Tackling grey market goods in Brazil - WTR 70

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FEATURE PARALLEL IMPORTS IN BRAZIL
AUTHOR
PAULA MENA
BARRETO
Brazil has no legal definition of ‘parallel imports’, despite this being an issue that blights
many international brands. However, rights holders can take measures to combat this
practice in the Brazilian marketplace
Tackling grey market
goods in Brazil
Consider the following scenario: a foreign company
which manufactures a product and owns the related
trademark sells the product in the Brazilian market
through a network of licensees and authorised
distributors. However, it discovers that its product is also
being sold in the country by parties outside its official
network at lower prices – an undesirable situation. These
goods reach the domestic market as parallel imports, a
particular channel of the so-called ‘grey market’. What
can the foreign manufacturer do in these cases? Can
companies combat this practice in the Brazilian market?
If so, by what means?
This article discusses parallel imports and the role of
IP law in tackling this practice, with a particular focus
on the applicable legislation and case law in relation
to trademark rights. It also addresses questions that
might be useful to victims of parallel imports in the
Brazilian territory.
Parallel imports
There is no specific legal definition of ‘parallel imports’
in Brazil, as is the case for most other countries
and international treaties. However, in 1991 the
International League of Competition Law conducted a
comprehensive study of the matter and defined ‘parallel
imports’ as:
those carried out by citizens or companies at their own
behest or that of other parties, outside the exclusive or
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PARALLEL IMPORTS IN BRAZIL FEATURE
– a situation which has become more pervasive with
globalisation and the growing spread of technology.
Notwithstanding this, the use or registration of an asset
(eg, a trademark) in a particular country does not vest
the holder with the exclusive right to use this asset in
other countries, since trademark protection remains
territorial. Given this, protection for trademarks in
Brazil is an important condition for rights holders
interested in developing their activities and protecting
their assets, including by fighting unauthorised
parallel imports.
The Industrial Property Law (9,279/1996) determines
that ownership of a mark is acquired through a valid
registration which gives the owner exclusive right to
use the mark throughout the national territory for
a specified period of time. As enshrined in the 1998
Constitution, these temporary privileges are designed
to stimulate economic and other productive activities
and thus contribute to Brazil’s economic and social
development.
As well as these time limits, IP rights are subject
to the principle of exhaustion, which arises from the
need to harmonise IP rights with the principles of free
competition and circulation of goods, by limiting any
monopolies that arise from them.
A trademark owner’s right to exclude others from
selling or distributing a product or service bearing its
mark without authorisation is thus limited to the first
sale of the product or service. This right is exhausted
the moment that the good or service is placed in the
market for the first time by the rights holder (or with its
consent) – the so-called ‘first-sale doctrine’. This allows
a purchaser to resell a product or exploit it without
interference from the manufacturer or the need for
approval. This principle does not exhaust the owner’s
rights in its trademarks, but merely its control over the
circulation of the products in the market.
However, there are legitimate questions with regard to
the scope for application of the principle of exhaustion
of rights on two essential points: the relevant geographic
territory and the need (or not) of consent to the first sale.
With regard to the territorial aspect, in general there
are three scopes that apply: international, national or
regional exhaustion.
International rights are exhausted when the product
is placed in the market in any country, after which
it may be resold or imported into any other country.
Under this, parallel imports are authorised provided that
the product was placed on the market lawfully in any
territory. This is the system that applies in the United
States – under it, rights holders have no right to control
trademark-bearing goods after the first sale of the
product in any territory.
The regional exhaustion system operates in the
context of trade blocs, so that the first sale doctrine
applies to the placement of the product in the market
of any member country of the group. The classic
example of this is the European Union. However, this
system does not apply to all trade blocs. Mercosul – a
trading bloc made up of Argentina, Brazil, Paraguay
and Uruguay – has no specific regime for regional
exhaustion. For this reason, the legislation of each
country applies.
selective distribution circuits of a national territory, of
products legitimately sold in another territory by the
holder of intellectual property rights or other rights
associated with the manufacture, marketing and/
or identification of a product, or by any other party
with the consent or authorisation of the holder. (In
Fekete, Elizabeth Kasnar, “Importações Paralelas: A
Implementação do Princípio da Exaustão de Direitos
no Mercosul, diante do Contexto de Globalização”,
Revista de Direito Mercantil, vol 113, p 155.)
Genuine products reach the market through different
sales channels: on one side are the official channels,
comprising authorised importers, distributors and
resellers; on the other are the unofficial channels,
involving imports of goods from foreign sources which
may or may not be authorised by the manufacturers
in their home territories. This practice can result in
considerable harm for the manufacturer and its official
network. Regardless of whether parallel goods are sold
at a lower price, the practice still erodes the market
share of the authorised distributors. It can also result
in complaints from consumers over lack of warranty
coverage and technical assistance or specifications
which are not tailored for the Brazilian market. In the
case of high-end goods, the lower prices can damage a
brand’s distinctiveness.
