THE ESSENCE OF PARALLEL IMPORT AND PROBLEMS OF ITS REGULATION IN THE REPUBLIC OF UZBEKISTAN

This article discusses the definitions of various scholars given to the concept of parallel import, phenomenon‘s ever-increasing actuality and economic significance, as well as the issues of its legal regulation by states. The importance of exhaustion regime of intellectual property rights, its reflection in international agreements and the role in WTO system and international trade at large are mentioned. The problems associated with legislation coverage of this concept in our national civil and customs law are discussed and the procedure for parallel imports and exhaustion in the Republic of Uzbekistan are reviewed in the case of courts. Furthermore, this paper articulates that economic analysis of parallel imports and their effects is of high importance when adopting Article 6 of TRIPS Agreement. The relationship between parallel imports and access to pharmaceuticals is analyzed and the author made a judgment on what factors should be considered by governments on complying national legislation with international norms that permit parallel trade of IP objects.

VOLUME 3 ISSUE №1 E-ISSN: 2181-1024 A P R Volume I L1 (2022) 3, Issue 2022 TSUL Legal Report 1

12.00.02 – CONSTITUTIONAL LAW. ADMINISTRATIVE LAW. FINANCE AND CUSTOMS LAW

TSUL LEGAL REPORT INTERNATIONAL ELECTRONIC SCIENTIFIC JOURNAL

Rustambekov Islambek Rustambekovich Deputy Rector on Academic Affairs, Tashkent State University of Law, Doctor of Law, Professor

Salaev Nodirbek Saparbaevich Deputy Rector on Research and Innovations, Tashkent State University of Law, Doctor of Law, Professor

Latipov Samir Ildusovich Director of the Center for Legal Initiatives and Innovations, Tashkent State University of Law

Nematov Jasur Aminjonovich Professor of the Tashkent branch of the Russian University of Economics named after GV Plekhanov

Umarkhanova Dildora Sharipkhanovna Dean of the Faculty of International Law and Comparative Legislation, Tashkent State University of Law, Doctor of Law, Associate Professor

Abzalova Khurshida Mirziyatovna Acting Professor of the Department of Criminal Law, Criminology and Anti-corruption, Tashkent State University of Law, Doctor of Law

Nematov Jurabek Nematulloyevich Acting Professor of the Department of Administrative and Financial Law, Tashkent State University of Law, Doctor of Law

Akhmedova Guzalkhon Utkurovna Associate Professor of Criminalistics and Forensic Examination Department of Tashkent State University of Law, Doctor of Law

Ergashev Ikrom Abdurasulovich Head of Scientific Department, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law.

Yusupov Sardorbek Bahadirovich Head of the Department of Administrative and Financial Law, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law

Gafurova Nozimakhon Eldarovna Head of the Department of International Law and Human Rights, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law

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Khujaev Shokhjakhon Akmaljon ugli Head of Intellectual Property Law Department, Tashkent State University of Law, Doctor of Philosophy in Law

Uzakova Guzal Sharipovna Head of Environmental Law Department, Tashkent State University of Law, Associate Professor, Doctor of Philosophy in Law

Turdiev Khayitjon Usmonkul ugli Acting Associate Professor of the Department of Theory of State and Law, Tashkent State University of Law, Doctor of Philosophy in Law

Ramazonova Nargiza Abdirashidovna Head of the International Relations Department, Intellectual Property Agency under the Ministry of Justice of the Republic of Uzbekistan, Doctor of Philosophy in Law

Kurbanov Maruf Mamadaminovich Acting Associate Professor of the Department of Criminal Law, Criminology and Anti-corruption, Tashkent State University of Law, Doctor of Philosophy in Law

Narziev Otabek Sadievich Acting Professor of International Private Law Department, Tashkent State University of Law, Doctor of Philosophy in Law

Pirmatov Otabek Shavkatovich Acting Associate Professor of the Department of Civil Procedural and Economic Procedural Law, Tashkent State University of Law, Doctor of Philosophy in Law

Yakubova Iroda Bakhramovna Acting Associate Professor of Intellectual Property Law Department, Tashkent State University of Law, Doctor of Philosophy in Law

Shamsutdinov Behruz Sadriddin ugli Head of the Department of Commercialization of Scientific and Innovative Projects, Tashkent State University of Law

Saydakhmedov Umid Murodovich Judge for Economic Affairs, Tashkent Regional Court, Doctor of Philosophy in Law, Associate Professor

4 TSUL Legal Report Volume 3, Issue 1 (2022) E-ISSN: 2181-1024

Contacts Editorial office address: Tashkent, st. Sayilgoh, 35. Index 100047. Principal Contact Tel.: ([phone number hidden] Fax: ([phone number hidden] E-mail: info@legalreport.tsul.uz

© 2022. TSUL – Tashkent State University of Law. All rights reserved.

