What is Parallel Importing?

A competitive global market always creates a gray market

Digital cameras for sale in Nathan Road shop, Tsim Sha Tsui.
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In a recent article I wrote, "The Mysterious Triangular Trade," we talked about what is a triangular trade. With parallel importing, it is a form of international trade that still exists and is oftentimes referred to as the “gray market.” Here, I define what parallel importing is, provide an example of parallel importing and touch on the lawfulness of parallel importations.

Defining Parallel Importing

Parallel importation is really an unauthorized import into a country.

It refers to non-counterfeit goods imported from one country to another without the express permission of the intellectual property owner. Individuals refer to this as gray market goods, and these trades generally entail high-priced branded goods (e.g., jewelry, cameras, tablets, watches and so on). Looking at it from a different angle: The parallel part of the import involves a patented, copyrighted or trademarked product brought into a country at a reduced price by a distributor, wholesaler or retailer where the product is already marketed. That’s the incentive for the import in the first place. With lower prices, it creates a more competitive landscape, forcing authorized firms to do a better job serving local customers and offering greater customer service satisfaction.

Example of Parallel Importing

Many years ago while working in the food product industry, I had this fabulous idea of exporting Nabisco’s Oreo cookies to Japan.

At the time, Japan didn’t sell a whole lot of American cookie brands and I thought Oreos would be a huge success if given the right opportunity. So instead of reaching out directly to Nabisco to buy Oreos (I was a small fish in a big sea) and exporting to Japan, I went to a major food distributor in Chicago and asked if I could buy volume quantities of Oreos each month from them for export to Japan.

They said “yes.” Everyone would win and make money! After I did my homework–thank goodness–I discovered Nabisco had strict rules in place on who handled their products on an exclusive basis worldwide and, in this instance, some of Nabisco’s products were either made in Japan or a neighboring country for transport to Japan. Needless to say, although the opportunity seemed ripe, I scratched the idea of buying Oreos from the Chicago distributor for export to Japan because it was too complicated and I sensed there might be an infringement of some sort. Now, in hindsight, I realize that would have been a parallel import to Japan.

The Lawfulness of Parallel Imports

Is there anything illegal about producing goods and exporting them? No, provided you are the owner of the goods. But what comes into question is how did your goods arrive in the country? For example, did you originally export your goods to the UK and discover much to your surprise that those same goods were then moved from the UK to Spain for consumption without your permission? That’s parallel importing, illegally. And here’s how it can happen.

Let’s say you have an exclusive distributor in the UK, we’ll call it Company XYZ and a different exclusive distributor in Spain, Company 123.

Many months ago you remember receiving an inquiry from a different company, ABC in Spain, asking to sell your products in that market on an exclusive basis. You responded politely by saying you already have representation in that market. Company ABC responds with “but we sell through e-commerce channels” and your representative “sells only through mom and pop stores.” You know what you assigned Company 123 but double-check the contract just to make sure. According to your Spain contract with Company 123, it is responsible for selling throughout Spain to all customer categories, including e-commerce. You convey that information to Company ABC and wish them well.

Fast forward to the here and now. You receive an email from Company 123 expressing outrage that sales of your products are being made via one of the largest online platforms in Spain and not of their doing.

Company 123 is clueless as to how these sales are taking place and questioning why you would authorize sales to another company when your contract specifically states they have “exclusivity” in Spain.

This is a wake-up call to a potential parallel import. Spain Company ABC did its homework. It found out who was importing your product in the UK, contacted an intermediary (third party) in the UK to solicit Company XYZ (to make it appear that the intermediary was buying the product for UK consumption) and then the intermediary re-exported the product to Spain Company ABC so it could sell–unauthorized—through its e-commerce channels.

Your exclusive UK Company XYZ thought the sale was legit to the other UK firm. That UK intermediary thought an export is an export–no sweat–and got the goods in the hands of the eager Spain Company ABC.

The amazing aspect about parallel imports or gray market activities is that when big money is made, one can easily turn a blind eye to the activities for fear of losing out on sales and profits. Besides, there is little one can do about controlling further acts of commercial exploitation, such as re-sale, selling to unauthorized distribution channels or customers, short of patrolling the market in person.