This post was first published on May 27, 2011.
Parallel Imports occurs when authentic products are imported cheaply, without the consent of the producer who has a Trade mark, Copyright, Patent or other intellectual property right in these products, with the aim to compete with the producer’s own products, which he himself had originally marketed abroad at a lower price. This amendment aims to foster enhanced competition amongst distributors and thereby enable Indian consumers and students to access a wider range of books at lower prices in a timely manner. Thus while parallel importers (local resellers) are sourcing legitimate genuine product from overseas, they are bypassing the authorized supply channels in the importing country. The practice of parallel importing occurs because companies, either the manufacturer or the distributor, set differential prices for their products in different markets. The examples of Parallel Imports are like Importation of computer games and hardware from Asia to sell in Australian markets.In India, the issue of exhaustion and parallel imports is more complex when applied to copyrights. The complexities stems from the very nature of the copyright, it comprises of a bundle of different rights in the same work that can be exploited independently.
Therefore, a stricter set of circumstances maybe required before exhaustion is imposed on a copyright holder, the idea being that the copyright holder’s rights may not be exhausted upon the act of first sale of the work embodying copyrighted subject matter without regard to additional rights in the work such as the rights of rental, making adaptations etc. The general rule in India is that an importer must obtain a license from the copyright holder in India to import the work, which must be in the form of an express consent. Under Section 51 of the Copyright Act, the copyright in a work is infringed when any person, who: 1.without the license of the copyright holder does anything the right to do which by virtue of the Act is conferred upon the copyright holder, or 2. Imports into India any “infringing copies” of the work, except two copies for personal use.Penguin Books, England v. India Distributers AIR 1985 Del 29The copyright Law was successfully used to prevent parallel importation of copyrighted works into India which were manufactured and sold oversee by a foreign licensee. In this case, Penguin bought an infringement action against India Distributers. The defendant was importing copies of these titles purchased in U.S and was selling them at significantly lower prices than the authorized distribution channels of Penguin. Division bench granted the injunction on the ground that the copyright is infringed if any person, without a license from the copyright holder, imports into literary works for any purpose, including selling, distributing or other commercial activities.By virtue of S.51 Parallel Imports tends to be illegal. But through the Copyright Amendment Act, 2010 a section has been proposed to legalize Parallel Imports which is yet to be ratified. Section 2(m), a proposed amendment to India’s copyright law that would allow the parallel import of books, is a dry piece of legalese, but it’s sparked a blog war, a flurry of publisher white papers, and a wide debate on copyright and territory.The rationale is a legally sound one to align Indian copyright law with Indian patent and trademark law, both of which follow the principle of “international exhaustion” i.e. when once a product has been legitimately sold in any part of the world, that product can be resold anywhere in the world without the consent of the owner of the copyright, be that the author or the publisher.
According to the Association of Publishers of India, “This proviso would mean that books published in any country could be freely made available and sold in India, without any incidence of copyright infringement. Theoretically, parallel imports would allow a publisher or a printer who does not hold copyright to an Indian edition of a book to print his or her own editions of the book, under certain conditions, and release them back into the Indian market.
There is also a fear among publishers that this might lead to widespread “dumping”, where the market is flooded with cheap, When this applies to books, specifically, one side argues that allowing “parallel imports” of books would open up the Indian publishing market to competition and would allow readers access to cheaper books. The other side argues that authors and publishers would suffer, and that in the long run, so would the reader. Quoting Thomas Abraham, managing director, Hachette India, “This would be the death of publishing and writing as we know it in India and ironically by surfeit of cheaper books available in the market widespread.
A Step back from the rhetoric and the very complex issues involved about the intricacies of copyright law, territoriality in publishing, the book remainders market and book dumping, and in this way  the amendment is likely to affect readers, authors, publishers and booksellers. The booksellers want to give their customers a wider range at a lower price. An open market immediately affords both: the cost of which is that publishers with Indian market rights might suffer. The more significantly affected parties are authors, publishers and readers. If, arguably, territorial rights are not sold, authors might earn lower advances. Publishers, who have paid for territorial rights, are not able to get the full benefit of their monies.
