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Trademark Infringement in Parallel Imports

Issued: November 01 2009
There are no specific clauses concerning parallel imports in trademark related laws and regulations in mainland China. There are also different views as to whether selling parallel imported goods would infringe upon exclusive rights to use registered trademarks. Many scholars and government authorities hold that there should be no issue of trademark infringement in parallel imports based on the principal of the exhaustion doctrine, while others consider that trademark infringement is present in parallel imports based on the “local” nature of intellectual property rights.
 
On April 4, 2009, the Changsha Intermediate People’s Court made a judgment for the first instance to the lawsuit filed by Compagnie Générale des Etablissements Michelin (the Plaintiff), owner of the “Michelin & Device” trademark and other related trademarks that had been registered in China, against two individuals named Tan Guoqiang and Ou Can (the Defendants). The judgment ruled that the Defendants had committed the act of infringement upon the Plaintiff's exclusive right to use the Michelin & Device trademark and other related trademarks for their selling Michelin tires without the sign of 3C, which were genuine products manufactured by the factory of the Plaintiff in Japan and were not for the purpose of the Chinese market. The 3C mark is a compulsory safety and quality mark for many products sold on the Chinese market, including tires.
 
The court held that the affirmation of the establishment of infringement on trademark rights shall be based on whether the Defendants selling the Michelin tires damages the interests of the Plaintiff’s exclusive right to use the registered trademark. In this case, Michelin tires without the 3C mark are not permitted to be sold in China. Furthermore, it was proved that the Defendants had not obtained the authorization of the Plaintiff to sell those Michelin tires in China.
 
Considering that the manufacture and sale of tire products shall accord with the speed requirements, geographical and climatic features and the compulsory certification standards of the country where the tire products are sold, there may exist hidden safety risks in using Michelin tires that are actually for the purpose of, for example, the Brazilian or European markets. Regardless as to whether the Michelin tires at issue were genuine or counterfeit, it was an illegal act for the Defendants to sell the tires in China.
 
The key point in this case was whether the Defendants’ acts damaged the interests of the Plaintiff’s exclusive right to use the trademark. According to a judicial interpretation issued by the Supreme People’s Court, any party that marks its name, trademark, and/or other signs on products to indicate that it is the manufacturer shall be considered as the “Producer” of the products as prescribed in the General Rule of the Civil Law and the Product Quality Law of the PRC.
 
As such, as the owner of the trademark, the Plaintiff’s reputation will be damaged, because of the legal consequences of the possible traffic accidents or other civil disputes resulting from the tires without safety guarantee, and negative user evaluation of the products will be directly referred to the Plaintiff through the trademark that is marked on the tire products.
 
In conclusion, the Defendants’ sale of Michelin tires without the 3C mark is considered an illegal act that has caused actual damage to the Plaintiff’s exclusive right to use the registered mark and that has destroyed the functions of the trademark that ensure product quality and indicate the reputation of the Plaintiff.
 
Clearly, the court did not take into consideration the principals of the exhaustion doctrine or the nature of the locality of the intellectual property rights when hearing the case, rather considering the basic functions of a trademark, including differentiating the source of origin, and ensuring the quality of the products and the reputation of the product provider. According to the court, trademark infringement shall be established only if the basic functions of the trademark are destroyed.
 
One could infer from this case that the basic functions of the trademark were destroyed and the interests of the Plaintiff’s exclusive right to use the trademark were damaged simply because the Michelin tires sold by the Defendant did not go through the 3C process.
 
However, the court’s judgment can still be referred to other cases where parallel imported products are not required to get a 3C certificate. For example, if the parallel imported products do not accord with national standards, or may even cause damage to users because they are not applicable to use in the country or area, the sale of such products may damage the interests of the trademark owner and therefore may constitute an act of trademark infringement.
 
It is said that this is the first case related to parallel imports where the court affirmed the establishment of infringement on trademark rights. Though China is not a case law country, the judgment made by the Changsha Intermediate People’s Court will influence cases related to parallel imported products in the future.

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About the Author

Fu Haiying is a partner with King & Wood’s trademark practice and has extensive experience in the area of trademark and copyright enforcement. Fu has represented many multinational companies in protecting their trademark rights and copyrights in China and is a specialist in litigation and competition-related actions.