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Does Parallel Import of Baby Strollers without Serial Numbers Constitute an Infringement of Intellectual Property rights?

Many international brands are being imported to Israel not only by the official importers, but also by Parallel importers.

As far as the consumer is concerned, as long as these products are authentic and not counterfeit, this parallel import is an acceptable and legitimate phenomenon, since it improves competition and results in lowered prices.

It is well known that brand owners are repeatedly trying to protect the interests of their local official importers by locating the source of the overseas parallel import to Israel for the purpose of stopping the parallel import and controlling the level of prices.

Locating the details of the supplier is possible through reading the bar codes and the serial numbers labels that appear on the imported products.

Does the manufacturer have any legitimate interest to prevent the removing of those serial numbers? This question has recently come up in a very interesting case ruled by the Central District Court in Israel.

Background:

STOKKE is a Norwegian Company and manufacturer of baby strollers that are distributed to many countries around the world.

Baby Love is an Israeli Company that imports STOKKE Strollers among other baby products, by parallel import.

STOKKE has filed a motion for a temporary injunction against Baby Love for importing and selling STOKKE baby strollers by parallel import without labels bearing the serial numbers of the manufacturer.

Stokke’s claims:
STOKKE argued that the original serial numbers have been removed by Baby Love and that the new labels that appear on the Baby Love strollers consist faked serial numbers.

STOKKE claimed that the sale of these parallel imported strollers is actually causing the nullification of any warranty granted by the manufacturer and preventing STOKKE from the  ability to trace the strollers for the purpose of consumer service and warranty.

STOKKE has also claimed that the Baby Love strollers are damaging its goodwill and its contractual relationships with the official importer in Israel, a company named Shem Tov.

In addition, STOKKE has claimed that these actions of Baby Love are harming its ability to perform a recall to handle any problems in the strollers.

Concerning the warranty issues, STOKKE has claimed that Baby Love’s actions are causing the consumers to think that they have purchased a STOKKE stroller with full warranty while in fact those
strollers have no official warranty by STOKKE.

STOKKE has also claimed that the removal of the serial numbers and the relabeling with faked serial numbers endangers the consumers, plain and simple.

Baby Love’s Claims:
Baby Love represented by Yossi Sivan & Co. has argued that the real purpose of the motion for injunction was to unlawfully block the commercial activity of Baby Love as a parallel importer in order to prevent competition in the market and to exaggerate the prices of the strollers with no interference.

Baby Love has argued that it doesn’t remove the labels, but purchases the strollers AS IS from the supplier outside Israel, that the parallel imported strollers are identical to the strollers imported by the official importer of STOKKE and that they are sold at lower prices compared to the strollers imported by Shem Tov.

Baby Love has also argued that the removal of the serial numbers is a consequence of the fact that STOKKE is trying to trace the origin of the strollers in order to prevent the parallel import to Israel, forcing the supplier to remove the labels.

Baby Love has also claimed that STOKKE is trying to trace the origin of the strollers in order to prevent the parallel import, to control the prices of the strollers and to dictate exaggerated prices, extremely harming the competition.

In addition, Baby Love has argued that the manufacturer has no legitimate right to control the distribution of the strollers and in fact, STOKKE has exhausted its rights after it sold the strollers to some supplier around the world according to the rules of exhaustion of intellectual property rights.

Baby Love has claimed that the interest lying in the parallel import by preventing STOKKE from tracing the details of the supplier overrides the interest of STOKKE to control the market and to exaggerate prices by blocking the market.

In addition, Baby Love has claimed that the strollers are not required to any recall according to the regulations of the Standards Institution of Israel and that the strollers are not products that require a safety standards such as safety chairs for cars.

Baby Love has also clarified that there is no misleading of the consumer since the name of the parallel importer appears all over the purchasing documentation and that the consumer knows that it is a product of parallel import.

Court’s Decision:
The Central District Court has denied the motion for the temporary injunction and ruled that allegedly there is no misleading of the consumer and that the consumer is aware that he is purchasing a parallel imported stroller and that the warranty is given by the parallel importer not by the official importer.

The court also ruled that Baby Love doesn’t remove the original labels and doesn’t fake the original labels but sticks on different labels that include its own serial numbers according to the regulations of the Standards Institute of Israel.

The court has also mentioned the active involvement of the official importer of STOKKE which implies that most of the claimed damage arising from the parallel import activity is the commercial damage of the official importer, not STOKKE.

The court also has clarified that parallel import is a positive phenomenon in its essence in light of the Supreme Court’s decision in case No. 7629/12 TOMMY HILFIGER V. Swisa and that the recognition of the legitimacy of parallel import is based on the doctrine of the exhaustion of intellectual property rights which is well based and obvious.

The District Court has also mentioned the proposed bill of the Restrictive Trade Practices Law (Antitrust Law) (removal of import barriers 2015) applying limitations that would prevent official importers from the exploitation of their status and abuse of their rights by opposing parallel importers.

The court also rejected the comparison between the number on a motor vehicle chassis to the serial number sticker on a stroller and determined that this comparison indicates the weakness in STOKKEs arguments.

The court has also rejected the claim that the removal of the labels (bar codes) “endangers the public” and ruled that this claim is very farfetched and lacks evidential basis.

Ultimately the Court dismissed the Motion of Temporary Injunction and ordered STOKKE to pay Baby Love expenses worth 15,000NIS and to deposit a guaranty of 75,000NIS within 20 days otherwise the lawsuit will be dismissed.

Although this decision is a temporary decision, it still constitutes a great victory for free competition and the legitimacy of parallel import in Israel.

Baby Love was represented by Yossi Sivan & Co. Law Offices

Disclaimer
Nothing in the above shall be considered as any legal advice or any legal opinion whatsoever. This is just an informative article. We strongly recommend consulting with a professional attorney in such matters.