On May 12, 2020, Guangzhou IP Court (the Court) issued its judgments on a trio of cases, finding the parallel imports by the defendant in the cases did not constitute trademark infringement nor unfair competition. This is for the first time a court in Guangdong – one of largest commodity distribution centers in China – has addressed the issue of legality of parallel imports.
The plaintiff in the cases, OBO Electric (Shenzhen) Co., Ltd, is the sole licensee of two trademark registrations for “OBO” owned by OBO Bettermann Holding Gmbh & Co. KG (OBO Germany) in China. The defendant imported OBO-branded lightning surge protectors (products at issue) from a distributor of OBO Germany’s authorized dealer in Singapore and sold the products in China.
In the judgments, the Court rejected the trademark infringement claim for the reasons that:
- the defendant’s parallel imports did not cause confusion or jeopardize the function of the trademarks in distinguishing the origins of goods/services, as the products at issue were genuine, with no material differences from those sold by the plaintiff in respect to quality, trademarks and packaging;
- the interests of the consumers were not damaged , as the consumers were aware of the nature of such products and the arrangements of after-sale services; consumers have the freedom to decide the kind of products to purchase and their preferred distribution channels, which is a market behavior and should not be interfered by legal measures; and
- after a trademark rights owner achieved its economic interests by putting its products first for sale, it would be improper to grant them with extra monopoly rights to control the subsequent circulation of their products sold, which would limit and restrain market competition.
Based on the reasoning above, the Court decided to reject the plaintiff’s trademark infringement claim. The Court added that the legal objective of a trademark infringement should and can only be the underlying trademark rights per se which is provided by the law, and cannot be the exclusive or non-exclusive rights to “use” a trademark, which is governed by an agreement binding the contractual parties only. Since the defendant did not infringe upon OBO Germany’s trademark rights, it has no legal grounds to claim that the defendant’s parallel imports infringe upon the plaintiff’s exclusive rights to use the trademarks, noting that the license is binding only the parties to the license agreement and not any third party.
Regarding the unfair competition claim, the Court held that the defendant’s parallel imports was a market behavior, and that the defendant had exercised reasonable care in ensuring the legitimacy of the source of the products at issue. The defendant had no ability nor duty to find out the distribution channels of OBO Germany or the agreements between OBO Germany and its licensees, and thus had no obligation to inform customers. The consumers’ interests were not damaged either, as the products at issue were imported as per their orders and choices; and whilst the plaintiff’s interests were impaired, this was a result of market competition behavior, rather than the defendant’s actions.
It is important to note that the Court stressed that the legality of parallel imports should be determined on a case-by-case basis. “If there are behaviors such as changing or covering up trademarks, capturing business opportunities by unfair means, or taking a free ride, they should be regulated according to the Trademark Law and the Anti-Competition Law”.