Parallel import has always been one of the hot issues and difficult problems in the legal field of intellectual property. In China, parallel import of patented products has been identified explicitly as non-infringing along with the third amendment of the Patent Law, while law and regulation concerning trademark parallel import still remain absent. This article aims to probe into the tendency of Chinese courts in judging the trademark infringement in parallel import through case study.

 

I. Dispute over trademark infringement and unfair competition between Victoria's Secret Stores Brand Management, Inc. and Shanghai Jintian Apparel Co., Ltd.

 

1. Basic situation:

Plaintiff: Victoria's Secret Stores Brand Management, Inc.

Defendant: Shanghai Jintian Apparel Co., Ltd.

Court: Shanghai No.2 Intermediate People’s Court

Date of Judgment: April 23, 2013

 

Summary: The plaintiff Victoria's Secret Stores Brand Management, Inc. (hereinafter referred to as Victoria’s Secret Company) is a US company founded in 1977. Its English trade name is “VICTORIA’S SECRET” which is corresponding to “维多利亚的秘密” in Chinese. The plaintiff enjoyed trade name right to the above mentioned name. The plaintiff registered a number of trademarks in China, including “维多利亚的秘密” and “VICTORIA’S SECRET”, and the plaintiff demanded in this case protection for four registered trademarks (hereinafter referred to as involved registered marks): “维多利亚的秘密” (Class 35 and Class 25), “VICTORIA’S SECRET” (Class 25) and “VICTORIA’S SECRET PINK” (Class 35).

 

The plaintiff considered it constituted infringement against the exclusive right to use registered trademarks and unfair competition of using trade name of others without authorization that the defendant Jintian Company claimed in public he was the plaintiff’s sole distributor, conduct business activities in the form of direct sales or franchising, and use the plaintiff’s trademarks and trade name “维多利亚的秘密” and “VICTORIA’S SECRET” in the above mentioned business activities. Therefore, the plaintiff sued the defendant to the court and requested to order: 1. The defendant’s cease of trademark infringement and the act of unfair competition; 2. The defendant pay compensation of 5 million yuan, including reasonable expense of 233,323 yuan. 

 

The defendant Jintian Company argued: 1. the goods sold by the defendant were from the plaintiff Victoria’s Secret Company’s patent company Limited Brands Inc. (hereinafter referred to as LBI) which was a party not involved in the case. Hence, the goods were genuine. Therefore the plaintiff’s exclusive right to use the registered trademarks had been exhausted, and the defendant had the right to sell the abovementioned goods and make necessary publicity, hence no trademark infringement was constituted. 2. The plaintiff had no retail business within the territory of China, therefore it was reasonable for the defendant, the only one distributor of LBI’s brand “VICTORIA’S SECRET” within the territory of Mainland China, to claim itself as the sole distributor. Therefore no act of unfair competition of false publicity was constituted.

 

2. Judgment of the Court

 

The issues of this case and the judgment of the court are as follows:

 

(1) Whether the act of the defendant Jintian Company constituted infringement of the plaintiff Victoria’s Secret Company’s exclusive right to use registered trademarks 

 

The court held that though the defendant indeed breached the agreement of “resell may only be made in traditional retail (non-catalogue, non-Internet)” with LBI through its wholesale of the goods to a number of companies after it purchased genuine VICTORIA’S SECRET underwear from LBI, the goods sold by the defendant were genuine goods and they were purchased from LBI and imported through proper channels rather than fake goods. Thus, the defendant’s use of the involved registered marks on tags, hangers, packaging bags and brochures was a part of sales behavior and would not cause confusion and misunderstanding among relevant public. Therefore, the defendant’s selling of the accused infringing goods in this case did not constitute infringement of the plaintiff’s exclusive right to use registered trademarks.

 

(2) Whether the act of the defendant Jintian Company constituted unfair competition

 

The court held that the plaintiff Victoria’s Secret Company had no physical operating activities within the territory of China, and the evidences it submitted were not enough to prove its trade name had already obtained certain popularity and had been known by the relevant public. Therefore, the plaintiff’s trade name did not belong to the enterprise name which was protected by the Anti-Unfair Competition Law of P.R.C. Moreover, the goods sold by the defendant Jintian Company were not fake commodities. Thus, the defendant’s act didn’t constitute unfair competition of unauthorized use of other’s trade name. However, according to Article 9 of Anti-Unfair Competition Law, a business operator shall not, by advertisement or any other means, make false or misleading publicity of their commodities as to their quality, ingredients, functions, usage, producers, expiration date or origin.