E-ISSN: 2181-1024 Volume 3, Issue 1 (2022) TSUL Legal Report 5

12.00.02 – CONSTITUTIONAL LAW. ADMINISTRATIVE LAW. FINANCE AND CUSTOMS LAW

IKHTIYORJON TURABOEV, IKROM ERGASHEV Tax monitoring in Uzbekistan: problems and issues ............................................................8

DILMURODJON RAKHIMOV Organizational and legal issues of gender equality in the civil service .............................. 15

NOILA NURMAMATOVA Mechanism of appeal to the Constitutional Court .............................................................. 23

ILHOM NOROV Problems of public service in the Republic of Uzbekistan: further improvement of the public service system .............................................................................................. 30

12.00.03 – CIVIL LAW. BUSINESS LAW. FAMILY LAW. INTERNATIONAL PRIVATE LAW

BEGALI XOLMIROV The concept, importance and characteristics of electronic currency ................................. 37

MUHAMMAD ALI RAMAZONOV The concept and essence of cryptocurrency ..................................................................... 44

PARIZODABEGIM MUKHAMATKULOVA Some issues of regulation of cybersport and business activities in IT .............................. 51

12.00.04 – CIVIL PROCEDURES LAW. ECONOMIC PROCEDURES LAW. ARBITRATION PROCESS AND MEDIATION

ABDUMURAD KHAKBERDIEV Types of arbitration courts and their classification ............................................................. 57

DONIYORBEK DАVRONOV Procedure and basis for application of procedural coercive measures ............................. 68

12.00.08 – CRIMINAL LAW, CRIME PREVENTION. CRIMINOLOGY. PENAL LAW

BUNYOD ISLOMOV Mitigating factors and criminal defenses in criminal legislation of the Kingdom of Norway (comparative analysis) ...................................................................... 78

JALOLIDDIN HAYDAROV Qualification of crimes of torture and other cruel, inhuman or degrading treatment ......... 88

6 TSUL Legal Report Volume 3, Issue 1 (2022) E-ISSN: 2181-1024

12.00.09 – CRIMINAL PROCEDURE. CRIMINOLOGY, OPERATION SEARCH LAW AND FORENSIC EXAMINATION

SARBON URALOV Specific aspects of proof ................................................................................................... 96

KHAYDARALI YUNUSOV Contributions of Central Asian scholars to the development of islamic sciences: Sarakhsi – founder-father of international law ................................................................ 103

DJAMALIDDIN MUSAEV Principles of international cooperation in the field of preventing illicit trafficking in narcotic drugs, psychotropic substances and precursors . ........................................... 111

SHAHNOZA ALMOSOVA The essence of parallel import and problems of its regulation in the Republic of Uzbekistan . .................................................................................................. 121

USMON ALIEV Problems of reforming the UN security council and improving its effectiveness ............. 127

DALER VALIJONOV International legal cooperation of the prosecutors bodies against corruption ................. 134

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THE ESSENCE OF PARALLEL IMPORT AND PROBLEMS OF ITS REGULATION IN THE REPUBLIC OF UZBEKISTAN

Keywords: parallel import, exhaustion, gray market, TRIPS Agreement, price discrimination, free movement of goods, “first sale doctrine”, legal protection of intellectual property objects, customs control.

Almosova Shahnoza Sobirovna, Lecturer, Department of International Law and Human Rights Tashkent State University of Law e-mail: alshakhnoza18@gmail.com ORCID: 0000-0003-4505-5796

This article discusses the definitions of various scholars given to the concept of parallel import, phenomenon’s ever-increasing actuality and economic significance, as well as the issues of its legal regulation by states. The importance of exhaustion regime of intellectual property rights, its reflection in international agreements and the role in WTO system and international trade at large are mentioned. The problems associated with legislation coverage of this concept in our national civil and customs law are discussed and the procedure for parallel imports and exhaustion in the Republic of Uzbekistan are reviewed in the case of courts. Furthermore, this paper articulates that economic analysis of parallel imports and their effects is of high importance when adopting Article 6 of TRIPS Agreement. The relationship between parallel imports and access to pharmaceuticals is analyzed and the author made a judgment on what factors should be considered by governments on complying national legislation with international norms that permit parallel trade of IP objects.

