Strategies for Trademark Parallel Imports

Trademark Parallel Imports (“TPI”) refers to the owner of the registered trademark, or the other licensee has produced and sold the goods with the registered trademark in the export country, a third party (importer) imports the goods with the registered trademark to a third country (import country), but the owner of the registered trademark or the other licensee has also registered the same trademark in the import country.

Follow up with the establishment of Shanghai Free Trade Zone and the overseas online shopping, the problems related to TPI become more and more serious. Especially for those multinational companies, TPI may bring a significant impact on the marketing strategies of their subsidiaries in China, the management of distributors and etc.. In view of this, TPI becomes an important topic for the relevant companies.

However, the legislative gap exists on the TPI issue, so does the judicial gap. Till now, there are very few cases related to TPI, and there may be only 2 cases which can be searched on the internet. In the “LUX” (力士) soap case heard by Guangzhou Intermediate People’s Court in 1999, the defendant pleaded with TPI, however, the court held that the defendant failed to prove that the owner of the trademark sold these soaps, nor it had obtained the authorization of the relevant trademark from the owner of the trademark, so it had infringed the plaintiff’s exclusive rights to use the trademark. Thus, the court did not explain whether TPI belongs to infringement. In the “Michelin” tires case heard by Changsha Intermediate People’s Court in 2009, the court held that the defendant failed to obtain the 3C certification for those said tires in China, so such sale should be deemed as illegal, and these tires might have the performance and safety risks, which would affect the function on protecting the reputation of the quality of the goods and the sellers, finally would affect the plaintiff’s exclusive rights to use the trademark, so the defendant’s action should be deem as an infringement. Thus, the court took the relevant certification as the reason for infringement, however, it still did not explain whether TPI is a kind of infringement.

The root reason of such phenomenon is the conflict between the regional requirements of trademark and the development of international trade, the protection of the domestic industries, and etc., which shall be affected based on a country’s current situation and policy. Supreme People’s Court judge Kong Xiangjun has recently written an article named as “Several Issues Related to the Application of the Newly Amended Trademark Law”, in which he states the opinion on TPI as that the principle for TPI shall be regional protection and the protection for the owner of a trademark (as the prohibition for TPI), however, some special occasions could be taken into consideration, such as “joint control” (note: “joint control” refers to the owner has registered the same trademark both inside and outside of China, or the owners of the domestic trademark and overseas trademark are parent company and subsidiary, or are controlled by the same shareholder or controller ). No matter whether Kong’s opinion is the main attitude of the Chinese courts on TPI, from the current development of China, we believe that the judicial departments would not judge TPI as an infringement or not, but they will solve the relevant disputes based on other factors of each cases.

Under such circumstance, the enterprises could take the following aspects into consideration when dealing with TPI related problems:

Firstly, eliminating the possibility of TPI and reducing the relevant loss by an agreement on such issues in advance. When signing the exclusive license agreement on a registered trademark, the licensee could stipulate that the licenser (the owner of the trademark) shall forbid the other licensee located in other regions to export the goods with the same trademark to China, where the licenser failed to prohibit TPI, the licensee should have the right to decrease the royalty of the registered trademark. When signing the exclusive license agreement on a trademark, the licenser shall specify the production venue, because the non-agreed production venue may lack of the supervision of the licenser, and affect the original function of a trademark.

Secondly, despite TPI, the enterprises could make good use of other factors in the individual cases. For example, the certificate of license, the mandatory permit and etc.. In addition, where the label on the package of the TPI related goods violates the relevant laws, or the advertisement of such TPI related goods is slanderous, the enterprises could protect their interests based on the “Anti-Unfair Competition Law”.