Bikers do doughnuts over new import policy
Last month bikers from the Cape Town area protested outside parliament over a proposed new policy that could prejudice importers of “grey” motorcycles.
The new policy, due to come into effect in December, requires grey or parallel importers to undergo certain testing and to obtain certificates for the import of motorcycles or parts. Grey importers of motorcycles and parts argue the new policy could force many of them out of business due to the costs of compliance. That would leave official distributors as the only source of bikes and parts.
This looks like a case of rent-seeking on the part of official motorbike distributors, and it would not be the first time grey importers have got the stink eye from government. Grey importing is a classic example of the free market in operation. Official distributors mark up prices according to what the manufacturer dictates, while the same goods may be on sale at a cheaper price elsewhere in the world. A canny trader in SA spots the arbitrage opportunity, buys up a few container loads and ships them into the country at a hefty discount to the official SA price. The official distributors in SA don't like it one bit, since it means they have serious competition, hence the tendency to run to government for protection. It may be "certificates" or "tests" that they demand the grey importers undertake, but this is nothing but a thinly disguised tax designed to "level the playing field."
Grey or parallel imports refer to those imported by non-franchised distributors: for example, buying a BMW from a dealer in Jules Street, Johannesburg, rather than an official BMW dealer. Grey importers typically source goods at a cheaper price by going outside the franchise chain, often in China or the Far East, and then pass on the price benefits to the buyer in SA. They don't offer the same service as the official distributor, but they beat them on price.
There is nothing illegal in this, though franchise dealers – who have much higher set-up and after-sales service costs – understandably view grey importers with disdain, due to their ability to discount prices on exactly the same products.
The new policy on grey motorbike imports has got some serious opposition, including Cosatu which is worried over the potential job losses that could eventuate if the policy goes into effect.
According to the Cape Argus, the Parallel Importer of Motorcycles Traders Association of SA says there are about 250,000 unofficial bike clubs in the Western Cape. “For the government to continue and implement this new policy will mean that only one side will benefit. What they have created is a one-size-fits-all and that will only benefit one half,” according to a spokesman for the Association. “Bike sales have been low since 1993 and people want to be able to walk into a bike shop and buy a quality bike at a reasonable price.”
In a recent commentary on the case, Lauren Frizelle of attorneys ENS points out that parallel imports are legal in terms of trademark law. Section 34 (2) (d) of the Trade Marks Act provides that a trade mark registration is not infringed by ‘the importation into, or distribution, sale or offering for sale in the Republic, of goods to which the trade mark has been applied by or with the consent of the proprietor.’
“This makes perfect sense if you bear in mind that a trade mark is essentially an indicator of origin, and that trade mark law is basically there to ensure that there is no consumer confusion. In the case of a parallel import, the consumer gets exactly what they expected, namely a product that was made by or under the control of the company that owns the trade mark – contrast this with the situation where the consumer buys a rip-off or counterfeit, where they get something very different from what they expected,” writes Frizelle.
There is a proviso to this, and that is that the parallel importer must be quite open about the fact it is not an authorised distributor, as required under Section 25 (2) of the Consumer Protection Act.
“So, if you’re a parallel importer you should be OK provided that you make it clear that you are not the authorised distributor of the product,” adds Frizelle.
But there are other legal matters to consider, and the first of these is copyright. Copyright might be an issue where the product that’s being imported bears a trade mark that consists of more than just a name, but also something that could be described as an artistic work – this might be a logo, or it might simply be a stylised form of a name.
The Copyright Act provides that copyright is infringed where someone imports an article into South Africa in circumstances where they knew that the making of that article would have been an infringement if the company that made it had in fact made it in South Africa.
Finally it’s worth remembering that, in the fairly rare event of the product that’s imported being covered by a patent or a design registration, there may well be an issue. Section 45 of the Patents Act says that a patentee has the ‘right to exclude others.. from importing the invention’, whereas Section 20 (1) of the Designs Act says that the owner of a design registration has the right to exclude ‘other persons from ...importing ... any article included in the class in which the design is registered and embodying the registered design.’
