Sale of genuine products can also infringe trademarks

By Wang Yaxi and Wu Yue, Yuanhe Partners 
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Global brands generally enter the Chinese market by physical stores in two main ways. One is a brand flagship store or franchise store, and the other is a brand t store offering several products at the same time. Apart from these authorised dealers, others may purchase brands as parallel – or unauthorised – imports to sell in China.

Wang Yaxi
Yuanhe Partners

It is believed that if a parallel importer simply sells genuine goods that have a legal source and maintains their original quality and appearance, then based on the principle that trademark rights are exhausted in one sale, the trademark owner should tolerate the reseller’s use of the trademark on the goods themselves.

However, even if the goods sold are genuine, the operator will face the risk of trademark infringement if it improperly uses the brand of the goods in the store sign or signage. In this case, the operator will often take “indicative use” as a defence.

Indicative use generally refers to the using of another’s registered trademark in good faith to describe or illustrate the goods necessarily to indicate the source or purpose of the goods. In previous cases, the court will generally examine whether the purpose of the use is legitimate and in good faith, whether the use exceeds the necessary limit to indicate the source of the goods, and whether it is in accordance with the business practice of good faith, etc.

Specifically, to the scenario discussed in this article, because the store sign, external signage, etc. have the multiple roles of indicating the identity of the store operator, indicating to consumers the products offered by the store, and guiding customers to the location of the store, the use of genuine trademarks on the store sign may have certain reasonableness for the consideration of indicating the source of goods or facilitating consumers. However, the circumstances of each case will be considered to judge whether it constitutes proper use.

In the trademark infringement and unfair competition case of Victoria’s Secret v Shanghai Maisi Investment Management, Maisi not only used “VICTORIA’S SECRET” and other logos in the Shanghai Metro City store signage, store walls, cabinets and checkout counters, staff badges, VIP cards and other places, but also claimed that it was the Victoria’s Secret store in Shanghai, the general distributor of its China headquarters, etc., which obviously exceeded the necessary scope of indicating the source of goods, had the function of indicating and identifying the source of services, and infringed the plaintiff’s trademark rights in class 35 services.

武悦, Wu Yue, Associate, Yuanhe Partners
Wu Yue
Yuanhe Partners

This case represents a way of thinking for the courts to decide such type of cases, that is, the resale of genuine goods does not infringe the rights of the trademark owner in the trademark of goods, but the use of the trademark exceeding the limit of indicative use may constitute an infringement of the trademark of the relevant service category.

For brand collection stores, if the operator uses multiple brand trademarks side by side in the store sign and publicity without highlighting one of the trademarks, it may not be considered as trademark infringement. In the case of Prada v Chongqing Ruifu Company, the defendant operated the “Fabulously & F” European boutique, which sells eight famous brands including Prada.

The defendant used the eight corresponding trademarks, including “Prada”, in the light box advertisement at the entrance of the shopping centre, the glass wall of the boutique, and the billboards inside the store. The court held that the defendant’s use was in good faith, only for the purpose of indicating the source of the goods, and did not exceed the reasonable scope of indicative use of the trademark.

Some decisions held that the establishment of an indicative use defence is that it does not cause consumer confusion. In this regard, the Shanghai High People’s Court, in the recently concluded case of Fendi v Yilang Company and Kunshan Outlets, pointed out that the use of a trademark that may objectively cause confusion among consumers might also be fair use of a trademark.

This view can be interpreted in two ways: on the one hand, causing consumer confusion is a positive element of trademark infringement, and the burden of proof should be borne by the trademark owner; on the other hand, for the accused infringer, on the basis of proving that the purpose of use is in good faith and the manner of use is necessary and reasonable, whether the defence of indicative use can be established still depends on the judgment of the likelihood of confusion.

In this case, Yilang operated a number of stores in an outlet mall which attracted customers with low-priced goods, and it was partly necessary to prominently mark the “Fendi” trademark on the exterior of the stores. However, it was neither a brand franchise store nor a brand collection store, which blurred the difference between the two.

The use of the plaintiff’s trademark was sufficient to lead the public to believe that the plaintiff had a control and licensing relationship with the plaintiff, and the use of its own trademark on the bridge, shopping bags, etc., was not sufficient to eliminate such confusion, and was finally found to be a trademark infringement.

It is worth mentioning that although many courts have started to use the concept of “fair use of trademark” in recent years to refer to the above indicative use, there are important differences between the indicative use of trademark and the “fair use” at the level of copyright law: First, the indicative use is not “use of trademark” in trademark infringement, and thus the trademark infringement cannot be established, which is obviously different from the fair use of copyright law.

Second, the purpose of the copyright fair use system is to promote the dissemination and evolution of works, while the object protected by trademark law is commercial signs. The protection of the exclusive right of the right holder is the object of trademark law, and the regulation of after-use behaviour is already stricter, with less room for the application of “fair use”.

This can also explain the relatively cautious attitude of the court in determining the establishment of “fair use of trademark” – while it is certainly reasonable for the operator to use the trademark on the store sign, the source identification function of the trademark and the interests of the trademark owner are more worthy of protection in most cases.

Wang Yaxi is a partner and Wu Yue is an associate at Yuanhe Partners

Wang Yaxi Zhu Mengxuan Yuanhe Partners commercial advertisingYuanhe Partners
58F, Fortune Financial Center (FFC)
5 Dongsanhuan Zhonglu, Chaoyang District
Beijing 100020, China
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