China: No Trademark Infringment For Parallel Imports In China

Last Updated: 1 June 2016
Article by Xiaojun Guo and Beibei Gu

In the context of trademark infringement, parallel imports involve the imports into China for resale of genuine goods, which have been legitimately manufactured and marketed abroad by the authority or with the consent of the trademark owner, without the authorization or consent of the same trademark owner or its exclusive licensee in China. Parallel imports usually happen when there is a price difference between the exporting country and China.

Recent cases show that the courts lean to no trademark infringement for parallel imports unless trademark owners can prove misrepresentation, confusion or goodwill/reputation damages.

In the trademark infringement case, Les Grand Chais de France S.A.S. v. Montewine International Trade (Tianjin) Co., ltd, made by Tianjin High People's Court on December 17, 2014, the Court, by applying the Trademark Law of 2001, upheld the first instance decision and held that Tianjin Monte wine, which imported three kinds of wines labeled "J.P. CHENET" without authorization from the plaintiff, didn't infringe upon the trademark right of Les Grands Chais.

The plaintiff and appellant, Les Grands Chais, owns the trademark right for "J.P.CHENET" both in China and France in class 33, covering wine, peppermint liqueurs, alcohol (beverage), alcohol (liqueur). On March 9, 2009, Les Grands Chais concluded an exclusive sales contract with Tianjin Dynasty Brewery Company Ltd., authorizing the later to sale their wines with the alleged trademarks in China.

On August 31, 2012, the defendant and appellee, Tianjin Monte wine made declaration to Tianjin Customs for importing wines including white wines, rose wines and red wines. The labels on the bottles of the imported wines indicated neither the grape varieties nor the grade of the wines. While the labels on the bottles of the wines imported by Tianjin Dynasty Brewery from the plaintiff indicated the information. Tianjin Monte wine proffered evidence showing that their imported wines originated from the plaintiff. The plaintiff rejected this but didn't submit any evidence.

At issue was whether Tianjin Montewine's importation into China of the three kinds of wines marked "J.P. CHENET" without the authorization of Les Grands Chais infringed upon the later's trademark right.

The Tianjin High People's Court opined that:

There is not definite provision in the Trademark Law prohibiting the above parallel imports. The Court enquired about the purposes of and the basic principles in the Trademark Law to decide whether the behavior of the defendant has constituted trademark infringement, in consideration of the facts of the case, with a view to achieving a balance among the right owner, the importers and the consumers and a balance between protection of trademark right and free circulation of goods.

The Trademark Law protects the trademark right so as to prevent confusion of the origins of goods or services, to maintain fair competition and to promote economic development, meanwhile protects the legitimate rights and interests of consumers and the public, for realizing a balance between protection of the trademark owner and protection of the consumers. In this case, the following factors shall be taken into consideration.

Firstly, whether there is a "significant difference" between the wines imported by Tianjin Montewine and the wines sold by Tianjin Dynasty Brewery, as alleged by the plaintiff.

The Court found the wines imported by Tianjin Montewine were originated from the plaintiff and sold by the plaintiff's English distributor. The defendant didn't make any change to the imported wines, including the contents, the labels and the packages. Les Grand Chais sold in China wines of different grades, covering from high-end to low-end for varieties of consumers with different demands and levels. The anticipation or dependence of consumers on "J.P.CHENET" wines would not be affected by the wines imported by the defendant. The alleged "significant difference" between the wines can not stand in terms of the grade and the quality of the wines.

Secondly, whether there is a possibility of confusion and whether the goodwill/reputation of the plaintiff was damaged.

The Court found the goodwill or reputation of the wines with the trademark "J.P.CHENET" obtained from any marketing activity including advertising and exhibiting as well as the value added thereby extends to all series of the wines of the plaintiff instead of solely to the high-end wines. Whereas there is no significant difference between the wines imported by Tianjin Montewine and the wines sold through Tianjin Dynasty Brewery in China, and the defendant didn't change their imported wines, i.e. the elements affecting purchase-decision of consumers didn't change, the importation of the defendant neither confused the customers as to the origins of the wines nor damaged their trust in the wines, and in turn didn't damage the goodwill or reputation and interests of the plaintiff.

The Court therefore didn't support the claim of Les Grand Chais by referring to the issues of confusion and damages to its goodwill or reputation.

A similar case was made by the Shanghai Second Intermediate People's Court on April 23, 2013. In Victoria's Secret Stores Brand Management, Inc. v. Shanghai Jintian Clothing Ltd., the plaintiff, Victoria's Secret Stores Brand Management, which is the owner of the registered trademarks for "VICTORIA'S SECRET" in class 25 and "VICTORIA'S SECRET PINK" in class 35 and two registered trademarks for the Chinese characters of "VICTORIA'S SECRET" in class 25 and class 35 in China, claimed, among others, that the defendant, Shanghai Jintian Clothing used the plaintiff's trademarks for marketing and sold goods with the registered trademarks, and that said behavior infringed upon its trademark rights.

The Court found the defendant purchased the genuine goods, i.e. lingeries originated from the plaintiff's parent firm LBI through regular commercial channels, and distributed those goods to retailers by wholesales. When selling the goods, use of the registered trademarks of the plaintiff on the labels, hangers and packages as well as catalogues was a part of the sales behavior, and would not mislead the public as to the origins of the goods. Therefore, the Court held that the defendant did not infringe upon the exclusive right to use the alleged trademarks.

A latest case was brought by the exclusive licensee of four Chinese registered trademarks in class 32 of German beer manufacture, Köstritzer Schwarzbierbrauerei GmbH, against a Chinese company, made by the Beijing High People's Court on May 12, 2015, regarding the importation of KÖSTRITZER beer by said Chinese company without the consent of Köstritzer Schwarzbierbrauerei GmbH and its exclusive licensee in China. The Court found that the defendant imported the brand of beer from a Netherlands company, which made clearly indication that the beer was originated from Germany and were made by the trademark owner.

The Court rejected the claim of the plaintiff by reasoning that: 1) the defendant imported the genuine beer with the registered Chinese trademark, which correctly identified the source of the beer and would not cause confusion of origins; 2) the Trademark Law and other laws don't prohibit parallel imports of trademarked goods into China; 3) the accused goods were produced and sold by the trademark owner, the circulation of the goods would not cause damages to the goodwill or reputation of the trademark owner.

It seems that the Chinese courts are willing to apply the "exhaustion of trademark right" internationally to deny finding trademark infringement when genuine goods manufactured or marketed by trademark owners abroad are imported into China. The implication might be that the trademark owners have gained sufficient benefits from their first sales and parallel imports are essentially good to the Chinese consumers. To maintain control of the distribution of goods in China, trademark owner shall not only rely on their trademark rights in China but also rely on their contractual relationship with distributors in other countries or areas than China.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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