Cindy Zhen, Jack Su, March 20, 2020

In China, foreign brand owners are becoming increasingly concerned about unauthorized stores using their trademarks on signboards. The legal issue is complicated by the fact that these unauthorized stores are selling genuine goods, which originate from parallel imports.

LEGALITY OF PARALLEL IMPORTS

First of all, there are no explicit provisions addressing the matter of parallel imports, whether in the Chinese Trademark Law or in the Anti-Unfair Competition Law.

As a matter of fact, Chinese courts have acknowledged the legality of parallel imports in recent years. The Beijing High Court issued a document entitled "Several Legal Matters to Note in Current Intellectual Property Trials" (May 7, 2016) where it addresses the issue “whether parallel imports constitute trademark infringement”, by stating that if the accused goods are indeed sourced from the trademark rights owner or the authorized dealer, the trademark owner would have fully realised the commercial value of the trademark from the "first" sale of such goods, and thus could no longer prevent others from carrying out "secondary" sales or reasonable commercial marketing of these goods.

This means that selling parallel imports in China does not constitute trademark infringement perse.

However, in practice, courts sometimes find ways to sanction the sale of parallel imported goods. If the goods are, even partially, altered so as to make them substantially different from the original products, the court may find that the sale constitutes an act of trademark infringement or unfair competition.

TRADEMARK USE ON SIGNBOARD BY UNAUTHORIZED STORE SELLING PARALLEL IMPORTED GOODS

In (2015) Hu Zhi Min Zhong No. 185, the defendant used “OUTLETGUCCI” in storefront signboard, and simultaneously used GUCCI and OUTLETGUCCI logos for store interior decoration. In case (2015) Yue Gao Fa Min San Zhong No. 363, the defendant used “MO of GUCCI” as store name, and “GUCCI” logo prominently on advertising materials inside the Mall where the store is located.

In “Victoria’s Secret” (2014) Hu Gao Min San (Zhi) Zhong No. 104, and “Lenovo” (2014) Su Zhi Min Zhong No. 0142, the defendants used the accused trademarks on signboards, in store interior decoration, store furniture like cashier desks and counters, marketing materials like employee name cards (Victoria’s Secret), business cards, and catalogues (Lenovo), among others.

Courts in these cases found trademark infringement and/or unfair competition.

Based on the analysis of these decisions, it appears that an unauthorized store may file a valid defense if it is able to prove one of the following circumstances:

1. The use of trademarks is necessary

2. The use is within a reasonable scope

3. The trademark is used in good faith and

4. The relevant public must not be misled so as to misconstrue that there is certain association between the unauthorized user and the trademark owner, leading to possible misidentification and confusion

If an unauthorized user meets none of the four conditions stated above, trademark fair use defense cannot be established.

MULTIPLE TRADEMARKS USED ON SIGNBOARD BY UNAUTHORIZED STORE SELLING PARALLEL IMPORTS MAKES THE ISSUE MORE COMPLICATED

Where multiple trademarks are used on one signboard by an unauthorized store (see photo below) it will be even more difficult for the brand owner. The store may argue that it is not using any one of the trademarks prominently, and that, since there are multiple trademarks owned by different brand owners on the signboard, it is unlikely to cause confusion among the relevant public as to the relationship/association between the store and each brand owner.

This does not mean that no action is possible. We believe that the above-mentioned parameters may still serve as a point of reference: (a) the store’s use of one or more trademark(s) is not necessary; (b) the use goes beyond the reasonable limits; (c) the use is not in good faith; or (d) the use may cause the relevant public to misunderstand that the store is an authorized store, or has a certain association with either of the trademark owners, thereby causing possible misunderstanding and confusion.

TML: Trademark Law of P.R.China

PDF file: n° 1 Insight: TML 57(7) ∣Legal Issues About Trademark Use On Signboards By Unauthorized Stores