In general the publishers and authors are not very happy about such an Amendment. One of such Copyright Lawyer Nandita Saikia observes that “once a publisher effectively loses control over an edition of a book if competing editions are allowed into the market then this would significantly diminish the ability of publishers to invest in Indian authors and Indian writing.”  From Abraham at Hachette to Chiki Sarkar at Random House to Tata McGraw Hill, there seems to be consensus on this aspect of the amendment. The publishing groups unanimously stand against this clause in the Amendment Bill.
The authors hold that they have the Right to assign the rights to sell their books to any publishing House in India and the law should protect such right to encourage the creativity. But this whole concept of Parallel import is a sharp mockery of that right, and it will deprive the Authors from potential royalties.
There are many arguments against the Parallel Imports Proviso. International exhaustion i.e. (when once a product has been legitimately sold in any part of the world, that product can be resold anywhere in the world without the consent of the owner of the copyright, be that the author or the publisher) would lower the welfare of developing economies through higher prices and lower product availability. However, most developing countries are opposed to restricting parallel trade.
Parallel traders take free ride on the investment, marketing and service costs of authorized distributors. On the one hand, parallel trade reduces the mark-up accruing to manufacturers and benefits consumers from integration. On the other parallel trade wastes resources through cross-hauling goods to be traded in both directions and for parallel exports to flow from high-retail-price countries to low-retail-price countries. Efficient recovery of R&D costs might require setting different prices in different markets when R&D costs are joint in the sense of producing goods and services that are sold across borders. International price differences may be the result of national price regulations established to achieve social objectives. Publishers also argue that section 2(m) enables export of low-priced editions from India, and that this would destroy their high-priced Western markets. This is a serious and misguided conflation of the ‘import’ and ‘export’ issue. Section 2(m) deals only with parallel imports and not with the legality of export from India. The problem is that for most foreign titles there are no low cost editions available. Hence, in this scenario allowing parallel imports will increase competition amongst the distributors who will be keen on picking up cheaper copies from any part of the world, without seeking copyright owners’ permission.
The Parallel Imports provisions in the Copyright (Amendment) Bill, 2010 has generated much of the debate on the legislation, and this a clause has been causing a storm in the publishing industry.
The ‘parallel import’ amendment that seeks to ease imports of foreign books and their cheap copies recently sparked a signature campaign against the move by highly Famed Authors like Ramchandra Guha, William Dalrymple, Jhumpa Lahiri and Vikram Seth among others and it forms a news that the Union HRD Ministry may drop the clause for now and instead initiate a study on the impact that the amendment can have on the Indian publishing industry. Thus, the Parliamentary Standing Committee having recently cleared the Bill, it is set to be taken to Cabinet soon for approval without the ‘parallel import’ clause.
Thus to Conclude On analyzing the whole concept of parallel imports and exhaustion, it is important to understand that the main thrust is on balancing the counter interests. After studying the empirical results and survey reports, one cannot come to the conclusion that whether parallel imports is essentially a bad or good trade practice. One has to look into the circumstances of a particular geographical area, mindset of folk and state of economy before giving a definitive answer to the question. For example for the developing economies this practice seems favorable in short run but in long run it is against their economic interest and jeopardizes their welfare. This is the reason why WTO regime has not created any mandatory provision in this respect, but has given liberty to member states to legislate on their own according to their circumstances. It is against this back ground that some countries or regions have made the exhaustion regime subject to considerations of trade policy, an approach that more often than not fits with the underlying basic principles of the intellectual property rights in question. Thus given the multiplicity of causes and ambiguous results, the question of whether regulating parallel imports is beneficial or harmful is ultimately an empirical question that depends on circumstances.
Authored by: Ms. Ruhi Chanda
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