In today’s global market, the battle between exclusive distributors and parallel importers is growing fiercer. Generally, exclusive distributors are appointed by the original manufacturers of brand products and granted exclusive rights to sell those products in specific regions or countries. This setup allows them to control product prices and ensure standards of service and quality within their territories. However, parallel importers circumvent these exclusive supply chains by acquiring products from markets in other countries and importing them, offering lower prices that often attract consumers and challenge the market position and profit margins of exclusive distributors.
 
Countries that permit parallel imports see them as a means to enhance market competition and reduce consumer costs. In such environments, a significant issue for exclusive distributors is how to elevate market entry barriers for parallel importers through measures beyond trademark protection, such as verifying the appropriateness of product information and the legality of marketing materials. For parallel importers, the challenge is in leveraging their price advantage without being hindered by competition laws or other intellectual property regulations enforced by exclusive distributors.
 
A recent intriguing case involving both exclusive distributors and parallel importers, who faced legal judgments and penalties from the Fair Trade Commission, offers valuable insights. The summary of the case is as follows:

1. ABC Corporation in Taiwan serves as the exclusive distributor for G brand apparel and is authorized by G Company to use the G brand trademarks and copyrights in Taiwan.
2. The original manufacturer of G brand labels products destined for Asia with the importer's information, including that of ABC Corporation and other Asian importers, marked as "Imported into Taiwan by: ABC Corporation."
3. XYZ Company in Taiwan independently imported G brand apparel marked with "Imported into Taiwan by: ABC Corporation" and sold these products in Taiwan without removing ABC Corporation’s labels.
4. ABC Corporation filed a lawsuit claiming that XYZ Company, being a major supplier of G brand apparel in Taiwan and a competitor, used parallel imported goods, which differ in source and after-sales service. The court ruled that XYZ Company’s use of misleading importer information violated fair competition laws and ordered XYZ to compensate ABC Corporation NT$1 million. Additionally, XYZ was prohibited from using "Imported into Taiwan by: ABC Corporation" and related ABC Corporation contact details on products not sourced from ABC.
5. Following the court decision, ABC Corporation announced on its website that XYZ Company was fined NT$1 million and prohibited from selling G brand products not sourced from the "G Brand Exclusive Distributor in Taiwan" (ABC Corporation). It also stated that XYZ Company had been legally fined NT$10 million for selling illegal goods and prohibited from selling these goods as a punitive measure.
6. XYZ Company reported this to the Fair Trade Commission, which found that ABC Corporation's website statements misleadingly suggested that XYZ Company's G brand products, which were not sourced from ABC, were barred from being sold in the Taiwanese market by a legal judgment. However, since XYZ's products were sourced through parallel imports—a practice that promotes internal brand competition and reduces prices and is not prohibited by law—the court's decision only barred XYZ from using ABC’s importer information, not from selling the parallel-imported G brand products.

In this case, we observed that parallel importers, during the legal process of parallel importing, inadvertently allowed consumers to associate the parallel-imported goods with the exclusive distributors, resulting in a court-ordered compensation. Meanwhile, after winning the lawsuit, the exclusive distributors overly enforced their rights protection measures, claiming that the legitimately parallel-imported goods were illegal, which led to penalties from the Fair Trade Commission. This situation highlights the tensions between the two parties and underscores the importance of precisely managing their actions while protecting their rights.
 
[This article provides only a general overview of the issues discussed and does not constitute legal advice or conclusions regarding any specific case. It also does not necessarily represent the positions of this firm or its clients. If you need specific legal advice, please consult a professional attorney.]