It is not uncommon for there to be confusion between
parallel imports and counterfeit goods. In fact, the two
are quite distinct. Parallel imports involve authentic
products, manufactured under legitimate IP rights.
In contrast, counterfeiting involves the imitation of a
genuine product and its trademark and is intended to
deceive consumers. In the latter case, the trademark is
imitated or reproduced without authorisation, which is
considered a crime under Brazilian law.
The confusion generally stems from the fact that
trade channels for parallel imports are, in many cases,
the same as those used by counterfeiters, who like to
mix their counterfeits with legitimate goods in order
to evade detection. Rights holders generally use well-
established agents and ports where the customs officials
know the agents and have experience in detecting
irregularities in goods. As pointed out by Professor
Maristela Basso, parallel importers and counterfeiters
generally avoid such well-established routes and instead
use multiple smaller ports and agents, benefiting from
the customs officials’ lack of knowledge (in Propriedade
Intelectual e Importação Paralela, Sao Paulo: Editora
Atlas, 2011, p 188).
In any case, even though parallel imports are not
counterfeits, since they involve legitimate products,
IP law can still be invoked to deter parallel importers
in the same way that they can be used to fight fake
goods. Although the practice of parallel imports can be
combated based on various IP rights, here the focus is on
trademark rules – more specifically the exclusive right of
the trademark owner to use its mark for the purposes for
which it was registered.
Limits on IP rights and exhaustion of rights
IP law is intrinsically international in scope, as the
rights are intangible and universal in their essence

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Hence, if any of these conditions are not present,
then the exhaustion of rights does not apply. In such
circumstances, the rights holder can take legal action to
defend its brand against dilution or other loss of value by
preventing sales or parallel imports.
With respect to the rights holder’s consent, if the
rights holder clearly consented for certain products to be
imported by a Brazilian company, it cannot then claim
that its exclusivity has been violated by illicit parallel
imports. However, it can sometimes be difficult to evaluate
whether this consent has been granted if it was not
express. The law is silent on how to ascertain the existence
of tacit authorisation. It is a sticky issue which is usually
decided by courts on the facts of the individual case.
Under the national exhaustion system, in contrast,
the exhaustion of rights occurs on the first sale of
the product in a particular country. However, this
exhaustion does not extend to other countries. Under
this system parallel imports are prohibited, since the
product may be resold only after being placed on
the particular national market. Prior sales in other
countries are insufficient to authorise another party
to import the product to a country that adopts the
principle of national exhaustion. This is the system that
applies in Brazil.
Brazil’s Industrial Property Law covers the national
exhaustion system in Article 132(III), which establishes
that the owner of a mark may not prevent the free
circulation of products placed in the internal market
by it or with its consent, except under Article 68, which
relates to specific cases of patents under compulsory
licences, where the international system applies.
Thus, after the first authorised sale of a product,
it can be resold, rented, lent or otherwise exploited
commercially by the acquirer with no control or
interference from the rights holder, although it may
take action to prevent imports if it has not consented to
marketing in Brazil.
In other words, exhaustion means that the rights
holder loses the right to prevent circulation after the
first authorised sale within the internal market. It is
presumed that the first sale by the rights holder or an
authorised representative implies that fair remuneration
has been received.
The conditions for exhaustion of rights set out in the
Industrial Property Law are objective and assume that:
• the market in question is national;
• the product has been placed in circulation (in the
national market) by the rights holder or with its
consent; and
• consent is clear and unequivocal.
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The Supreme Federal
Court in Brasilia is
the highest legal
destination for
constitutional matters
in Brazil
The law is silent on how to ascertain the
existence of tacit authorisation. It is a
sticky issue which is usually decided by
courts on the facts of the individual case
Case law
Unfortunately, past decisions by Brazilian courts on
parallel imports are contradictory, despite the fact that
the principle of national exhaustion of rights is clearly
set out in the Industrial Property Law.
Nevertheless, in December 2012 the Superior
Tribunal of Justice – the highest court for non-
constitutional matters – issued a landmark decision
with respect to products bearing the marks JOHNNIE
WALKER, WHITE HORSE and BLACK WHITE
(Special Appeal 1249718/CE, 3rd panel, Reporting Judge
FEATURE PARALLEL IMPORTS IN BRAZIL

4. www.WorldTrademarkReview.com DECEMBER 2017/JANUARY 2018 | 69
indeed necessary in order for the licensee to sue parallel
importers. However, this matter is far from settled. With
respect to the DIESEL case, the lower courts denied the
defendant’s claim (ie, to be the exclusive distributor
of the products in the country) due to the agreement’s
lack of effect before third parties. The Superior Court
of Justice reversed this holding, although it did not
comment further on the matter.