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I. Introduction. Parallel import is currently one of the most complex and confusing phenomena of international trade, since there is an apparent contradiction between a free movement of goods in international trade, on the one hand, and the protection of intellectual property rights, on the other. While manufacturers always seek for common barriers of international trade to maintain the price differences between different regions and protect intellectual property rights, consumers find such barriers as completely baffling at a time when the world community is increasingly shifting to international trade without barriers. The concept of parallel imports, or “gray market,” is becoming an increasingly important phenomenon in today’s global market. Unlike counterfeit products in “black markets,” gray market products typically involve the legal importation of genuine goods from one area to another without the authorization of the owner of intellectual property, which is sold under trademark (or copyright or patent) protection. It should be noted that parallel importing is mentioned neither in the Paris Convention for the Protection of Industrial Property, nor in other international agreements regulating intellectual property rights or customs control over IP objects. The TRIPS Agreement, one of main agreements in the GATT/WTO-1994 package, was expected to cover the issue of parallel imports, as it covers all aspects of intellectual property rights. Nevertheless, while it has been acknowledged that parallel imports are indeed in line with the GATT-supported international free trade goal in general, no agreement has been reached on allowing parallel imports. However, Article 6 of this Agreement stipulates that no complaint shall be heard in this regard, regardless of the position of the States on the exhaustion of intellectual property rights for the purpose of settling disputes under the Agreement.

II. Research results and discussion. The phenomenon of parallel imports is a natural consequence of the doctrine of exhaustion. “Exhaustion of intellectual property rights” means that the right holders lose control over the resale of protected goods. The implication of the “principle of exhaustion” or the “first sale doctrine” is that when a product protected by patents (or copyright or trademarks) is sold, the intellectual property owner receives a fair fee for surrendering the property rights towards that product. Thus, these rights are “terminated” at the time of the first sale[1]. In other words, the exhaustion doctrine restricts the “patent owner’s right to subsequently charge, control, or recover from the patented product after the unconditional sale of that product with his consent”. Thus, intellectual property rights do not unreasonably violate the trading system without modern and effective barriers, and goods do not fall into the maze of contractual restrictions and restrictions on the transfer of rights[2]. Article 6 of the TRIPS gives WTO member countries the freedom to choose the procedure for exhaustion principle at the national, regional or international level. Specifically, the TRIPS agreement allows member states to develop and implement their own laws and regulations on the “exhaustion” of intellectual property rights. As general practice in this sphere shows, the rights under the doctrine of exhaustion are classified in following order according to their territorial validity: (a) the procedure for the termination of rights at national level, i.e. intellectual property rights to goods are valid until the “first sale” of the goods that are protected by the owner of the property rights (or his assignee – legal representative) in this territorial jurisdiction is carried out within the country; (b) the procedure for the exhaustion of rights at regional level, i.e. intellectual property rights to goods are valid until the “first sale” of the goods is carried out in any territory of a particular region by the right holder (or his assignee – legal representative)*;

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(c) the procedure for the exhaustion of rights at international level, i.e. intellectual property rights to goods are valid until the “first sale” of the goods is carried out anywhere in the world by the right holder (or his assignee – legal representative).

However, the question of whether the importation of intellectual property rights into a particular Member State without the permission of the right holder can be prevented by the right holder through litigation depends on the law of the Member State. If a member state has adopted a procedure for national termination of intellectual property rights, the right holder or his legal representative may prevent parallel imports, as exclusive rights of IP owner apply until the “first sale” of the protected goods is accomplished in that state, the United States is an ample example, as long as the state strictly controls parallel imports. In states that have chosen the procedure of exhaustion of rights at international level, parallel imports cannot be avoided, because when the protected goods are sold “for the first time” anywhere in the world, rights of the IP owner expire, as can be seen in the case of India. The most striking example of the procedure for the exhaustion of rights at regional level is the system of “exhaustion” in the EU, according to which parallel imports to EU countries from outside the union are prohibited, but allowed within the Union. It should be noted that other regional trade agreements, such as the North American Free Trade Agreement (NAFTA) or the Asunciun Agreement on the Establishment of the Southern Cone Common Market (MERCOSUR) between Argentina, Brazil, Paraguay and Uruguay, do not contain special provisions on rights termination issues and parallel imports.

