How enforceable is an exclusive distribution agreement? Rosalyn Gladwin tells us what to do when grey imports impact your business.
With online stores and marketplaces gaining traction in the retail industry, grey market selling and distribution is becoming an increasing issue for retailers.
The issue with grey imports
Picture this: you operate an Australian retail business that has an agreement with a well-known brand to sell their branded products in your stores. A competitor comes in and decides to purchase the same branded products from a foreign country. Due to a cheaper cost price (and other factors) they are able to undercut you for the same products.
The issue with grey imports is that unlike counterfeit goods, they are genuine products. This means that the company which owns licences the registered trade mark for the product or brand in Australia has no recourse in trade mark law to stop grey imports, as the original use of the trade mark on the grey import products was authorised by an international trade mark holder.
In Australia, the law requires that grey product importers must make reasonable inquiries as to whether the trade mark was applied with the consent of the trade mark owner. This is a reasonably low threshold, offering a complete defence to grey importers. If it was an authorised product then at law you do not have any recourse to ban the products from being imported and sold in Australia.
For this reason, it is important to manage the risks of grey markets proactively and through some clever contracting – so, what can you do?
How you can protect your business
Making enquiries and having contracts in place
The best way to protect yourself against grey market selling and distribution is to have well-drafted contracts in place, whether you are the owner or licensee of a trade mark. When preparing your distribution and/or licensing agreements, you should consider the following:
- How is the brand distributed internationally – are there provisions in all of the brand’s contracts that allows them to enforce distribution to one geographical area, including against retailers or wholesalers?
- Does your agreement with the brand require them to enforce geographical territories?
- Is there a requirement for the brand to take all reasonable steps to prevent grey market imports?
- Does the agreement provide for sole distribution rights?
Differentiation by marketing
Another way of mitigating loss due to grey market imports, is through marketing campaigns
You could include a specific term in your distribution agreement to provide that you have the exclusive right to call your business the “Exclusive authorised Australian distributor of [brand]” and require the brand take action to prevent third parties from stating this.
Additionally, your marketing should aim to increase awareness of your products and the consequences of purchasing grey market products, such as:
- Differing standards of quality;
- Differing compatibilities/capabilities (especially for electrical products);
- Access to support/local distributer; and
- Ability to rely on Consumer laws and manufacturers warranties.
By being pre-emptive and proactive at the contract negotiation stage of arrangements you can reduce the impact of grey imports on your business to maximise your share of global sales.
Rosalyn Gladwin is the principal of Gladwin Legal, an award-winning retail-specialised law firm. If you would like more information, please visit www.gladwinlegal.com.au.
Like this story? Sign-up for the free Pulse Weekly Newsletter for more essential online retail content.