Alternatives to fighting
Due to the complexity of the issue and the difficulty of
identifying all participants in a chain of parallel imports,
rights holders should consider preventive measures to
try to minimise the practice by blocking unauthorised
products from entering the market. This should also
reduce the likelihood of consumer claims resulting from
defects, lack of warranty coverage or incompatibility
with Brazilian technical standards.
One such measure is to publish information on
packaging which identifies the product’s exclusive sales
territory. This will act as evidence that consent was
not granted for imports into any other territory. While
parallel importers can alter such information, doing
so would serve as further evidence against them, since
such an alteration could be classed as a falsification of a
public seal or sign (Article 296 of the Penal Code). Rights
holders might also consider other measures with regard
to notice on product packaging, depending on how the
product is imported and distributed.
In the contractual sphere, rights holders can protect
themselves against claims from their licensees and
distributors. Regardless of whether the rights in question
are licensed exclusively within a certain territory, the
owner should reserve the right to act directly in other
territories where the licence does not apply, within the
bounds of local antitrust law. Although it is obvious that
licensing or exclusivity implicitly involves a specific
territory, expressly stating that such rights are reserved
can be helpful if it comes to litigation with a licensee
over the question of the scope of consent.
Sidnei Beneti, published December 18 2012). While
the decision is not binding on other courts, it does
try to establish some semblance of uniformity given
the various disparate decisions issued by the lower
appellate courts on this issue.
According to the leading opinion of the reporting
judge, parallel imports are treated in a wide variety
of ways in different countries, depending on their
legal systems. However, the case in question involved
a guarantee of exclusivity resulting from product
distribution contracts protected by patents or
trademarks. After considering the system of rights
exhaustion and the applicability of Article 132(III) of the
Industrial Property Law, the reporting judge concluded
that under Brazilian law the rights of the trademark
owner in this area had been exhausted by the legitimate
introduction of goods onto the national market, based
on its tacit or express consent. Hence, the decision
recognised the principle of national exhaustion in Brazil.
The decision also highlighted past failures by the
lower courts with regard to the application of this law to
counterfeit products. In this respect, the judge stressed
that the restriction applies only to genuine products, not
to the import of products which are already prohibited
for being counterfeits.
On the matter of the rights holder’s consent, the
appellate panel, following the reporting judge’s opinion,
held that this must be determined on a case-by-case
basis. In this instance, the panel found that tacit consent
was present, since the products had been imported
into Brazil for 15 years with no opposition from the
trademark owner, albeit without express consent
through a written agreement.
However, a recent decision issued by the Superior
Tribunal of Justice involving fashion products bearing
the DIESEL mark confirmed that the parallel imports
in this case were illegal due to the lack of consent from
the owner or authorised person for the sale of the
imported products within the national territory (Special
Appeal 1.323.401, Reporting Judge Marco Aurélio Belize,
published April 19 2016).
Combating parallel imports
Under the law, rights holders are entitled to take legal
action to halt parallel imports. Exclusive licensees can
also legitimately fight this practice where they have
been contractually authorised to do so in the rights
holder’s name.
Some decisions have held that exclusive distributors
or licensees have standing to file suit against parallel
imports, even without authorisation from the trademark
owner, based on the economic harm suffered. However,
it is wise to include a specific stipulation in the
distribution or licence agreement as to whether the
distributor or licensee is empowered to take legal action
against parallel imports.
Another related issue is the need to record licence
agreements with the National Industrial Property
Institute (INPI) in order to support legal action
against parallel imports based on their exclusivity.
As registration with the INPI is necessary in order to
produce effects before third parties, the prevailing
doctrine from legal scholars is that registration is
Finally, it is important to include a stipulation on
licence and distribution contracts prohibiting the
licensee or distributor from exporting the products to
other countries or from selling to a party that clearly has
such intention. This will provide grounds for taking legal
action against unauthorised sales of products, regardless
of whether they are characterised as parallel imports.
Other measures
Parallel imports are not considered a criminal matter
in Brazil as they are not expressly listed as a trademark
crime. With respect to trademarks, the crimes
established in the Industrial Property Law involve only
reproduction, alteration or imitation of brands which
can mislead consumers.
Parallel imports are not considered a
criminal matter in Brazil
PARALLEL IMPORTS IN BRAZIL FEATURE

5. Paula Mena Barreto is a partner at Campos Mello Advogados
paula.menabarreto@cmalaw.com
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required documents; or
• there is a lack of relevant technical certification (eg,
certain products require certification by the National
Telecommunications Agency).