If we look at the state of this phenomenon in Uzbekistan, it is clear that the concept of parallel imports is not reflected in our national legislation, which is explained by the absence of scientific research as well as the experience of our country. The debated aspect of the problem is that the concept of exhaustion itself is expressed in the legislation. Article 11071 of the Civil Code of the Republic of Uzbekistan and Article 26 of the Law of the Republic of Uzbekistan “On Trademarks, Service Marks and Appellations of Origin” set out … “the use of the trademark by the owner of the trademark or directly with the consent of the trademark owner or with the consent of other persons in respect of goods legally entered into civil circulation shall not be a violation of the exclusive rights to the trademark”.

However, the text of the article does not directly refer to parallel imports. Although Chapter 56 of the current Customs Code of the Republic of Uzbekistan is dedicated to the protection of intellectual property rights, this code does not regulate the issue of parallel imports (The new Customs Code project, placed for discussion on August 17, 2019 in the site of regulation.gov.uz, defines the concept of parallel imports. It is directly stated in the Code that parallel imports will be excluded when measures are taken within Committee’s competence to protect the rights of intellectual property objects included in the Customs Register).

Another problem with parallel imports is that the procedure for terminating rights is

* This system firstly appeared in the jurisprudence of the European Court of Justice, which used the principle of exhaustion for the first time in its work in the early 1970s in the case of Deutsche Grammophon Gesellschoft mbH v. Metro-SB-Grossmarkte. The ECJ argued that the procedure for the termination of national rights contradicted the Rome Treaty, which aimed at “uniting national markets into a single market”. It applies the concept of community exhaustion; the court held that if the first permitted sale had been made with the consent of the intellectual property owner, such a sale would not have been significant for the preservation of his exclusive rights. If the termination of rights is considered at the national level, it will allow producers to share a common market, which will limit interstate trade that does not meet the objectives of the European Union Treaty. The European Court immediately acknowledged that if trademark owners obstructed the free movement of goods, they would impede the goal of integration into the European market, and appealed to the principles of competition law to prevent such actions at an early stage. Subsequently, the ECJ formulated its own jurisprudence on the subject, developing a “doctrine of the exhaustion within the community” based on quantitative restrictions and prohibitions of measures with equivalent effect in the Treaty of the European Union.

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not clearly defined and this causes certain difficulties in the activities of the competent authorities. The problem is amply illustrated in the case of Medtronic Inc. v. Tiva Medical LLC. In the case, the court denied the claims of plaintiff that the defendant’s entry of goods into the civil circulation under the Medtronic trademark was illegal and should impose an obligation to formalize as reexported products or destroy the goods imported by Tiva Medical LLC in violation of the Medtronic trademark. The reason behind the denial of the court was the judgment that the position of the Customs Committee of the Republic of Uzbekistan on the national level of exhaustion is unjustifiable. Pursuant to the content of the above articles of the Civil Code of the Republic of Uzbekistan and the Law of the Republic of Uzbekistan “On Trademarks, Service Marks and Appellations of Origin” it is possible to assume that the current legislation of the Republic of Uzbekistan establishes a national procedure for termination of exclusive rights since the legislation is aimed at regulating relations within the country. However, the court ruled that the legislation does not contain an instruction that the products must be legally introduced into civil circulation in the territory of the Republic of Uzbekistan. Since Article 11071 of the Civil Code and Article 26 of the Law of the Republic of Uzbekistan “On Trademarks, Service Marks and Appellations of Origin” are also open, the court held that the text of these articles provides for the exhaustion of rights at international level. In other words, the court concluded that Medtronic Inc.’s exclusive rights to Medtronic medical products imported into the Republic of Uzbekistan by Tiva Medical LLC were terminated by Medtronic Inc. in the “first sale” anywhere in the world, and that Tiva Medical LLC decided that the right of free disposal of the products would give him the right to freely enter the product into civil circulation.

As a country on the verge of joining the WTO, Uzbekistan should take into account the issues of parallel imports in the process of implementing TRIPS norms in its legislation and include this concept in the articles of our laws on customs control of intellectual property[3].

Emphasizing the benefits and costs of different types of exhaustion procedures, most scholars argue that only the exhaustion procedure of international rights fully complies with the spirit, rules and objectives of the WTO multilateral trading system and should therefore be imposed on all WTO countries. They believe that restrictions on parallel imports are one of the forms of non-tariff barriers in trade. Because, in their opinion, enhanced intellectual property rights contradict the the WTO, goals of which are supposed to provide for the free movement of goods[4]. Without the exhaustion doctrine, the owner of the original patent (or copyright or trademark) exercises constant control over the “sale”, “transfer” or “use” of the goods or services that contain intellectual property rights, thereby purchasing such goods or services prevents the recipient from reselling or even “accessing” it, as such “reselling” or “accessing” affects the owner’s exclusive rights.

