E. Parallel Importation
E1. Whether or not controls on parallel importation are themselves an intellectual property right may be debated, and it is beyond the scope of this report to discuss this
E2. Irrespective of whether or not control of parallel importation is an intellectual property right, lack of control over parallel importation of itself increases the risk of covert import of counterfeit goods. This is a major concern of owners of intellectual property, particularly for products able to be replicated at relatively low costs, such as software, music and films, and clothing where brands can be forged on to cheaply made lower quality apparel.
E3. This was recognised in the report of the New Zealand Institute of Economic Research Inc, of February 1998 in the case of such readily replicated products as music CDs. It was there acknowledged that it was a legitimate concern of copyright owners that the removal of parallel import controls increased the availability of pirated products. The NZIER report did not however consider parallel importing implications of potentially much higher value products as computer software on CD-ROM.
E4. Clearly the absence of controls on parallel import will have virtually no effect on the likelihood of import of counterfeit motor vehicles, and little effect on the likelihood of import of counterfeit books, because relatively speaking the cost of production of motor vehicles and books is a substantially greater part of the costs of the production of the genuine article, as compared with for example CDs and especially CD-ROMs.
E5. The impact of the absence of the restrictions on parallel importing in relation to the import into New Zealand of counterfeit goods is that it has the ability to disguise such imports. With a large number of importers, it is more difficult to ascertain which might be importing counterfeits.
E6. For example counterfeits of goods such as music and software CDs can be extremely difficult to detect. A potential importer of such goods into New Zealand could well be satisfied that his supplier was offering genuine product, either because he has shown a genuine sample or alternatively he is unable to distinguish the counterfeit. Yet all or part of the eventual shipment arriving in New Zealand (usually paid for in advance) may in fact be counterfeit.
E7. What is common in some industries, for example clothing and software, is what is known as lacing, where there is a superficial quantity of genuine product (for example at the top of the box or near the door of the container) but inside is buried the counterfeit product. Such lacing is designed to readily deceive Customs authorities examining the goods, and is often not detected until the product has moved down the distribution chain to retail shops. The importer may or may not be aware of this.
E8. A strategy used in the counterfeit computer software industry is to price counterfeit copies a little below the price of the genuine product so that consumers, and often also unsuspecting retailers, are duped into believing the product is a cheaper parallel import, when in fact it is a counterfeit.
E9. Until May 1998 New Zealand copyright law included restrictions on parallel import, and during the short period from then until now little evidence has as yet surfaced of additional counterfeit product entering the country disguised as genuine parallel import. It will take some time to detect.
E10. In a sense the existence of import duties still in place for some categories of goods limits parallel importation because such duties constitute an additional upfront payment for an entrepreneurial parallel importer. On the other hand the existence of such duties enhance the availability of counterfeit product in New Zealand, because:
- It raises the retail price of the legitimate product and enhances the profit for the counterfeiter.
- It plays into the hands of clandestine importers who seek to avoid payment of duties as readily as payment of GST and income tax.
E11. Thus the effect of laws relating to parallel importation and import duties should not be overlooked in assessing the extent and potential for the sale of counterfeit product in New Zealand, whether it be imported or locally made.
E12. It is accepted that in legislating in relation to parallel importing a balance needs to be struck between any lowering of prices to the public on the one hand, and protecting the public from counterfeiting on the other.
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