Consumer law
Parallel imports involve a trade-off between lower
prices or access to new models on the one hand and
lack of warranty coverage, technical assistance or
even conformity with local technical standards on the
other. Therefore, another aspect in play here is the
liability of producers for damage caused to consumers.
Brazil’s Consumer Defence Code establishes that the
manufacturer – whether foreign or national – and the
importer are liable to consumers, irrespective of intent or
blame for repairing damages caused by defects resulting
from “design, fabrication, construction, assembly,
formulas, manipulation, presentation or packaging of
their products, as well as for insufficient or inadequate
information on their utilization and risks”. Besides being
strict, this liability is also joint and several between the
manufacturer and the importer.
As can be imagined, this possibility of strict liability is
a cause for concern for foreign manufacturers.
There is also a controversial discussion over the right
of local licensees to refuse to provide technical assistance
for products purchased from parallel importers. Despite
the reasonable argument that no liability should be
found due to products that reach the Brazilian market
without authorisation, many court decisions have held
manufacturers or their local authorised distributors
liable for harm caused to consumers by products
resulting from parallel importers.
In almost all cases involving parallel imports,
reaching an equitable solution requires the courts to
analyse the particularities of each case. For instance, in
the case of a product from a parallel importer that does
not meet local technical specifications, it appears logical
to rule out the manufacturer’s liability. However, this
may not be the position taken by the courts due to the
consumer protection system in place in Brazil.
Conclusion
Fighting the practice of parallel imports is closely tied
up with IP rights because of the monopoly granted to a
rights holder on registration. Each country has its own
rules on the matter, set out in both local legislation and
international treaties.
The exercise of IP rights has certain limits, such as
the principle of exhaustion of rights, which establishes
that after the first sale of the product by the rights holder
or a party authorised by it, it no longer has the right to
prevent free circulation of the product in the market.
Because of the importance of this issue and the
losses that parallel imports can inflict on rights holders
and their licensees – not to mention the consumer
protection system in Brazil – companies should be
aware of the measures available to them to prevent or
deter this practice.
Therefore, parallel imports are a matter of tort,
subject to redress according to the general rules of the
Civil Code, according to which “anyone that by voluntary
action or omission, negligence or imprudence violates a
right and causes damage to another, even if exclusively
moral, commits an illicit act”. The code in turn provides
that anyone who causes damage to another through an
illicit act is obliged to repair it.
It is even possible for an exclusive licensee to seek
compensation for losses and damages from the rights
holder as a result of parallel imports, based on a claim
that the owner was aware of the imports and did nothing
to prevent them or tacitly consented to them. The
outcome of such cases, besides analysis of the contract
between the parties, will obviously depend on the
evidence of both such knowledge and whether there was
tacit acceptance.
Besides the Civil Code rules on torts, the Industrial
Property Law also allows injured parties to obtain
compensation for losses and damages caused by acts
that violate IP rights and acts of unfair competition, to
the extent that this can harm reputation, divert clients
and create confusion between commercial, industrial or
service provision establishments.
Based on these rules, it is possible for a licensee
to try to prevent the sale of parallel imports through
the courts (eg, through injunctions) or even to seek
compensation from a rights holder if its action
or omission caused harm to the licensee (eg, in a
trademark licence agreement).
In certain cases, it may be possible to argue that
parallel imports constitute an act of unfair competition,
based on Article 195(III) of the Industrial Property
Law. According to this, a crime of unfair competition
is committed by any person which “uses fraudulent
means to divert the customers of another party, for
his own profit or another party’s profit”. Given that
licensees, distributors and franchisees compete with
parallel importers under unequal conditions (eg, with
regard to tax burden, foreign exchange policy and labour
relations), such imports can sometimes be characterised
as unfairly diverting customers, when an element of
fraud is present.
Border measures can also be relevant in such
matters, as parallel imports nearly always involve the
entry of products through ports, airports or frontier
posts, especially in the case of imports by fictitious
companies with false addresses, something which
can be hard to track down in Brazil. The Customs
Regulations – which regulate the administration of
customs activities – set out procedures for the auction
or forfeiture of goods in relation to counterfeit products
or fraudulent situations. However, the regulations
remain silent on the subject of parallel imports of
legitimate products. In these cases, the aggrieved party
must usually obtain a court order recognising the illegal
nature of the imports before it can request the customs
authorities to impound the goods.
Notwithstanding this, there are some situations
where parallel imports can be subject to impoundment
by the customs authorities. These include where:
• goods have been diverted from lawful channels;
• the importer fails to present invoices or other
FEATURE PARALLEL IMPORTS IN BRAZIL