But, on the other hand, parallel imports pose some threats to the protection of intellectual property. Because parallel imports allow the import of products without the authorization of the right holder, thereby increasing the likelihood that the original goods will be confused with counterfeit goods, counterfeit copies of copyright objects will enter the territory of the country. In addition, according to Edbert Seligshan Horman, parallel import operations occur when goods from certain regions are transported by licensees to other areas licensed in those areas, leading to clear losses for licensees in the regions where the goods are imported. Therefore, parallel import activities do not comply with the absolute rights that the licensee obtains under the license agreement with the owner of the trademark. Finally, the scholar argues that the prevention of parallel import practices can be achieved through the application of a national or regional rights exhaustion procedure[5].

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In turn, the question whether restrictions on parallel imports do not clearly ignore the purpose of TRIPS’s policy of “reducing barriers to international trade” arises. Will not the measures and procedures for the protection of intellectual property rights themselves be an obstacle to legal trade? ”

There is little empirical data on parallel trade, as very little practical research has been conducted on this important but controversial aspect of international trade. Several studies that have exacerbated the problem have been conducted in the context of developed countries and are mainly limited to manufacturers, such as well-known brands, CDs, or pharmaceuticals, which are particularly affected by parallel trade[6]. Therefore, it is difficult to draw definite conclusions about the general direction and volume of parallel trade flows. Furthermore, the available evidence on the impact of parallel trade is generally consistent with prices in importing countries and the benefits that intellectual property owners receive; there is no evidence of the impact of prices in exporting countries.

In addition, Professor F.Abbott identifies two major shortcomings in the current economic models of parallel imports. “First, empirical research on parallel imports in an international context is rare and, in many cases, very superficial.” Economists do not have enough information to make a reasonable assessment of the international intellectual property trade, as importers do not report on parallel imports, and customs authorities do not collect data on it. Second, researchs on modelling different approaches towards parallel importing are based on overly simplified assumptions. Therefore, they do not reflect the adequacy of the real world and should not be used as a “decision-making tool”[7].

In the 1980s, parallel imports to the United States occurred due to differences in both the free movement of goods and prices, and the relevance of these two factors was confirmed in several lawsuits during this period. From the available empirical evidence, it is safe to say that in the long run, parallel imports will not necessarily lead to lower prices of products, but will provide consumers with more product options and more intra-brand competition for producers (thereby, most likely, lower prices).

The relationship between parallel imports and access to pharmaceuticals has been a central issue in the debate over intellectual property rights and public policy objectives for many years. Recently, the HIV/AIDS crisis faced by developing countries around the world has highlighted the role that parallel imports can play in public health. Many less developed countries are facing a shortage of chronic ARV (antiretroviral) drugs and have to contend with the extremely high cost of available drugs. As a result, millions of people in developing countries do not have access to ARV therapy or other essential drugs for common diseases in the developing world[8].

According to a study by Dr. Bryan Khan of the University of West India, who conducted research on economic analysis of intellectual property rights in 2020, parallel imports are good for creating competitive markets from an economic point because it equates the price of monopoly drugs to equilibrium[9]. He argues that the procedure for exhaustion at international level supports competition, that generic drugs can be purchased in a cheap market (e.g., a developing country) and resold in an expensive market (e.g., a developed country), which is really a competition in a high price market (developed country). It is completely possible because the rights of intellectual property owners have expired and they cannot stop the “parallel import” of common products. Thus, in a high price market, the price of the product falls[10].

Not surprisingly, the legitimacy of parallel imports has been the subject of heated political debate among WTO member states. Apparently, the flexibility provided for in Article 6 of the TRIPS Agreement and enshrined in paragraph 5(d) of the Doha Declaration allows developing countries to apply certain end-of-rights regimes to

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protect public health and encourage the use of medicines. There is evidence that many developing countries want to allow the parallel import of cheaper drugs and rely on the international regime of exhaustion to alleviate the burden of national disease. The Republic of Uzbekistan, as one of the developing countries, should not be indifferent to this phenomenon. It is required that our parallel import legislation be clearly reflected, and that government agencies and courts form a single position on this issue. It is important to study the achievements (economic, welfare, free movement of goods) and shortcomings (threats to the exclusive rights of intellectual property owners) in the context of Uzbekistan, which lie behind the phenomenon of parallel imports.