower than what is prevalent in the country of import. Such sale of imported goods at a lower price stem from fluctuations in currencies across countries or differences in the distribution channels between the countries of import and export.[2]

Types of Exhaustion

A. Doctrine of National Exhaustion

Under the concept of National Exhaustion, an IP owner is not entitled to control the commercial exploitation of goods which are placed in the domestic market either by himself or with his prior consent. This directly means that once the IP owner has placed its goods in the domestic market, its rights are considered to have been exhausted in the domestic market. However, an upside is that the owner can still oppose the importation of genuine goods which bear its trade mark and are sold outside the domestic territory. To illustrate this, if goods bearing a trade mark are registered in say, country A, and are put to sale by the owner in the same country by himself or through his prior consent, he cannot use his IP rights to prevent any subsequent sale of these goods in the country A. However, if the goods are put to sale in some other country, B, the owner can make a case of infringement against the person who imports such goods in country A and subsequently sells them.[3] An example of a country that follows the principle of national exhaustion is the United States of America.

B. Doctrine of International Exhaustion

This concept works on the premise that the entire world is a single market or nation. As such, a good once sold in any of the markets exhausts the accompanying privileges of an owner over such goods. In other words, if goods bearing a mark are put to sale by an owner or with his consent in country A for sale, the owner cannot bar subsequent sales of those goods in country A or any other country for that matter. Examples of countries that follow the principle of International Exhaustion are India, Germany, Japan and Australia.

The Trade Marks Act, 1999 (“Act”), addresses exhaustion primarily through Sections 28, 29, and 30 of the Act. Section 28 grants the registered proprietor exclusive rights to use the trade mark and obtain relief against infringement[4]. Section 29 defines infringement, including unauthorized use of identical or deceptively similar marks in the course of trade[5]. The exhaustion doctrine appears in Section 30, particularly Section 30(3), which provides that where goods bearing a registered trade mark have been lawfully acquired, further sale or dealing in those goods does not amount to infringement. Section 30(4) qualifies this by allowing proprietors to oppose further dealings where legitimate reasons exist, especially where the condition of the goods has been changed or impaired[6] after they were put on the market.

Judicial Development- Analysis of the Doctrine of International Exhaustion

1. Xerox Corp v Puneet Suri (2007) [CS(OS) No. 2285/2006; Unreported Order dated 20.02.2007.)]

One of the earliest Indian decisions on parallel imports is Xerox Corp v Puneet Suri. The Delhi High Court held that the defendant's importation and sale of genuine second-hand photocopiers did not constitute infringement. The court reasoned that once goods were lawfully acquired and placed on the market by the proprietor, trade mark rights were exhausted. The court emphasized that the goods had not been changed or impaired and therefore fell within Section 30(3).[7]

2. Kapil Wadhwa v Samsung Electronics [2012] F.S.R. 27

A Division Bench of the Delhi High Court held that India follows the international exhaustion regime, determining that the phrase "the market"[8] in Section 30(3) refers to the international market. Once goods are placed on the market anywhere in the world by the proprietor or with its consent, the Indian trade mark owner cannot prevent their importation and resale.

Although the court recognized the proprietor's concerns relating to differences between Indian and foreign models and the lack of warranty coverage in India, it determined that these issues did not justify prohibiting parallel imports. Instead, it directed importers to provide clear and prominent disclosures to consumers that the goods were imported, were not covered by Samsung's Indian warranty, and that servicing would not be provided by Samsung. This requirement of disclosure has become a recurring judicial theme.

Kapil Wadhwa thus establishes three doctrinal principles: first, international exhaustion applies; second, the defense requires goods to be genuine and lawfully acquired; and third, consumer disclosure can cure concerns about confusion or reputational harm, thereby negating legitimate reasons under Section 30(4).

