Parallel importation refers to the import of goods outside the distribution channels contractually negotiated by the manufacturer. Because the manufacturer/IP owner has no contractual connection with a parallel importer, the imported goods are sometimes referred to as “grey market goods”. This desciption in fact is somewhat misleading, as the goods as such are original, being manufactured by the owner of the IP rights or its licensee, but the distribution channel in which the goods are sold are not controlled by the manufacturer/IP owner[1].
There are two primary reasons why parallel importation occurs. The first reason is that different versions of a product are produced for sale in different markets. The second reason is that companies, either the manufacturer or the distributor, set different price points for their products in different markets. Parallel importers ordinarily purchase products in one country at a price lower than the price in which the products are sold in the second country. Parallel importers will then import the products into the second country and sell the products at a price between the prices offered in the first and the second country.
Singapore can be said to view parallel imports favorably. There are in fact three provisions under the Singapore Patents Act (“the Act”) that deal with parallel imports, namely, Sections 66(2)(g), which applies to any patented invention other than a pharmaceutical product, and 66(2)(i) and 66(3), which both apply to pharmaceutical products.
Section 66(2)(g) of the Act provides as follows:
“An act which, apart from this subsection, would constitute an infringement of a patent for an invention shall not be so if it consists of the import, use or disposal of, or the offer to dispose of, any patented product or any product obtained by means of a patented process or to which a patented process has been applied, which is produced by or with the consent (conditional or otherwise) of the proprietor of the patent or any person licensed by him, and for this purpose “patent” includes a patent granted in any country outside Singapore in respect of the same or substantially the same invention as that for which a patent is granted under this Act and “patented product”, “patented process” and “licensed” shall be construed accordingly.”
The legislation thereby puts into practice the exhaustion of rights principle, where the intellectual property rights of commercial exploitation over a given product are considered exhausted once the product has been sold by their rights owner or with his consent in any part of the world. The exhaustion here refers to one of the limits of intellectual property rights. This limitation is also called the “first sale doctrine”, in which the rights of commercial exploitation for a given product end with the product’s first sale. Subsequent acts of resale, rental, lending or other forms of commercial use by third parties can no longer be controlled or opposed by the proprietor.
Three (3) features about the principle of exhaustion of patent rights in Singapore are worth noting.
First, importation is permitted even if the proprietor of the patent in Singapore is different from the proprietor of the patent in the country of manufacture. For example, an inventor X obtains a patent for his invention in Singapore and in Malaysia. Then X assigns his rights in Malaysia to Y. The products made by Y, which are indeed genuine products, can be legally imported to Singapore without X having to stop or oppose to the importation.
Secondly, “use” of a patented process in Singapore will constitute a patent infringement as Section 66(2)(g) of the Act only covers importation of a patented product, or a product obtained by means of a patented process or to which a patented process has been applied and not the “use” of the patented process.
Lastly, for the purposes of determining if the product was produced by or with the consent of the proprietor of the patent, any condition imposed by him restricting the resale of the product outside the territory of manufacture/first sale must be disregarded. This is called the “deemed consent” concept. For example, a product in Malaysia having a label “Not for sale outside Malaysia” cannot prevent the importation of this product into Singapore. Accordingly, if the proprietor grants a license to a party in Malaysia to make and sell the product only in Malaysia, the proprietor is nonetheless deemed to have given his consent to the making of any product made by this licensee in spite of such a condition.2
Hence, under section 66(2)(g) of the Act, it is not an act of infringement if a patented product, or a product that is obtained by means of a patented process or to which a patented process has been applied, is imported to Singapore so long as it the product concerned was produced by or with the consent (conditional or otherwise) of the proprietor of the patent or any person licensed by him.
In summary, the policy reasons for allowing parallel importation of patented product is based on the principle that parallel imported products are genuine products and that the public Singapore should benefit from competition and the lower prices resulting from the availability of parallel imports.
[1] From WIPO website (http://www.wipo.int)
[2] Law of Intellectual Property of Singapore