 

In this case, the defendant had no evidence to prove itself “the only designated sole distributor of Victoria’s Secret, top-level underwear brand from the United States”; as a matter of fact, the defendant only purchased inventory products from LBI, the plaintiff’s parent company, and sold in China. The defendant’s such announcement would lead the relevant public to misunderstand that there was authorization and license relationship between the defendant and the plaintiff, so that the defendant may obtain unfair competitive advantage, and influence the plaintiff’s business activity in the territory of China in the future, which may damage the plaintiff’s interests. Therefore, the plaintiff had bad faith to fabricate facts to cause misunderstanding, carried out behavior of false publicity objectively, which constituted unfair competition. The defendant shall assume the civil liabilities to cease infringement and pay compensation for losses. 

 

Neither party appealed in the statutory period after the first-instance judgment was made. The judgment has been legally effective.

 

II. Basic situation and Analysis of Michelin Parallel Import Case

 

1. Basic situation

Plaintiff: Compagie Generale Desetablissements Michelin

    Defendant: Huanle Tire Business Department of Yuhua District of Changsha

Court: Changsha Intermediate People’s Court

Case Number: (2009) Chang Intermediate Civil Three First Instance No. 0072

Date of Judgment: July 8, 2009

 

Summary: The plaintiff Compagie Generale Desetablissements Michelin is a French company manufacturing tires. It has used on relevant commodities series of trademarks “figure of Bibedum” and “MICH—ELIN”, which have been registered in China. In April 2008, the plaintiff found the defendant Huanle Tire Business Department of Yuhua District of Changsha selling goods which infringed the plaintiff’s registered trademarks and sued to the court requesting the defendant to cease the infringing act, paying compensation 100,000 yuan and eliminate the influence in public through making statement on the media with nationwide coverage.

 

The defendant argued that the tires it sold were genuine commodities produced in the plaintiff’s Japanese factory and it did not infringe the plaintiff’s exclusive right to use trademark. Through investigation, the tires soled by the defendant labeled the word and technical indexes as “MICHELIN”, “225／55R16” and “95Y”, and Japan was the place of origin, and they also bore 3C Certification mark. The plaintiff confirmed that the tires were manufactured by its Japanese factory, but this type of tires had no Y speed rating.

 

Changsha Intermediate People’s Court found after trial that the registered trademark of the plaintiff, the owner of the trademark “MICHELIN”, should be protected according to law. The defendant’s selling of tires bearing the “MICHELIN” series of trademarks yet changing the speed rating had infringed the plaintiff’s exclusive right to use the registered trademark, and shall assume the civil liabilities to cease infringement and pay compensation for losses. However, as the tires were indeed manufactured by the plaintiff and the plaintiff had made profits from the first sale, the court made a judgment and awarded the defendant to pay compensation of 5,000 yuan for loss to the plaintiff finally, while the other claims brought by the plaintiff were rejected.

 

III. Regarding Parallel Import

 

1. What is “parallel import?”

 

Trademark parallel import refers to the act that the importer, without permission of the trademark holder (trademark owner and user) of the importing country, imports, exports and sales of goods bearing identical trademarks which are produced with legal authorization,. Generally speaking, parallel import refers to that the importer imports commodities bearing a trademark from foreign distributors and resells them in domestic market. 

 

2. Current Situation of Legislation

 

The legislation concerning trademark parallel import at present almost remains blank in China. If you must find some laws relevant to trademark parallel from our existing legislation, the eligible laws are no more than the following.

 

Article 57 of the amended Trademark Law of China stipulated the following acts which infringed trademark owners’ interests: (1) to use a trademark that is identical with a registered trademark in respect of the identical goods without the authorization from the trademark registrant; (2) to use a trademark that is similar to a registered trademark in respect of the identical goods or use a trademark that is identical with or similar to a registered trademark in respect of the similar goods, which is likely to cause confusion, without the authorization from the trademark registrant; (3) to sell goods that he knows bear a counterfeited registered trademark; (4) to counterfeit, or to make, without authorization, representations of a registered trademark of another person, or to sell such representations of a registered trademark as were counterfeited, or made without authorization; (5) to replace, without the consent of the trademark registrant, its or his registered trademark and market again the goods bearing the replaced trademark; (6) to provide convenience for others to infringe the exclusive right to use a registered trademark or to assist others to perform the infringing act against the exclusive right to use a registered trademark intentionally; or (7) to cause, in other respects, prejudice to the exclusive right of another person to use a registered trademark.