3. Seagate Technology LLC v Daichi International (2024) [CS(COMM) 67/2024, I.A. 4731/2024, I.A. 5897/2024, I.A. 6336/2024 & I.A. 6337/2024][9]

In Seagate Technology LLC v Daichi International, the Delhi High Court addressed refurbished hard disk drives imported from abroad. The court reaffirmed the principles in Kapil Wadhwa and applied international exhaustion to end-of-life or second-hand goods. It held that Indian law contains no prohibition on importing refurbished goods. However, it required full disclosure that the goods were refurbished and were not new and emphasized that any refurbishment must not materially alter the goods in a misleading manner. The court vacated the interim injunction and allowed sales subject to disclosure requirements.

4. Western Digital Technologies Inc v Hansraj Dugar (2025)[10]

In Western Digital Technologies Inc v Hansraj Dugar, the Delhi High Court reiterated that India recognizes international exhaustion and that any person in India may import genuine goods placed on the market abroad. The court lifted the injunction preventing sale of used and refurbished hard drives. It directed that goods be released from customs and allowed their sale provided the importer fully disclosed that the goods were second-hand or refurbished and not covered by manufacturer warranty. The court further noted that no Indian law prohibits the importation of genuine refurbished electronics.

C. Doctrine of Regional Exhaustion

Under the concept of Regional Exhaustion, free movement of goods is permissible within a specific region and restricts imports from outside. One classic example for this is the European Union which permits free movement of goods within the European Economic Area while also maintaining suitable restrictions on imports from other non- European Economic Area countries.

Core Judicial Tests Applied in Parallel Import Cases

1. Genuineness and Lawful Acquisition: The importer bears the burden of proving that goods are genuine and lawfully obtained from a legitimate seller abroad. This typically involves invoices, import documentation, and serial number verification.

2. No Change or Impairment: Under Section 30(4), the proprietor may restrain further sale if the goods' condition has been materially altered or impaired. Courts examine physical modifications, component differences, packaging changes, removal of serial numbers, or refurbishing that affects performance.

3. Disclosure and Avoidance of Confusion: Courts have repeatedly required importers to disclose that goods are imported, may have specifications intended for foreign markets, and are not covered by the proprietor's local warranty. Disclosure is a tool to negate confusion and protect brand reputation.

4. Regulatory Compliance and Material Differences: Courts evaluate whether imported goods comply with Indian laws. Non-compliance, as in Philip Morris, can defeat exhaustion. Material differences include lack of statutory labels, different instructions, incompatible components, or absence of mandated certifications.

5. Legitimate Reasons under Section 30(4): Proprietors may show legitimate reasons such as quality control issues, consumer deception, or regulatory violations. Courts scrutinize evidence closely to ensure that Section 30(4) is not used merely to preserve distribution control.

Conclusion and Reform Recommendations

Indian law recognizes international exhaustion, as affirmed by the Delhi High Court in Kapil Wadhwa and reiterated in Seagate and Western Digital. Parallel imports of genuine goods are permissible provided the goods are lawfully acquired and sold without material alteration. Proprietors may rely on Section 30(4) to restrain sales only when legitimate reasons exist, including material differences, regulatory non-compliance, or risks of consumer confusion.

Practical friction arises at the confluence of trade mark law, Customs enforcement, Legal Metrology rules, consumer protection regulation, e-commerce norms, and competition policy. These frameworks are not fully harmonized, and gaps often cause uncertainty for proprietors, importers, and regulators.

Policy options grounded in comparative practice and the structure of existing Indian law require the following:

Legislative Clarification of Exhaustion: Parliament could explicitly state that India follows international exhaustion, clarifying the meaning of "the market" in Section 30(3) and reducing litigation.
Codified Disclosure Requirements: Legal provisions or rules could specify standardized disclosures regarding imported status, warranty limitations, and refurbishment. This would align with judicial practice and enhance consumer protection.
Alignment of Customs and Trade Mark Enforcement: Customs guidance could distinguish parallel imports from counterfeits and establish clear criteria for detaining goods based on regulatory non-compliance rather than trade mark ownership alone.
Integration with Consumer Protection Framework: CCPA guidelines could require clearer declarations for imported goods, particularly for electronics, cosmetics, or food products where safety standards vary internationally.
Traceability and Quality Control Standards: Voluntary or mandatory serialization and tracking mechanisms could assist in verifying authenticity and condition, particularly for refurbished goods.