Just a few points to bear in mind if you’re involved in parallel imports.
The new policy, due to come into effect in December, requires grey or parallel importers to undergo certain testing and to obtain certificates for the import of motorcycles or parts. Grey importers of motorcycles and parts argue the new policy could force many of them out of business due to the costs of compliance. That would leave official distributors as the only source of bikes and parts.
This looks like a case of rent-seeking on the part of official motorbike distributors, and it would not be the first time grey importers have got the stink eye from government. Grey importing is a classic example of the free market in operation. Official distributors mark up prices according to what the manufacturer dictates, while the same goods may be on sale at a cheaper price elsewhere in the world. A canny trader in SA spots the arbitrage opportunity, buys up a few container loads and ships them into the country at a hefty discount to the official SA price. The official distributors in SA don't like it one bit, since it means they have serious competition, hence the tendency to run to government for protection. It may be "certificates" or "tests" that they demand the grey importers undertake, but this is nothing but a thinly disguised tax designed to "level the playing field."
Grey or parallel imports refer to those imported by non-franchised distributors: for example, buying a BMW from a dealer in Jules Street, Johannesburg, rather than an official BMW dealer. Grey importers typically source goods at a cheaper price by going outside the franchise chain, often in China or the Far East, and then pass on the price benefits to the buyer in SA. They don't offer the same service as the official distributor, but they beat them on price.
There is nothing illegal in this, though franchise dealers – who have much higher set-up and after-sales service costs – understandably view grey importers with disdain, due to their ability to discount prices on exactly the same products.
The new policy on grey motorbike imports has got some serious opposition, including Cosatu which is worried over the potential job losses that could eventuate if the policy goes into effect.
According to the Cape Argus, the Parallel Importer of Motorcycles Traders Association of SA says there are about 250,000 unofficial bike clubs in the Western Cape. “For the government to continue and implement this new policy will mean that only one side will benefit. What they have created is a one-size-fits-all and that will only benefit one half,” according to a spokesman for the Association. “Bike sales have been low since 1993 and people want to be able to walk into a bike shop and buy a quality bike at a reasonable price.”
In a recent commentary on the case, Lauren Frizelle of attorneys ENS points out that parallel imports are legal in terms of trademark law. Section 34 (2) (d) of the Trade Marks Act provides that a trade mark registration is not infringed by ‘the importation into, or distribution, sale or offering for sale in the Republic, of goods to which the trade mark has been applied by or with the consent of the proprietor.’
“This makes perfect sense if you bear in mind that a trade mark is essentially an indicator of origin, and that trade mark law is basically there to ensure that there is no consumer confusion. In the case of a parallel import, the consumer gets exactly what they expected, namely a product that was made by or under the control of the company that owns the trade mark – contrast this with the situation where the consumer buys a rip-off or counterfeit, where they get something very different from what they expected,” writes Frizelle.
There is a proviso to this, and that is that the parallel importer must be quite open about the fact it is not an authorised distributor, as required under Section 25 (2) of the Consumer Protection Act.
“So, if you’re a parallel importer you should be OK provided that you make it clear that you are not the authorised distributor of the product,” adds Frizelle.
But there are other legal matters to consider, and the first of these is copyright. Copyright might be an issue where the product that’s being imported bears a trade mark that consists of more than just a name, but also something that could be described as an artistic work – this might be a logo, or it might simply be a stylised form of a name.
The Copyright Act provides that copyright is infringed where someone imports an article into South Africa in circumstances where they knew that the making of that article would have been an infringement if the company that made it had in fact made it in South Africa.
Finally it’s worth remembering that, in the fairly rare event of the product that’s imported being covered by a patent or a design registration, there may well be an issue. Section 45 of the Patents Act says that a patentee has the ‘right to exclude others.. from importing the invention’, whereas Section 20 (1) of the Designs Act says that the owner of a design registration has the right to exclude ‘other persons from ...importing ... any article included in the class in which the design is registered and embodying the registered design.’
Just a few points to bear in mind if you’re involved in parallel imports.