 

According to the aforementioned provisions, China Trademark Law does not provide a general definition for trademark infringement, but specifies six types of trademark infringement in Article 57, and the last catch-all clause includes “to cause, in other respects, prejudice to the exclusive right of another person to use a registered trademark” into the scope of trademark infringement. Meanwhile, Article 75 of the amended Implementing Regulations under the Trademark Law stipulates that the provision of storage, transport, post, printing, concealment, site for business operation, or online transaction platform for infringement of other’s exclusive right to use a trademark belongs to the act “to provide convenience for others to infringe the exclusive right to use a registered trademark” stipulated in Article 57 (6) of the Trademark Law. Article 76 of the amended Implementing Regulations stipulates that the use of a sign that is similar to or identical with a registered trademark in respect of the identical goods or similar goods as product name or decoration of the goods, which mislead the public, belongs to infringement of the exclusive right to use a registered trademark stipulated in Article 57 (2) of the Trademark Law.

 

From the above mentioned provisions, we may see that the infringing acts of trademark stipulated in the Trademark Law mainly targets registered trademarks, while the ways of infringement mainly include use, replace, counterfeit or confuse, without authorization from the owner of the registered trademark. Trademark parallel import, however, evidently differs from the above listed infringing acts, as the goods acquired parallel import by the importer are from retailers authorized by the trademark registrant or from the trademark registrant directly, which means the way of acquisition of goods is legal and the goods are sold under permission of the trademark registrant.

 

Therefore, although Article 57 of the amended Trademark Law (Article 52 of the Trademark Law before amendment) was regarded as a legal ground in determining the illegality of trademark parallel import by some scholars or courts, for the acts prescribed hereof do not possess features of trademark parallel import.

 

It’s noteworthy that Anti-Unfair Competition Law of China had also been regarded as a legal ground against trademark parallel import by some people, as trademark parallel import has negative influence on domestic registered trademarks holders. However, trademark parallel import is not really involved in the 11 unfair competition behaviors illustrated in the Anti-Unfair Competition Law. In addition, the honesty and credibility principle prescribed thereof seems difficult to apply to the pure behavior of trademark parallel import. After all, the object involved in the trademark parallel import is genuine goods acquired lawfully and the import itself could be hardly explained as violation of honesty and credibility. Therefore the application of the Anti-Unfair Competition Law to trademark parallel import is not exactly accurate.

 

Generally speaking, there is no normative document on trademark parallel import at the present stage in China. 

 

3. Juridical Practice

 

There is no express provision about trademark parallel import at the legislative level in present China. When a dispute arises between the importer and the domestic trademark right holder, it mainly relies on the judge’s discretion. 

 

Besides the afore-mentioned two cases, there’re two other typical cases concerning trademark parallel import.

 

The Unilever “Lux soap case”, which was happened in 1999, was China’s first lawsuit of trademark infringement with parallel importation as the claim. The defendant failed to provide sufficient evidence to prove that the batch of soap was lawful goods from the registrant of the trademark “LUX” or entered the market with the trademark registrant’s authorization; therefore, the court did not support the defendant’s pleading that the case was a parallel import case. The case took place during the Asian financial crisis during which the Thai Baht had depreciated substantially while Chinese Yuan remained strong, and China was a high-priced market, which led to the parallel import. Since China’s Trademark Law did not have clear provisions on parallel import, the judgment failed to respond directly to the issue of parallel import; instead, the court ruled in the case that the defendant infringed the trademark right by importing of counterfeit trademarked products.

 

In the later dispute over trademark infringement against “AN’ GE” clothing, the court of first instance confirmed after trial the plaintiff’s right of exclusive sales in the authorized region, and the court of second instance further confirmed the plaintiff’s exclusive right to use the trademark “AN’ GE”. However, the two courts both found the defendant’s act of import rightful and lawful without constituting infringement or unfair competition, and thus did not support the plaintiff’s claim. 

