August 7 2017 Parallel imported spirits with no lot numbers found to be infringing Wanhuida Intellectual Property | Intellectual Property - China Intellectual Property IntroductionFactsDecisionCommentIntroductionThe Changsha Intermediate Court has provided the first trademark infringement decision in Hunan Province against products which have had their lot numbers removed. The court applied Article 57.7 of the 2013 Trademark Law as a fallback provision and found that the act of removing the lot number and the unauthorised trademark use had caused "in other aspects, prejudice to the exclusive right of another person to use a registered trademark", which was an infringement of the plaintiff's registered trademarks.FactsBallantine's is a blended Scotch whisky, which was established in 1827. It is the world's second highest-selling Scotch whisky brand and is owned by Allied Domecq Spirits & Wine Limited, an affiliate of Pernod Ricard. Allied Domecq is the owner of the registered trademarks BALLANTINE'S (Device 1) and 百龄坛 (Ballantine's in Chinese, Device 2) under Class 33, which covers "wines, spirits (beverage), liqueur, etc" in China.Device 1Device 2 In 2016, Allied Domecq suspected that a retailer in Changsha, Hunan Province, was selling parallel imported whisky. On June 6 2016 Allied Domecq requested a local notary to proceed with a purchase of the sample product from the suspected retailer. The product was later identified as authentic Ballantine's whisky, parallel imported, with the lot number removed and the original back label covered with a Chinese label using Ballantine's Chinese trademark 百龄坛 without Allied Domecq's authorisation.A lot number is an identification number assigned to a particular quantity or lot of material from a single manufacturer. The lot number enables tracing of the constituent parts or ingredients and the labour and equipment records involved in the manufacturing of the product. This enables manufacturers to:perform quality control checks;calculate expiration dates; andissue corrections or recall information concerning production.It also gives consumers an identifier for contacting the manufacturer and researching the production of goods received.Labels of genuine productChinese label used on parallel imported productLot number of genuine productLot number removed from parallel imported productOn August 24 2016 Allied Domecq brought a lawsuit against the retailer before the Changsha Intermediate Court for trademark infringement.DecisionOn January 22 2017 the Changsha Intermediate Court held that by removing the lot number from the product, the product's origin was concealed. This act affects both the consumer and the trademark owner as:it compromises the identifying function of the trademark, which is likely to lead to consumer confusion and misidentification about the origin of the product; andit interferes with the trademark owner's capacity to trace the product and control quality, which damages the trademark owner's rights.Regarding the unauthorised use of the 百龄坛 trademark, the court reasoned that according to the Food Safety Law, imported pre-packaged food, including wine and spirits, must bear a Chinese label. However, it is not mandatory to translate the trademark of the imported good into Chinese and therefore the defendant had no legal or reasonable ground to use the trademark 百龄坛 on the label. Although the act does not sever the bond between the registered trademark and the plaintiff's goods, it interferes with Allied Domecq's discretion to use the trademark on goods in China.Therefore, the court found that the act of the removal of the lot number and the unauthorised use of the 百龄坛 trademark constituted an act of infringement as defined by Article 57.7 of the Trademark Law.Further, the court ruled that the defendant's distribution of the products in question caused "in other aspects, prejudice to the exclusive right of another person to use a registered trademark" as provided by Article 57.7 of the Trademark Law, which was an infringement of the plaintiff's registered trademarks.The court granted an injunction and awarded damages for an amount of Rmb20,000.CommentThis was not a simple case. Pursuant to existing laws and regulations in China, the act of parallel import is not illegal. This has been confirmed by different Chinese courts in multiple judgments. However, parallel import is often accompanied with other activities, which when scrutinised by the court can lead to the discovery that the activity was in fact illegal. For example, if the label or other aspects of the goods are changed substantially, the court may consider that this is causing prejudice to the trademark owner or the relevant public. Such behaviour has not yet been categorised as illegal, but based on existing practice, selling a product with its lot number removed can constitute trademark infringement.Further, attaching irrelevant marks or labels can destroy the integrity of the packaging of the goods, damaging the image of the genuine goods and the trademark owner's reputation. This may be considered a violation of the principle of bona fide and business ethics, which is prohibited by the Anti-Unfair Competition Law.This case illustrates that although parallel imported products are legal, when scrutinised by officials they often lead to the discovery of related illegal acts, which are covered by corresponding law.For further information on this topic please contact Zhang Yan or Cao Jin at WAN HUI DA by telephone (+86 10 6892 1000) or email ([email protected] or [email protected]). The WAN HUI DA website can be accessed at www.wanhuida.com and www.peksung.com.