Q: Jane's bagel business has become a big success, but she has begun facing severe competition, especially from parallel imports. What are parallel imports?

A: Parallel imports are goods imported by people other than the sole importer. Jane's company entered into an exclusive distribution agreement with ABC Inc. for its bagels. Under such an agreement, Jane's company was given the sole right to import ABC Bagels into Japan. ABC Inc. may not appoint any other importer in Japan during the effective term of the agreement.
Therefore, it would seem that Jane should not be concerned about any third party importing ABC Bagels. Notwithstanding the agreement Jane has any person may purchase ABC Bagels from the market in and in foreign countries and sell such in Japan. ABC Inc. is not in a position to stop such purchases. This happens when the price of goods is kept high in Japan by the sole importer.

Q: Jane registered the trademark "ABC Bagels" in Japan, by which she tries to stop the import of bagels bearing that mark. Would she be successful?

A: No. Article 21 of the Custom Tariff Law says that goods infringing patent right, utility model right, design right, trademark right and copyright cannot be imported Until the Parker case decision, it was possible for the registered owner (or a registered exclusive licensee) of a trademark to stop the import of goons bearing such trademark.
In 1970, the Osaka District Court ruled that a sole distributor of the Parker fountain pens who was also a licensee of the trademark could not stop the parallel import of genuine goods bearing such trademark.
Thus, so tong as the imported goods were manufactured by tile legitimate maker of the goods and the trademark was placed on the goods by the legitimate owner of the trademark in foreign countries, such goods were con-sidered genuine and would not be subject to attack from the owner of the trademark right in Japan.
The underlying economic reason for tile above court ruling was that parallel imports were pro-competition and worked toward lowering the price of the goods distributed by the sole distributor.

Q: Jane discovered that one of her dealers selling the bagels to retail shops was dealing in parallel imports. She demanded that the dealer stop handling parallel imports, threatening otherwise to terminate the dealer agreement. Can Jane make such a demand?

A: No. According to the Antimonopoly Act Guidelines concerning Distribution Systems and Business Practices (the "guidelines"), issued by the Fair Trade Commission, a sole distributor may not transact business with its dealers on condition that they shall not handle parallel imports.

The guidelines also prohibit the sole distributor from engaging in conduct that induces the dealer not to handle parallel imports.
Examples of such conduct are (1) suspension of delivery of the goods to dealers handling parallel imports; (2) refusal of cooperation with dealer's sales promotional activities, and (3) reduction of rebates.

Q: Jane decided to get rid of the parallel importer through price competition. Any advice for Jane?
A: She should avoid unreasonable pricing. Unreasonable pricing is an unfair business practice under the Antimono-poly Act.
A sale below cost of purchase is considered an unfair business practice if the price charged is substantially below such cost level and is carried out on a continual basis. The “cost” in this context is the actual purchase price of goods taking into consideration rebates and discounts.
In the Maruetsu case (1982), two competing supermarkets cut the retail price of milk. The cost of purchasing a carton of milk wholesale was about 160 yen, but the two supermarkets continued to sell milk at 100 yen for a couple of months. This was held to be unreasonable pricing. Jane may face action for damages from the parallel importer if she should engage in such unfair business practices.
The author, Jun Norisugi, is a practicing lawyer at Norisugi & Associates and specializes in international business affairs.