Parallel imports and brand protection strategy

By Li Jiaming, Dentons
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The mega trend of economic globalization has brought about the emergence of cross-border e-commerce platforms. The price difference of the same commodity in different countries leads to the lower price of some importers’ overseas commodities than the corresponding domestic commodities. Therefore, consumers prefer to choose the imported goods with more alluring prices, rather than buy the goods from the domestic authorized dealers. All this gives rise to the concept of parallel imports.

A parallel import is not limited in cross-border e-commerce. The importers importing the goods that are marketed in other countries or regions into the importing country without the authorization of the intellectual property (IP) rights owner is referred to as parallel imports. There are three elements defining a parallel import. First, there is a single rights owner owning both the foreign IP rights and the domestic IP rights. Second, the importers buy the goods from legal sources, specifically, they buy the genuine goods marketed in foreign countries by the rights owners. Third, the import of the goods is done without the authorization of the rights owner.

The price advantages of the goods of parallel imports directly affect the normal sales activities of the IP rights owners or the authorized dealers in the importing country, leading to a number of disputes, which are mainly around trademark issues.

Li Jiaming Senior Partner Dentons
Li Jiaming
Senior Partner
Dentons

In the JP CHENET case (civil judgment No. 0024 of Tianjin Municipal Higher People’s Court (2013)) and the GOO.N Paper Diaper case (civil judgment No. 2078 of Hangzhou Municipal Intermediate People’s Court (2016)), both plaintiffs claimed that the goods of parallel import had infringed their trademarks rights. However, both courts took the opinion that the importers had kept the original state of the goods, without changing the packages of the goods and the goods themselves, without confusing or misleading the consumers in terms of the origins of the goods, or damaging the reputation enshrined in the trademarks, and so not damaging the trademark rights.

According to article 57.1 of the Trademark Law, the act of using the same or similar trademarks on the same or similar goods, which easily leads to confusion, constitutes the infringement of the right of exclusive usage of the registered trademark. The goods of parallel imports are the genuine goods marketed by the trademark owners in other countries or regions, and the trademarks are labelled by the rights owners rather than by the unauthorized importers. Based on the exhaustion of rights principle, the IP owners would lose control of the goods once they are launched in the market, and anyone legally obtaining the goods has the discretion to dispose of the goods.

Both theoretically and in practice, parallel imports generally do not constitute the infringement of trademark rights in China. Nevertheless, parallel imports undeniably affect the normal sales of trademarks owners or their authorized dealers. Any misconduct from the importers would damage the brands and the goodwill of the trademark owners. This leads to a question: How can the trademark owners protect their brands and safeguard their legitimate rights and interests?

The author offers the following suggestions based on applicable laws and judicial practice.

(1) Register a Chinese trademark and adopt it onto the goods. The goods imported from overseas are usually not labelled with Chinese trademarks, and in this regard the goods of parallel import do not infringe the right of exclusive usage of the counterpart trademark in China of the original trademark. If, however, the importers add Chinese trademarks onto the goods without authorization, that would constitute infringement of the right of exclusive usage of the Chinese trademarks. So, the conduct of the importers can be regulated this way and the goods marketed in different countries or regions can be managed separately through this approach.

(2) Register trademarks under the 35th category of services. If the importers present the trademarks in conspicuous positions, on store signs or decorations, when selling the goods, making the consumers misidentify the provider of the goods and mistakenly associate the stores with the trademark owners, even though the goods are genuine goods and the consumers are not confused with the origin of the goods, the importers may infringe the rights of exclusive usage of the trademark under the 35th category of services based on the extent of the usage, which can be applied to restrain the conducts of the importers.

(3) Distinguish the goods marketed in different countries or regions with different labels (such as “for the exclusive distribution in X territory”). Any changes to the labels of the goods, which are essential integral parts of the goods information, may damage the consumer’s right of information and make them misidentify the origin of the goods, and ultimately damage the trademark rights of the trademark owners. Some inappropriate parallel imports of the importers may be regulated through this factor.

(4) Where goods are on the state compulsory certification list, if importers do not conduct product certification, the rights owners may report the misconduct to the quality supervision and inspection authorities, or bring tort lawsuits. According to article 2 of the Compulsory Product Certification Management Rules, to safeguard the safety of the nation, lives and assets, relevant products must be certified before being sold, imported or used in other operational activities. According to article 49, where the products on the list are put into operational use without certification, the market regulation bureau and the quality inspection bureau will impose penalties. Apart from the administrative penalty, the potential quality problems of uncertified parallel imported products due to different national standards, or different application environments, may also cause damage to the goodwill of the trademark owners and constitute trademark infringement.

Li Jiaming is a senior partner at Dentons

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