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Parallel Import and Trademark Counterfeit
June 2, 2021

An internationally Cuban company, leader in the cigar market, sued several Brazilian companies for commercializing cigars on the Brazilian market, which were supplied by sources unauthorized to supply in Brazil. The Cuban company sued the suppliers for commercializing products which evaded taxes. Tax evasion is a crime and, in this case, refers to the evasion of import, export or sales taxes.

The authorized distributor verified that around 90% of cigars sold on the Brazilian Market and considered as authentic are, in reality, of a doubtful origin, since they have not been commercialized through authorized distributors.

In addition to the trademark matter, the exclusive commercial rights of the Cuban cigars had been infringed. The distribution contract for the products on the Brazilian market had been signed by and between the national distributor and the Cuban cigar company.

The Brazilian companies in their defense alleged exhaustion of rights. Their understanding was that the products had been supplied from authorized distributors abroad, and even, directly from shops of the company in Cuba. They offered no proof of their allegations or explanation of how the referred products entered Brazil.

The Cuban cigar company filed a preliminary precautionary measure (i.e search and seizure) and filed related lawsuits, intending to block the violation and collect losses and damages incurred.

What is parallel import?

It is the introduction of authentic, not falsified products, through means other than an exclusive official distribution system. Thus, a specific product is imported without the authorization from the legal owner of a mark of the company which produces the product.

What does trademark counterfeit mean?

Trademark counterfeits are infringements of trademark registration (specifically the exclusivity right) by a third party which does not own the referred trademark. The use of the trademark is an exclusive right of the owner who first registered it before the Brazilian Patent and Trademark Office - INPI. The unauthorized reproduction of the trademark, for example, in the same activity in which it is protected, constitutes a trademark counterfeit.

Why is this case important?

By conceding a search and seizure warrant of counterfeit products, the competent courts observed that under the Industrial Property Law, parallel import was no longer allowed. The fact that the commercialized cigars were legitime or legally imported has no relevance under this law.

“Article 132 - The owner of a mark may not: II - prevent manufacturers of accessories from using the mark to indicate the use of the product, provided they obey fair competition practices; III - prevent the free circulation of products placed on the internal market by himself or by another with his consent, without prejudice to the provisions of §§ 3 and 4 of article 68; and The Courts understood that the principle of exhaustion of rights claimed by the Brazilian companies (due to the fact that the products were commercialized through foreign distributers) could only be applicable to the products which were supplied by an authorized distributor. There was no prove of authorized distributor.