Part VI of our eBay VeRO program series explains the concept of “parallel imports”, an area of intellectual property rights that can get you into trouble if you don't understand it well.

Parallel Imports Explained

Parallel imports (sometimes referred to as grey-market goods) refer to branded goods that are imported into a market and sold there without the consent of the owner of the trademark in that market. The goods are “genuine” goods (as distinct from counterfeit goods), in that they have been manufactured by or for or under license from the brand owner. However, they may have been formulated or packaged for a particular jurisdiction, and then are imported into a different jurisdiction from that intended by the brand owner. These goods are sometimes referred to as part of the “grey market”.

There can be good reasons for a manufacturer to produce products for specific markets such as:

Consider the stringent food safety and environmental laws in industrialised nations versus the lack of such manufacturing regulation in many developing countries.

The Manufacturer's Point of View

Given that the manufacturer may be producing products in accordance with country-specific laws, it becomes imperative that they maintain control over the geographic distribution and sale location of their products. This process of control used to be fairly simple. The manufacture was done in one location, and then the products were shipped to the authorised distributor. The distributor broke the lots up and sold them only to authorised retailers. A retailer had to have a business license, often times had to be approved by both the manufacture and distributor to sell the goods. However, with the advent of the Internet, the discipline of traditional distribution channels has quickly disintegrated. Global entrepreneurship has resulted in the diversion of goods meant only for one country or group of countries (the European Union, for example) to other countries. Think about the lower level of regulation regarding children's toys in China. If toys manufactured for sale only in China are diverted to the United States or the EU, those toys may not meet safety requirements and may harm a child, making the seller liable for damages.

In general, this entrepreneurship is reducing prices for the end consumer, with the trade-offs being a reduction in profits to manufacturers, reductions in quality, and sometimes safety hazards for consumers.

And that's not the end of the problems for purchasers of parallel imports or grey market products. Manufacturers may refuse to honour the warranty of an item purchased from grey-market sources. Alternatively, they may provide the warranty service only from the manufacturer's subsidiary in the intended country of import, not the diverted third country where the grey goods are ultimately sold by the distributor or retailer.

Grey market issues tend to be most prevalent with these products:

eBay's Point of View

eBay considers grey market items to be counterfeit and they are not allowed. The VeRO program provides the opportunity for manufacturers to demand that these products be de-listed.

Recommendations for Sellers

As a seller, it can be difficult to identify grey market goods. You will need to rely on your supplier to help you clarify these issues. Ask your distributor about trademark licensing agreements associated with the products. Ask them about trademark agreements and territory. If you are selling collectibles, define a niche for yourself so that you can familiarise yourself with the specific issues surrounding products in your niche. If you are dealing with a product manufactured in your home country, you may want to limit sales of the item to your home country only.

Now that you have a better understanding of the VeRO program, the rules surrounding parallel imports and some strategies for avoiding problems, move on to Part VII to learn what to do if you get a VeRO notice.