The issues examined in the case Hawley & Hazel Chemical Co. (s) Pte Ltd v Szu Ming Trading Pte Ltd [2008] SGHC 13 will determine whether there should be a legal or contractual obligation on the part of the licence grantor to limit the influx of parallel imports that a licensee or distributor might face while putting up the concerned products for sale in a country such as Singapore? Or does the legislature also herald the Exhaustion of Rights Doctrine currently in force in the European Union?

The facts of the case are as follow. Szu Ming Trading Pte Ltd (defendant) was in a vertical relationship (distributor) with Hawley & Hazel Chemical Co (S) Pte Ltd (plaintiff) to distribute the ubiquitous “Darlie” (previously called “Darkie”) toothpaste, a product with a well known trademark and presence in Singapore.

The plaintiff applied for summary judgment for arrears incurred by the defendant in respect of goods delivered to the defendant and which were not paid for. The defendant in turn argued in the form of a counterclaim for losses incurred from acute competition that were engendered by cheap parallel imports.

It is to be noted that there was no written distributorship agreement between the parties. The arrangement was purely oral throughout the 35 years that the distributorship was in existence.

While the Darkie brand was the best selling toothpaste in Singapore up to 1984, the defendant deposed that sales declined thereafter and the brand faced increasing competition from 1995 onwards, due to a proliferation of parallel imports. The problem began with price wars in Thailand and Hong Kong which caused dental care products in those countries to fall drastically rendering them much cheaper than those in Singapore. This caused trading companies to engage in parallel importation of the products from Thailand and Hong Kong and sell them in Singapore at up to 40% below the prices charged by the defendant.

The defendant also argued that there were trial worthy issues involved, viz, the plaintiff had a legal obligation to, but did not stop parallel imports of the products. It is surmised that the defendant had hoped the Courts would stand on its side and imply such a term into the 30 odd years old distributorship agreement between the parties. Local lawyers said this case raised for the first time in Singapore the point of whether a manufacturer was obliged to stop parallel imports from entering a market where a sole distributor had been appointed.

In Singapore, the courts do not lightly imply a term into an agreement. They only do so if, objectively, it is considered necessary for the “business efficacy” of the contract and so obvious that there would be no doubt of the parties’ joint answer to the query of the “officious bystander” as to whether that term was part of the contract (see Telestop Pte Ltd v Telecom Equipment Pte Ltd and Another Suit, [2004] SGHC 267).

On the facts of the case, Justice Lai, a High Court judge, then ruled that there was no legal and/or contractual obligation on the plaintiff’s part to stop parallel imports of the products into Singapore. She noted inter alia, it was impossible to curtail such imports as they might come in ‘dribs and drabs through as loose cargo’.

The Doctrine of Exhaustion of Rights prevalent in the European Community is one doctrine that encourages the free movement of goods within the community. As first materialised into precedence in Deutsche Grammophon GmbH v Metro-SB-Grossmarkte GmbH & Co. KG, intellectual property rights owners are estopped from using their rights to control the resale, importation or exportation of any goods that have been placed on the market in the Community by or with their consent.

Like in the European Economic Area, the current laws in Singapore do seem to welcome parallel imports, for example Section 66(2)(g) of the Patents Act states that it is not an act of infringement if the act consists of the import, use or disposal of, or the offer to dispose of, any patented product or any product obtained by means of a patented process or to which a patented process has been applied, which is produced by or with the consent (conditional or otherwise) of the proprietor of the patent or any person licensed by him, and for this purpose “patent” includes a patent granted in any country outside Singapore in respect of the same or substantially the same invention as that for which a patent is granted in Singapore, as do similarly in the Trademarks Act (Section 29), Registered Designs Act (Section 30(7)) and the Copyright Act (Sec 25, 32, 33, 40A, 104, 105 and 116A).

This somewhat favourable stance towards parallel imports is also shown in this High Court case. As we have seen from the above in Singapore, Singapore laws view with favour parallel imports as they are deemed to bring social benefits by bringing costs of consumables down. The case is not yet final, as leave has been given for the defendant to bring the case to the Court of Appeal. Many are watching this case in anticipation, as it will yield a landmark decision for parallel imports.