Grey goods: Not a black and white issue in SA law

20 Oct 2017

‘Grey goods’. There’s even a stigma around the phrase, with many people believing that grey goods are always counterfeit and illegal to purchase. But, depending on the circumstances under which the goods were purchased, they may not be fakes at all.

Defining grey goods

Let’s begin with a definition of grey goods. Considered to be ‘parallel imports’, these are goods that are genuine (in that they have been manufactured by the proprietor himself or under license), that may be marked or associated with the trade mark of their proprietor, but that are exported into SA or elsewhere without his/her authorisation.

The proprietor would want to prevent such use of his trade mark in relation to the genuine goods, because he believes that this will encroach on his own trade under the trade mark; and possibly diminishing his/his licensee’s sales of the genuine products in SA.

Prevailing case law

Indeed, in Protective Mining & Industrial Equipment Systems (Pty) Ltd (formerly Hampo Systems (Pty) Ltd) v Audiolens (Cape) (Pty) Ltd, the Court found that:

a) The sale of “genuine goods”, properly marked by or on behalf of the proprietor of a trade mark, does not constitute an infringement of the trade mark.

b) If the goods sold (originally “genuine”) were adapted, altered, modified, or changed after the affixing of the trade mark and before its sale by the alleged infringer, the situation may be quite different.

c) If the proprietor (or his agent) was not the person who applied the trade mark, but was someone else, such as a foreign licensee, the situation may be different.

In Protective Mining, the Court held that the proprietor had given implied consent to use his trade mark and could not unilaterally relinquish such consent.

In a nutshell, then, there are two basic principles involved in ‘legalising’ goods (or where the courts will view such goods as legal) that are imported from another country. These are:

1. The goods must be “genuine”; i.e. the owner/proprietor of the trade mark in SA and the foreign territory, or his agent/licensee (with the owner’s authority), must have applied his trade mark on the goods.

2. On arrival in South Africa, or while in South Africa, the goods cannot be or have been altered, modified or changed in any way.

Isn’t it unfair?

Now, if you’re the proprietor/owner of a trade mark, you may find the case law regarding ‘parallel importation’ to be very unfair. You’ve spent hundreds of thousands of Rands, or even millions, on promotion, advertising and marketing a brand in South Africa, only to have another trader import genuine goods from another territory (where the goods may be more cheaply manufactured) and then sell them at a lower cost than you do.

This is why some commentators consider parallel importation a parasitism of the reputation and goodwill that a proprietor and his licensees build up over many years.

For the consumer

So what do you need to know, as a consumer?

Grey goods are not illegal. But the grey goods market is about to be shaken up, with new laws that will give consumers greater rights.

Unscrupulous traders in parallel imports often don’t tell their customers that the goods they are selling are grey, which can lead to confusion and frustration when goods break or are defective.

If you’re concerned about the practice of parallel importation, check the packaging of the product, which should display a conspicuous notice stating that the goods are sold without the authorisation of the proprietor of the trade mark.

Be warned that parallel importers (i.e. the suppliers of grey goods) are unlikely to honour the guarantee/warranty that may have been given in the original purchasing territory, notwithstanding the fact that the product is genuine.

Know your rights

Under Section 56 of the Consumer Protection Act, there is an implied warranty of quality on all goods sold by a supplier (as long as the consumer is not excluded from protection under the Act). This allows consumers to return faulty goods and get the seller to repair it, replace it or get a full refund (the 3 Rs). Importantly, the supplier may not dictate which of these remedies it wants to use; the consumer chooses. This means that, even if the goods are ‘grey’, the consumer has a statutory warranty to fall back on.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)