 

In the afore-mentioned two cases, the courts invariably bypassed the application of laws regarding parallel import. Since the Trademark Law did not have clear stipulations on parallel import, the courts all strived to avoid making direct judgment on the legality of parallel import. The court in the “Lux soap case” bypassed the issue of parallel import, while the plaintiff in the “AN’ GE case” claimed right of exclusive sales and unfair competition instead of trademark right, leaving no opportunity for the court to make direct judgment on the issue of infringement by trademark parallel import.

 

In comparison, the courts in the Victoria case and the Michelin case identified parallel import more expressly. 

 

According to the judgment in the afore-mentioned Victoria’s Secret case, the Shanghai No.2 Intermediate People’s Court held that for a trademark registered in China by a foreign brand owner and authorized by the owner to others for disposal outside of China, the Chinese distributor did not constitute trademark infringement by the importation and reselling of the genuine goods. And according to the doctrine of exhaustion of trademark right, it would not cause confusion or mislead the relevant public since the goods were acquired from the authorized person through proper channels. Although the court found the defendant’s act constituted unfair competition in accordance with Article 9 of the Anti-Unfair Competition Law, it made the judgment based on the defendant’s false statement as “the only designated sole distributor of Victoria’s Secret, top-level underwear brand from the United States”. Therefore, from the result of the judgment, the court actually admitted the legality of parallel import.

 

In the Michelin tire case, the Changsha Intermediate People’s Court held that the determination of trademark infringement depended on whether the defendant’s sale of imported “MICHELI” tires caused damages to the plaintiff’s exclusive right to use the registered trademark. As the manufacturing and sale of tire products shall be in compliance with the relevant speed requirements, geographical, climatic features and compulsory certification standard of the place of sale, the defendant’s failure to obtain the 3C Certification for MICHELIN tires which were not originally targeted Chinese market may cause safety issues. Where traffic accidents or other civil disputes arose due to the use of the uncertified tires, legal consequences and negative evaluation from consumers would be directly attributed to the plaintiff, the trademark holder, through the trademark born on the tires. Therefore, the defendant’s acts harmed the quality and reputation of the goods manifested by the plaintiff's trademark, which caused substantial damages to the plaintiff’s exclusive right to use the registered trademark.

 

IV. Conclusion

  

Parallel import is a rather complicated issue. The aforementioned Victoria’s Secret case and the Michelin tire case both involved parallel import. But the courts gave different judgments. The biggest difference between the two cases lies in the products involved.

 

In the Michelin tire case, the grounds on which the court established trademark infringement were that the tires the defendant sold were not manufactured for the Chinese market, and the defendant had not obtained 3C Certification. Tire products shall be certified under the 3C system before they are sold, otherwise the safety of the products could not be ensured. Therefore, the plaintiff's reputation reflected through the trademark might be damaged. In other words, the key issue of this case is whether there was "3C Certification" which is used to explain or prove safety of the tire products.

 

However, for products of underwear in the Victoria’s Secret case, there is no such issue as different quality standards between manufacturing country and exporting or importing country. Even if the relevant products were not manufactured for the Chinese market, no safety or quality issue would emerge during its seal in China. Therefore, it would not involve the problem as to cause damage to the reputation of the trademark right holder.

 

In conclusion, seeing from the present juridical practice, the courts seem to basically hold positive attitude toward trademark parallel import and find that no trademark infringement is constituted. This attitude aims to protect the interests of Chinese consumers and balance the interests of trademark right holder and importer.

 

However, where products of parallel import are not suitable for sale in China, such as the product performance does not in conformity with the standard stipulated in Chinese laws and regulations, the court might find the act of parallel import constitutes trademark infringement as the reputation of the trademark right holder might be damaged due to the sale of the products.

 

In a word, as previously mentioned, since Chinese laws and regulations do not have clear stipulations on trademark parallel import, it is difficult to exercise trademark right against goods involved in parallel import through proper procedure. 

 

However, the trademark right holder bothered about parallel import may take actions to stop the parallel import of the goods if he could prove the goods may cause safety issue.

 

In addition, trademark right holder may claim unfair competition if the seller conducted improper publicity activities during the sale of goods involved in parallel import. However, even if the improper publicity activities are found constituting unfair competition, the act of selling such goods could not be stopped.